1 Reason I Wouldn’t Buy Banco Santander SA Today

Royston Wild explains why deteriorating conditions in Latin American could hammer Banco Santander SA (LON:BNC).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am explaining why rising financial woes in Brazil bode ill for Banco Santander (LSE: BNC) (NYSE: SAN.US).

Brazilian slowdown undermines earnings prospects

Although Santander has extensive operations spanning the entire globe, the company’s desire to latch onto juicy growth rates leaves it particularly exposed to the developing regions of South America.

But signs of stagnation in recent times have led many to question these prospects — indeed, the company advised last month that Santanderattributable profit from its Brazilian operations slipped 3% during January-March, and further troubles could be on the horizon as the economy cools there.

Indeed, economists at the country’s central bank again slashed growth projections last week for 2014, the eighth successive weekly cut. The institution now expects the country to advance 0.86% this year, down from 0.9% the previous week and marking a huge departure from Brazil’s actual 2.3% GDP advance punched last year.

The economy is anticipated to bounce back, albeit at modest levels, next year with a 1.5% improvement currently pencilled in. But with industrial production on the slide — output slumped 6.9% in June, the biggest annual decline since 2009 — and consumer spending under the cosh amid rising inflation, concerns persist over whether Brazil could experience prolonged financial weakness.

Brazil is far and away Santander’s largest single market, and is responsible for around a fifth of group profits. So the prospect of worsening conditions here is clearly of huge concern to the firm.

On top of this, fears of contagion from Brazil and Argentina would also most likely upset the applecart for Santander’s other operations in Latin America. The bank sources almost 40% of total profits from the region, and fellow continental heavyweights Mexico and Chile account for 8% and 7% of this respectively.

Santander underlined its confidence in the long-term rewards of Latin America in May when it splashed out €4.69bn to acquire the 25% holding of Banco Santander which was listed on the country’s stock exchange. But with politicians there facing myriad problems to get the economy back on track, Santander could be in store for further earnings bumpiness.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »