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[Music]
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[Music]
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we're speaking today with Wharton
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management Professor Maro Gan and Adrien
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chgo A Wharton lecture about Bano
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santand which has put out an offer for
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$25 % of the stock of its Mexican
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subsidiary a deal that's valued at about
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4.3 billion the professors are authors
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of a book called building a Global Bank
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the transformation of Banos Sant so
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they're in a good position to talk about
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this Bank uh this is the largest stock
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offering ever in Mexico would you
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comment on just how significant this is
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for Banos Sant and also for Mexico
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itself Maro maybe we'll start with you
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well this is uh one uh additional step
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in terms of uh fully utilizing their
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Capital base um so they have uh either
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plans or they have already floated part
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of their equity in their Brazilian
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subsidiary in the UK and now in Mexico
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those are the three most important
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markets right now in which they have a
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presence outside of the home country of
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uh of Spain uh so this is essentially
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part of a you know long-standing policy
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to try to uh you know fully utilize
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their Capital base and uh I mean let's
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remember that there's other banks that
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have done this and there's a a lot of
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companies especially for emerging
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markets that have um essentially used um
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you know Partners in uh local markets
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and Float part of the stock as a way to
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you know leverage their you know
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resources uh more broadly and be able to
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accomplish more in a shorter period of
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time um uh so this is a you know it's a
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smart move uh but it is a uh part of a
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longstanding strategy for on the on the
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part of the bank does it say uh more for
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Mex perhaps then than it does for bco
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Sant at this moment well keep in mind
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well if they were going to float
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anything Mexico is the one to float
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because of the the major uh markets
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they're in it's the Mexican operations
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doing best uh last year it accounted for
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about 10% of uh Sand's Global profits
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which is just a little bit under
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Spain uh but it's the growing it's the
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one where the profits are growing versus
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Brazil's little off Spain is a little
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off
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so in terms of what's easiest to sell
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it's going to be the Mexican operation
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now keep in mind this
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24.9% they actually sold that that
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amount back around 2006 to Bank of
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America then about two years ago Bank of
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America sold it back to them so in
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effect all they're really doing is
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putting the same 24.9%
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back back into play in a way as Maro
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said it's part
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of um a long-standing
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plan it's a little right now part of the
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motivation is a they just made the 9%
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Capital base uh that the European uh
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banking Authority wanted they want to
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get to 10% so this will be will they'll
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use the proceeds to up their Capital
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base second at a time when Spain is
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let's say a little bit in the dogghouse
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globally there's a problem of valuing
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santand if they can get market
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valuations for the main components that
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puts a flaw under the valuation of the
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whole
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Corporation so uh in other words if if
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you sort of add up Brazil and Mexico and
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the UK and some other bits and
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pieces then the total thing has to be
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worth at least that plus at least a
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little bit for Spain that's interesting
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it sort of plays into another question I
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was thinking about which is that here
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you are in Europe all the banks are
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having trouble raising money all the
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banks are being asked to raise money
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under bosel 3 and other new regulations
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that they've got to beef up the reserve
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so they're kind of caught between Iraq
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and a hard place and of course the
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economies are tanking but here's s
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sandare uh at least outside of Europe uh
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able to to raise money but also they had
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a successful Bond offering um just uh I
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think it was a month ago uh of about2
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billion EUR which which did pretty well
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especially considering what some of the
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Sovereign bonds how they were tanking at
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the time so there I mean that that's
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another sign that that that the Market's
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viewing a Bonos santand there
