BAML Exits Santander Mexico

Santander is buying back from Bank of America Merrill Lynch (BAML) a 24.9% stake in Santander Mexico for $2.5bn cash. BAML paid approximately $1.6bn cash for the stake in late 2002 and said it had a book value of $2.7bn at the end of March. The transaction values the Santander Mexico unit at $10bn and the Spanish parent says Mexico’s contribution to group profit will increase by 2 percentage points, to 7%. The group made EUR8.9bn in profit last year. “This acquisition reinforces Santander’s commitment to Mexico, a country with a very positive outlook for growth, and furthers the geographic diversification of our group,” says Santander chairman Emilio Botin. Santander sees strong growth potential in Mexico owing to a low level of use of banking services. It claims to be the third financial group in Mexico by business volume, with 13% market share in loans ($16.16bn) and 14.8% in deposits ($18.55bn). Santander says that since the stake was sold to BAML, the value of the Mexican unit has risen 56%. BAML last month agreed to divest its stake in Brazil’s Itau, and there was speculation that it may look to monetize other investments in LatAm, including Santander Mexico. However, analysts said it would be less keen to part with the latter, owing to its relative size and importance for the US bank, which is relatively strong in Mexico. BAML got $3.9bn from the sale of the Brazil stake, about 11% less than the $4.4bn initially expected following a slump in the stock price, but a 37% gain over a 4-year investment period. The US bank needs to raise funds to repay TARP borrowing, having pledged to sell assets and produce a net gain of $3bn by June 30. When the deal was signed, BAML billed it as a way of drumming up business from the fast-growing Mexican-American population. The sale of its Mexico stake, which must be approved by the relevant regulators, is expected to be completed within 90 days.