Santander could beat BBVA to the American dream

August 27, 2010

Spain’s two largest banks have always been fiercely competitive — both within the country’s borders and beyond. The battleground today is the United States. But, Santander and BBVA are following radically different strategies to crack this giant market.

It’s too soon to tell who will come out on top, and neither lender has covered itself in glory so far. But, if Santander’s talks with Buffalo-based M&T Bank lead to a deal, it will be much closer than BBVA to clinching its American dream.

BBVA’s U.S. adventure began in 2004 with the takeover of Laredo National for $850 million, or nearly three-times book value. The idea was to exploit trade flows between BBVA’s strong Mexican franchise and Hispanics across the border.

Since then, BBVA has added four more banks. That includes spending $9.6bn, or 3.5-times book, for Alabama’s Compass Bancshares in 2007, only to see the market tank. BBVA wrote-off 704 million euros in goodwill on its U.S. franchise at the end of 2009.

By contrast, Santander has targeted the more affluent northeast coast. Its U.S. foray began badly in 2006, after it controversially bought a pricey 20 percent stake in Sovereign Bancorp. A $1.08 billion (737 million euros) charge followed when recession hit. True, Santander bagged the rest of the bank for a knock-down price, but only after it had injected another $347 million in 2008 in Sovereign’s last-ditch capital hike.

The worst is behind both lenders. Both have cut costs drastically in their U.S. operations. In the first half of this year, BBVA’s U.S. business contributed 555 million euros to operating income, against 580 million euros for Santander’s. Both operations have about 750 branches. But, the big difference is that BBVA’s $12.7 billion expansion bill is more than double Santander’s.

BBVA’s last U.S. purchase, the FDIC-sponsored purchase of Guaranty Financial in Texas, was shrewd and opportunistic. The snag for BBVA is that it’s not clear where it goes from here. There aren’t too many targets left in Texas, and shareholders may take some convincing to back another big bet in the United States, bankers say.

Yet, Santander is busy plotting its next big move — a potential deal with M&T, valued at $10 billion. The operations of the New York bank stretch from Washington, D.C., to Canada. The deal would be a clever way to gain critical mass, good management and savings without splashing too much cash. Santander’s presence would virtually double in one swoop. Doubtless Santander wants its U.S. franchise to be worth more than BBVA’s. While much depends on the terms of future deals, it looks on track.

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