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differently than some other banks in
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Europe is it would you say well it's a
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it is a very um unique bank I mean
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there's very few banks in the world that
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have a uh a franchise you know that have
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operations in the retail Market in so
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many different uh countries you know
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hhbc perhaps is the uh you know
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everybody's uh you know favorite example
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when it comes to uh Global retail Banks
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uh but after HSBC maybe there's a couple
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more and santand there is you know up
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there among the top five banks in terms
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of having operations in multipal markets
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and of course the European crisis and in
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particular the problems in Spain uh have
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resulted in a situation in which the
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stock of Spanish Banks is or some
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Spanish banks at least is undervalued
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right um because again that stock is
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being heavily penalized by the fact that
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uh Spain they are associated with uh
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with a market that is now in trouble uh
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but you know Sant generates more than
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half of its profits and has more than
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half of its assets outside of the Home
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Country right way more than half of
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their of their profits and so uh uh the
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markets are not seen through that so
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this kind of a flotation in Mexico helps
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clarify as Adrian was mentioning that
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you know there's a minimum that this
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bank is worth and no matter how um
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skidish investors are about Spain or
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about the Euro Zone uh this is a bank
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that has major operations outside of the
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Euro zone so they shouldn't be
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penalizing the stock as much so the
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benefit to the brand in the market is
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maybe even greater than than the
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proceeds from from the stock if if it
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draws attention to the fact that in
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santand is about 550 mature markets
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Emerging
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Markets within the mature markets look
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in total I'd say Spain is a probably
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last year's profits under
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30% um so if it draws attention to the
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fact that santande is really a world
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play not a Spain
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play that can only help in terms of
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perception of the bank now if addition
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additionally they use the These funds
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and they Gathering some other funds you
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mentioned the bond offering they've just
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decided to sell they've just sold their
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uh uh Colombian operation they decided
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it wasn't growing to where they wanted
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it to be 10% market share or better so
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they sold that that's going into Capital
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if they now have a better Capital ratio
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than is mandated one of the best Capital
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ratios in
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Europe that too pulls them out of
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the out of the league of troubled
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entities in general how has the European
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financial crisis affected sand we've
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talked about it a little bit but maybe
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we could elaborate and and how will it
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affect it in the future it's affecting
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its strategies as as we just heard but
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well certainly I mean for the starters
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the uh the price of the uh the stock is
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uh you know at historical you know lows
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obviously uh it has hit earnings right
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because even though Spain is far less
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than half it still is an important uh
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market for them uh and other than that
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in the Euro Zone itself uh they have uh
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um you know Consumer Finance operations
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throughout Europe uh Western and
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Northern Europe and a little bit in
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Eastern Europe um they uh uh these these
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operations of course have suffered
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because of course uh consumption and
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Consumer Credit has uh you know
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decreased as a result of the uh
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recession and the crisis uh so they are
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being hit both as a bank and uh as a
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market you know uh player in the sense
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that uh you know whatever happens with
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aggregate demand also affects them right
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if the economy doesn't go well uh but
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other than that as Adrian was mentioning
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then they they have a presence very
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strong presence in other uh developed or
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mature markets that are not Euro zone so
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that's the UK and the US primarily right
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well in Brazil and and then they have
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Emerging Markets right they have
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Emerging Markets such as Mexico or
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Brazil and couple of others uh of
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importance in Latin America um so they
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are well positioned uh you know in terms
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of the the portfolio of businesses in
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different currency areas in different
