Why Santander Will Become the Most Profitable Bank in Mexico

Alejandro is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Madrid, we have a problem

Banco Santander (NYSE: SAN) is currently the fourth largest bank in the world by revenues, after BNP Paribas of France, Bank of America and JPMorgan Chase.

Santander dropped from $12 in January to as low as $5 in August. Investors are a scared about Spain, which is currently the fifth largest economy in Europe, and its over 25% unemployment. Santander has millions of customers in their home country, and their losses could be substantial.

After all, they "invested" over $685 million in Spain's new toxic waste bank commonly known as Banco Malo (Bad Bank). Banco Bilbao Viscaya Argentaria refused to "invest" in the bad bank and they are going to try to survive on their own without help from the European Union. Santander, on the other hand, is now their biggest investor, which cannot be good to calm the already disturbed shareholders.

Let's sell our most profitable companies and maybe we will survive for another 100 years

Santander was founded in 1857. In 2009 they raised $8 billion from selling 16% of Santander Brazil (NYSE: BSBR) to investors from Brazil and the United States of America.

In 2012 they raised $4 billion from selling 25% of Santander Mexico (NYSE: BSMX).  After Facebook this was the biggest IPO of the year.

As you can see the spanish bank is doing a voluntary Baby Bell split in order to protect itself from the huge losses in Spain. If everything goes according to plan then Santander Spain will be destroyed by 2027 but the Baby Santanders will survive.

It is highly unlikely that the financial mess in Spain will somehow be solved by the European Union before that date, but if Santander Spain actually survives on its own then they can always buy back the Baby Santanders and merge them in a new mega corporation just like Standard Oil, which was split into 33 companies in 1911 including Jersey Standard (You know them as Exxon) and Socony (You know them as Mobil). 

ExxonMobil was formed in 1999 and they are currently the Big Kahuna in the Forbes Global 2000. AT&T was also split into 7 companies in 1984. AT&T, Verizon, Comcast and CenturyLink are the only survivors. As you can see, this divide and conquer strategy worked very well for Standard Oil and AT&T shareholders.

A safer investment would be to invest only in Brazil and Mexico, but if you can wait until 2027 then Santander Spain could also make you a ton of cash.

Only 12 banks in the world make more cash than them. They are not exactly heading for bankruptcy. They can always sell 1000 branches in Spain to Inbursa, Banorte and Grupo Elektra from Mexico which are entering the Spanish market. This may not make sense to you, but those companies have decades of experience lending small amounts of cash to the very poor and actually turn a profit. Most global banks are running away from Spain. They are running towards Spain and they will make dozens of billions in just a few years.

Santander has thousands of employees in Spain making at least $32,077 each year. They could lend a few billion to RyanAir to buy Air France-KLM (Euronext: AF) and open a new Mexico City - Madrid flight just to hire employees from Mexico to work in Spain and save hundreds of millions each year.

Employees in Mexico make only $10,146 each year. Giving Santander Credit Cards in Euros to current Santander employees in Mexico with credit limits high enough to buy a plane ticket to Madrid and automatically discount the monthly payments from their paychecks could be a very profitable business.

This actually works well for both countries because recently fired Santander employees will also get a new credit card in Mexican Pesos with credit limits high enough to buy a plane ticket to Mexico City and there is a very good chance that they will get hired in Mexico because unemployment is very low at just 6% and there is actually a shortage of white collar workers. Every bank in Mexico is actually opening more branches (In Spain they are closing branches)


You don't need $100 Billion to solve Spain's economic problems. All you need is $3 billion to buy Air France-KLM (Euronext: AF), a few Airbus A380 to transport millions of unemployed people from Madrid to Mexico City and a new Air France-KLM MasterCard in Euros and Mexican Pesos backed by the Governments of Spain and Mexico. Banks in Spain would love to hire a cashier that works twice as hard for half the paycheck.

Pemex (Mexico's Oil Company) and CFE (Mexico's Energy Company) would love to hire a petroleum engineer or a electrical engineer that works twice as hard for half the paycheck. Everybody wins. Including you (If you invest in the right Mexican or Spanish companies)


guillu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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