Spanish banks: A rock and a hard place

Sep 1, 2012

Spanish banks on paper remain firmly committed to their Latin businesses – their best hope for future profits. But further troubles at home could yet force them into a radical downsizing

By John Rumsey

Most market watchers see the idea of a Spanish banking parent with semi-independent and profitable Latin subsidiaries holdings as an eminently viable business model.

The argument is not hard to grasp: high profits from Latin America would bolster consolidated results and allow conservatively managed Spanish giants to meet tough reserve and provisioning requirements at home.

Indeed, at first glance, Latin businesses for Spanish banks seem indispensable.

Santander group profits have fallen, of late, dramatically, slowing from €8.18 billion ($10.1 billion) in 2010 to €5.35 billion last year. But profits from Latin America have held up well: they did decline, but marginally – from €4.73 billion to €4.66 billion – helping smooth out consolidated results.

Latin subsidiaries have thrived and have established financial and management independence, says Franklin Santarelli, head of fixed income, Latin America at Fitch in São Paulo.

Firm commitment

The region has...

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