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types of markets to whether a storm such
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as this as as long as of course not all
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economies you know uh go south at the
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same time well I was going to ask about
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that you mentioned Brazil and of course
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Brazil's economy has been contracting of
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late um they've got a lot of loans out
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there there's been talk about
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possibility of some you know bad loans
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uh coming out of the woodwork there um
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any possibility that those bad loans
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could be large enough to you know give
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them a big dent or or is this is
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something that would be considered
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manageable probable I mean
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look you always be
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surprised UBS is currently uh the the
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trader who cost UBS 2.5 billion in bad
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trading is just went on trial today I
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think in London you can always be
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surprised but in Brazil sand had
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a um okayish bank which and then with
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the when the bid for when they took part
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in the breakup of Aban amrel they got
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one of the crown jewels which was the
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Brazilian operation which was very well
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run and the president of the Brazilian
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or the CEO of the Brazilian operation is
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very highly respected he ran a good bank
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ABN it was
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ABN U Amro
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real um he's now in charge of the total
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thing and still trying to put the
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various pieces
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together but you have you have
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essentially a good and a very good
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operation being put together so it's not
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likely that you're going to have
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some
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major uh surprise there and even in
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Spain uh thinking about it they've
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they've been they're pretty good on risk
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control they're a bit below average for
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their market share in their exposure to
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the real estate sector in particular to
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uh Residential Mortgages so sound
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they've been cautious there too so I'm
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not again always be surprised but I
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wouldn't
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expect anything there
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uh does the uh Mexican issue because
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it's the largest in Mexican history and
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so forth does it uh I mean is it's part
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of a pattern where there's more and more
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successful IPOs I realize this isn't an
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IPO but it's it has some parallels to an
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IPO but more and more IPOs and big IPOs
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coming out of Emerging Markets we've
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seen it in Malaysia now even Indonesia I
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think one needs to put in perspective
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the the fact which is of course a fact
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that this is the largest IPO in Mexican
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history for two reasons the first reason
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is that Mexico stands out as a market in
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which there's been very few
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privatizations right uh so we've only
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really had one big privatization which
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was the telephone company and that's now
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controlled by by Carlos Slim Right I
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mean the the company that came out of
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that that was many years ago right uh
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but Mexico hasn't really privatized
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anything else you see when you go to a
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lot of countries in Latin America where
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you go to uh even countries in in
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Continental Europe like France or Spain
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the biggest IPOs have always been stay
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on companies that went public right but
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Mexico you know because of limitations
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in terms of how much the state can can
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privatize uh written into the
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Constitution um you know they haven't
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privatized The Old Company for instance
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right uh so has had very very small IPOs
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that's the first reason the second
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reason is that uh Mexico there are large
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firms but most of them are controlled by
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families and not all of them are listed
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and if they're listed they're listed
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they're listing very small percentages
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right so here I'm talking about semx I'm
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talking about bimbo I'm talking about uh
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vitro I'm talking about about um you
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know Modelo all of these large Mexican
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firms most of them with a global
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presence right in cement in in beer uh
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in um uh bread uh you know baking baking
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and so on and so forth um so so you know
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it looks big in Mexico but uh it is in
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part because it is a big
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flotation but uh even more importantly
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it looks big because up until now not
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that much has been going on in Mexico
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right because of these two reasons
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Limited privatizations and very strong
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presence of family ownership in the
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largest firms so a bit of a special case
