Skip to Content
Stock Analyst Update

Santander Purchase of Banco Popular Strategically Sound

The acquisition is the result of an opportunistic move by Santander's management picking up a strong franchise hurt by toxic real estate exposure, rather than a continuation of previous management’s acquisition streak.

Mentioned:

Narrow-moat  Santander (SAN) announced the acquisition of the struggling Banco Popular for the notional amount of EUR 1 after the ECB deemed Popular to be “failing or likely to fail” and regulators put the bank up for auction. As part of the transaction, Santander intends to complete a rights issue in the amount of EUR 7 billion to fund provisions for the large pool of toxic real estate assets (EUR 37 billion) that led to Popular’s downfall. We believe this deal will create shareholder value in the long run, as the acquisition strengthens Santander's core market exposure in Spain. We intend to incorporate the rights issue and consolidation of Popular into our model, and would anticipate a fair value increase around 5%-10%.

Santander has a long track record of acquisition-fueled growth expanding globally and diversifying the business. However, the acquisition of Popular is the result of an opportunistic move by Santander’s management picking up a strong franchise hurt by toxic real estate exposure, rather than a continuation of previous management’s acquisition streak. Overall, we welcome this decision and view the deal as strategically sound. Post-acquisition, Santander will be the largest Spanish bank by lending and deposits, while Santander’s market share in the attractive Spanish SME lending market will increase to 25% from 11%. Improving economic conditions in Spain benefiting SME lending and Santander's experience in managing real estate loan losses will allow Santander to unlock Popular's value. We are equally satisfied with the decision to raise EUR 7 billion in a rights issue in one swoop, which will bring the post-acquisition capital and provisions in line with the rest of the group rather than just plugging Popular’s balance sheet hole of roughly EUR 3 billion-EUR 4 billion.

Santander expects to achieve EUR 500 million in annual cost synergies by 2020 generating a return on investment of 13-14%, which is above the cost of equity of 11% we assign Santander.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.