DURING the financial crisis, it looked like a stroke of genius. Huge foreign operations helped succour Spain’s two biggest banks, Santander and BBVA. Last year Santander boasted that it was one of the few big international banks not to have suffered a single quarterly loss throughout the crisis. But diversification cuts both ways: turmoil in emerging markets is now sapping profits at Santander and BBVA just as their home market recovers.
Less than 30 years ago, Santander was a smallish Spanish retail bank. Now it is a titan, operating in ten “core” countries, including emerging markets such as Brazil and mature ones such as Britain. BBVA, too, boasts a big retail-banking operation in multiple countries.
The problem is that at least one of each bank’s biggest markets always seems to be in trouble. This time, the weak link for Santander is Brazil, which accounts for about a fifth of its profits. The country has sunk into recession—one reason why Santander’s shares have fallen by about 20% since mid-July. BBVA makes about 70% of its profits in emerging markets, including 40% from Mexico, where BBVA owns Bancomer, the country’s biggest bank. The Mexican economy is not as wobbly as Brazil’s, but estimates of growth have dropped over the past year along with the oil price and the Mexican peso.
Moreover, although scale does bring benefits,...Continue reading
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