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there Mexico is a special case in many
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respects uh you know in many respects
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the other reason of course is that it's
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so close to the United
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States and in general uh would you after
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having literally written the book on S D
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would you comment on how their Global
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strategy is going uh you you talk about
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it in your book you made some
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predictions there some of which turned
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out quite nicely um well the big one is
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still open let's talk about that and the
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big one is is the succession mhm uh when
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uh botin steps down and I'd say that's
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still what clouded in
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shadowed in mystery because the obvious
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era parent is his daughter anap prum but
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that doesn't that's
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not I wouldn't say it's a for it's not a
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foregone conclusion at all so um he's
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he's been at the helm since what 86
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87 and the bank has done
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well um he took
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a okay what number six or number seven
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Spanish bank and made it one of the the
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largest bank in the Euro
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Zone and so there's issue when will he
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step down what who will be a successor
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and what effect will that have on the
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bank and that's just open that's an open
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question but in terms of global strategy
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they've
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you you mentioned I mean think following
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essentially the the template I mean
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their template has been since they
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started to um uh internationalizing ear
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in the 1980s it has been to um uh you
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know grow by entering new markets um for
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the most part to continue focusing
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themselves on retail banking Commercial
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Banking and not you know branching out
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into other things and uh they've been
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entering a number of markets more more
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than 25 exiting some of those markets
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Bolivia more recently Colombia um you
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know just responding to uh
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circumstances uh so they've been very um
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I think pragmatic about uh you know
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Market entry and Market exit um they've
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also tried to diversify by as I
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mentioned earlier by monetary area and
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in terms of the characteristics of the
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economy mature markets emerging markets
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and so on and so forth um so I think
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pretty much you know in my view um the
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decisions that they're making that
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they've been making over the last uh you
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know two years let's say you know
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expanding the UK uh consolidate Brazil
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uh uh expanding to Poland expanding to
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Turkey and so on and so forth all of
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those decisions are really consistent
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with the last 20 years right so they are
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not shy about entering new markets even
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when other Banks were retrenching in the
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midst of the um financial crisis and
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they're not shy about exiting markets if
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they think that uh they shouldn't be
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there right so they are I think
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continuing to uh you know um implement
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the principles that they established
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couple of decades ago as to how they
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should go about growing internationally
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yeah um they don't have they don't get
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uh locked into a market in the sense
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that uh developing a Sentimental
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attachment try it out if it works if
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they can get the market share and they
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do work by mostly by acquisition if they
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can build build up a good position fine
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if it's a dead end they
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leave um Colombia being the most recent
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example of
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that and then they've got sort of 10
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priority markets that hasn't
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changed and a lot of small ones and then
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they'll see how those go but it's again
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it's it's the same it's continuation of
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the same overall strategy of the last 20
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plus years it's sort of interesting cuz
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it sounds like they have a certain
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nimbleness that that a lot of uh Bank
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analysts say Banks need but Banks
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typically lack so that might set them
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apart a little bit what about Asia which
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everyone talks about as being for many
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the future of banking since it's seem to
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be the strong growth area how are they
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set up they were in in the
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Philippines they did buy some stuff and
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then they exited because they couldn't
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figure out how to make that work they
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have they have clearly have an interest
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in China
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but they can't figure out a way to do
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that in particular they can't find
00:17:33
people that can bridge between China and
