Santander Strengthening Mexican Biz - Analyst Blog

Banco Santander SA (STD) is strengthening its Mexican business. The company's Mexican unit — Grupo Financiero Santander S.A. — has agreed to buy the consumer mortgage business in Mexico from GE Capital, the financial unit of General Electric Company (GE).

The mortgage business in consideration is a portfolio of $2 billion. The deal, which is subject to regulatory approval, is expected to close in the first half of 2011. The terms of the deal were not disclosed.

The deal is in sync with GE Capital's effort to exit non-strategic businesses. GE Capital has been providing consumer mortgages in Mexico since 2002. However, the mortgage business became a part of its Restructuring Operations organization since early 2009, a time when GE was severely hurt by the financial crisis.

On the other hand, the deal is a strategic fit for Santander as it would boost its Mexican business. Earlier this year, Santander also bought back its 24.9% stake in Grupo Financiero Santander from Bank of America Corp. (BAC) for $2.5 billion in order to boost its market share in Mexico.

This acquisition will make Santander the second largest provider of mortgages in Mexico, with increased scope in that country.  The financial crisis was a blessing in disguise for Madrid-based Santander, which has been busy in buying at a discount over the past two years. The company has acquired several businesses in America and Europe.

Earlier in August, Santander struck a deal to acquire 318 branches as well as associated assets and liabilities from Royal Bank of Scotland Group plc. (RBS). This included 311 Royal Bank of Scotland branded branches in England and Wales and 7 NatWest branded branches in Scotland. The deal is expected to be completed by the end of next year.

While the acquisition deals are in line with strategic reengineering efforts at Santander, its home market, Spain, is still encountering a challenging economic environment. Diversification of its footprint is therefore an obvious alternative for the company.

Santander currently carries a Zacks #5 Rank implying a short-term Strong Sell recommendation.

 
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