By: Benj Gallander

Published: March 24, 2025

In February, we wrote about Spanish company Telefonica. At that point there were no plans for a country theme, but another outfit from Spain, which both of us own, seems worthy of discussion: Banco Santander (SAN–N). It was purchased between US$1.90 and US$2.31. It then did lots of nothing and the initial sell target of US$7 seemed mostly like a pipe dream. However, like many of our purchases, it suddenly caught fire. Okay, maybe fairer to call it a small blaze – but it has moved progressively higher, with somewhat of a jump this year.

Founded in 1857, Santander is the world’s 14th largest bank, with over 207,000 employees and 8,500 branches. It has been doing very well for the past decade, profitable every year with revenue almost doubling since 2021. Management appears to be fairly conservative, which certainly helps.

Santander seems to be guided by a well-experienced hand at the top, with CEO Héctor B. Grisi Checa, who just finished his third year as the head honcho. He has worked for almost 40 years in the Mexican financial system in numerous roles. One of those was with Grupo Financiero Santander Mexicano in investment banking before moving on to Credit Suisse Mexico as a director. He has been with Santander since 2015.

The Spanish economy is doing quite well, thank you. Last year, GDP growth was 3.2 per cent, besting its European brethren. The EU Recovery and Resilience Plan has been working, with Spain seeing higher levels of consumption and investment. Tourism is hot, perhaps attracting a swath of people who no longer wish to go to the United States. In 2024, 94 million tourists visited Spain, a record that easily eclipses prepandemic numbers. All of this has led to declining unemployment rates, accompanied by burgeoning employment, which is at record levels. The workers will look to banks to place much of their money as stashing it under pillows is not the Spanish way.

Attempting to stay on top of technology, Santander expanded its digital operation, Openbank, into the United States toward the end of last year. Mexico is being targeted for further expansion. Not surprisingly, its objective is to obtain more deposits, with the goal of it funding the auto-lending part of the business. The key is the offer of high-yield savings to entice clients to park their money.

With over 168 million customers worldwide, Santander is looking to gain more in this great country of ours. It is keen on grabbing a share of the margins that Canadian banks make, which are amongst the largest in the world. For example, RBC earned $4.2-billion from 17 million customers last quarter. With 10 times more customers, Santander made around $4.9-billion. Yes, we do pay weighty fees in this country.

Benj admits that this article brings back memories. Way back when, circa 1981, as an MBA student at Dalhousie University, his thesis with four other students was about the Bank of Nova Scotia. Most people likely do not remember it, but the recession then was the worst economic downturn since the Depression. Yes, it was ugly. Many banks struggled, while some perceived opportunities and invested in emerging markets. However, that did not work out so well for them, leading to a fortune in writedowns. At the same time, from 2008 to 2012, the Federal Deposit Insurance Corporation (FDIC) in the United States shuttered 465 banks. Canadian banks suffered huge losses.

With part of Benj’s thesis focused on forecasting banking trends, it’s hoped that his investment in this company will prove wiser than his prognosis that bank machines were unlikely to be successful. Yes, it is embarrassing to put that out there, but just one of a google number of postulations of his that have proven wrong over the years. But at the same time, there are lots that have appeared in this column which have proven exceedingly lucrative.

The exit strategy with Santander, if it works, will likely ultimately be to sell around half the position at or slightly above the initial sell target and hope that the rest of the position moves above the $10-mark, before trading. We have few illusions that this stock will go above $20 again, where it traded prior to the financial crisis, and far from the current price around $6.50. While waiting, the very reasonable dividend north of 3 per cent will hopefully be collected twice a year. Worth noting is that given the payout history of this company, it could be considered a dividend aristocrat, which augurs well for the future.