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Spain where they have where the with top
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management has a has confidence in them
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they do not I could be dead wrong on
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this but I don't believe they've taken
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minority positions in any major Chinese
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uh financial institutions or Asian
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market for that matter I mean the thing
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is that you know there's really only a
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you know two or three banks that uh have
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historically had a presence in in strong
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presence in in maybe one or two at at
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most three markets in Asia I mean these
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markets I mean let's say you know India
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Thailand Indonesia know the Philippines
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South Korea Japan China they're all very
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different I mean they happen to be in
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Asia but you know they couldn't be more
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different from one another they differ
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in terms of the structure of competition
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the regulations whether they are strong
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local players or not and so on and so
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forth so uh you know it is it's
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certainly a something that they're
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watching uh I think every European Bank
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wants to keep on watching you know
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what's going on over there but you see
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we're talking here about a bank that
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wants to play in retail banking opening
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branches and uh running you know uh
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taking deposit extending loans maybe
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that's not a part of the world where you
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know they should be you know they're
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they're exploring they're trying to see
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if it makes sense or not um but you know
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they have a lot of uh you know Room to
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Grow uh in Latin America in Europe uh
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and also here in the United States we
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haven't even talked about United States
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in the United States they have a major
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presence uh in one uh small part of the
00:19:04
country right the northeastern Corridor
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uh but that's about it and this is a big
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Market that is right for consolidation
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right because there's a lot of uh small
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Banks and uh so they don't need to grow
00:19:16
in China in order to keep on growing and
00:19:19
China perhaps is a difficult market and
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you know it seems as if China is
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following Brazil right now in terms of
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um you know a deterioration of
00:19:29
microeconomic indicators especially
00:19:31
growth um so it's not clear to me that
00:19:33
China would be and of course India is
00:19:35
very difficult you have very
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sophisticated entrenched local banks uh
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and I AR sophisticated but very
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entrenched local entrenched and uh so so
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you know it's not clear why they would
00:19:47
want at least let's say in the next five
00:19:49
or 10 years to allocate resources to
00:19:51
that part of the world when they have
00:19:52
growth opportunities in Europe in Latin
00:19:55
America and in North America uh one last
00:19:58
question talked about growth
00:19:59
opportunities in Europe um a lot of Bank
00:20:02
analysts say Europe has too many banks
00:20:05
there's going to be a consolidation
00:20:06
maybe a major
00:20:08
consolidation um where does Banos sand
00:20:11
there fit into that should that occur as
00:20:14
many see as likely they've
00:20:17
been Sid stepping a little by F focusing
00:20:20
on consumer credit rather than
00:20:23
Banks and so if you look at um the
00:20:27
scandies or Germany or so forth they
00:20:30
haven't really built up a banking
00:20:31
presence there's a bit of they've got a
00:20:33
bit of a banking presence in Germany and
00:20:34
so on but it's been more of a consumer
00:20:36
credit
00:20:38
presence uh they made one for many years
00:20:42
they they targeted uh Italy they were
00:20:44
interested in Italy they finally got an
00:20:46
Italian operation again in the breakup
00:20:49
of Aban Amro and within a month they
00:20:51
sold it to uh Mont pasy Sienna mostly
00:20:55
again this is the
00:20:57
no uh um psychological uh attachment
00:21:03
even though they've been trying to get
00:21:04
into Italy for a long time Monte deasi
00:21:07
came up with an offer that was
00:21:08
ridiculously high So within a month they
00:21:10
turned they they got rid of
00:21:13
it uh I think one problem with Europe is
00:21:16
it's still a country of it's still a
00:21:19
continent of Nations and it's very hard
00:21:21
for a foreign Bank to make a major
00:21:23
acquisition without there being a
00:21:25
certain amount of concern
00:21:29
uh if you think again think about ab and
00:21:31
amra when that finally fell apart the
00:21:33
Dutch the Dutch nationalized the Dutch
00:21:35
bit the belgians took over the Belgian
00:21:39
bid and only BOS sad came out because
00:21:42
they they had none of those
00:21:44
pieces yeah I mean Europe is is complex
00:21:47
Continental Europe and uh will there be
00:21:50
consolidation well I guess first we need
00:21:52
to know what happens to the euro right
00:21:54
and then next we need to know um whether
00:21:58
um in the wake of uh a potential
00:22:01
reorganization of Europe's um treasuries
00:22:03
right or maybe in the form of some
00:22:06
fiscal Union uh whether uh then as a
00:22:10
result of that governments become less
00:22:12
concerned about foreign takeovers of
00:22:14
local banks it is inconceivable of
00:22:17
course that in the context of a uh
00:22:19
currency Union uh that you still have uh
00:22:22
you know in every of these in each of
00:22:24
these markets uh the the the first the
00:22:27
second and the third largest Banks is a
00:22:29
local bank right so there's been no uh
00:22:32
you know incursions no invasions right
00:22:34
of One Bank into another at one's Turf
00:22:36
right after 12 years of a 13 years of a
00:22:39
monetary Union right this is really
00:22:41
really strange uh so I think it depends
00:22:43
on what happens to the EUR depends on
00:22:45
the kind of fiscal if the Euro survives
00:22:47
it's obviously going to be with some
00:22:49
kind of a uh fiscal Union yeah so what
00:22:52
shape is that going to take uh our
00:22:55
governments then going to uh you know
00:22:57
essentially you know be more open uh to
00:23:00
take overs in the financial sector it is
00:23:02
a politically sensitive sector it is a
00:23:04
strategic sector it is you know A
00:23:06
peculiar sector that's what we love
00:23:08
talking about Banks right and uh and in
00:23:10
Europe of course many of these
00:23:12
institutions uh are 100 years old and
00:23:15
you know it's it's very difficult to
00:23:17
move away from that right but even here
00:23:19
in the United States I mean it's it's
00:23:21
sometimes hard to um you know to see how
00:23:24
you know there could be further
00:23:25
consolidation well we all know that
00:23:26
perhaps there should be more
00:23:27
consolidation right so so the problems
00:23:30
are you know uh pretty much in this
00:23:32
sector you know present around the world
00:23:35
but Europe is I think a very clear case
00:23:38
right of compartmentalization or
00:23:41
fragmentation right in the face of you
00:23:43
know a uh you know monetary Union which
00:23:46
is kind of weird
00:23:51
[Music]
