Santander Brasil begins to win converts to its turnaround story

Credit Suisse believes 2017 will be seen as “a defining year” in the history of Santander Brasil.

Marcelo Telles, the Swiss bank’s equity analyst for the Brazil-listed bank, believes the perennially underperforming bank is achieving a strategic turnaround – and he expects that to feed into improving results this year and next.

“We remain confident with our bullish stance on Santander Brasil’s earnings outlook and the bank’s ability to finally narrow the profitability gap to private sector peers, mainly on the back of NII [net interest income] and fee revenue growth and revamped credit risk policies,” writes Telles in client report.

In an interview for Euromoney’s March issue, Santander Brasil’s CFO Angel Santodomingo outlined the bank’s multi-year turnaround strategy. That turnaround has been translating into stronger results – the bank has reported an increase in net profits in 11 of the past 12 quarters, with the rogue quarterly fall down to an impairment from provisioning.

“We identified where we had gaps in terms of products and we went out and either found good partners or we did acquisitions,” he said. “At the end of the day you need to acknowledge where you need help.”

The main additions were the 2014 acquisition of card payment processor Getnet, the acquisition of 60% of Banco Bonsucesso Consignado (payroll loans) in the same year and digital banking platform ContaSuper in 2016. According to the bank, Getnet has been particularly important: it leads the market in terms of transaction processing speed – two days compared with the competition, which can take more than a week. This has been an effective spearhead to win new corporate clients: Getnet’s market share is now 10%, up from “almost scratch”, and Santodomingo expects it will reach 14% in the short term.

However, many analysts still don’t see the strong and consistent growth from Santander Brasil as the start of a change in the bank’s fortunes. Telles acknowledges his forecasts are “well above consensus” and predicts an increase of earnings of 28.1% for 2017 and 27.6% for 2018.

Telles believes the discrepancy between his forecasts and that of his peers is because “the Street is underestimating the positive impact of the renewed strategy under the new leadership [which will] become clear already in 2017, when we expect ROE to improve from 11.6% in 2016 to 17.3%.”

In March, Euromoney identified that ” Santander Brasil is the momentum story in a tough market” – with a strong valuation level the main challenge for investors looking to gain exposure to the turnaround story.

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