MEXICO CITY--Deutsche Bank said Wednesday it expects Grupo
Financiero Santander Mexico SAB's (BSMX, SANMEX.MX) fourth-quarter
earnings to sorely disappoint, calling into question the
credibility of the bank's management after a splashy 2012 initial
public offering.
Santander Mexico raised around 2.77 billion euros ($3.57
billion) for its Spanish parent in September via a dual U.S.-Mexico
share offering of 25% of the bank. That deal, the largest stock
offering in the U.S. last year after Facebook Inc.'s (FB) and the
biggest ever in Mexico, was roughly five times oversubscribed. Yet
December data released earlier Wednesday by Mexican bank regulator
CNBV indicates that Santander Mexico's latest quarterly results are
likely to come well below market expectations, Deutsche said.
"Such a shortfall is likely to lead to a great deal of
discomfort to investors, which are likely to question the
credibility of management given the proximity to the IPO and the
weak track-record of the [Santander] Brazilian operation following
its IPO," analyst Mario Pierry wrote.
Santander Mexico's B shares lost 7.6% to 38.39 pesos on the
Mexican Stock Exchange Wednesday. In New York the financial group's
American Depositary Shares fell 6.8% to $15.20.
The CNBV data leads Deutsche Bank to believe the bank could
report fourth-quarter net income of MXN3.2 billion to MXN3.4
billion, about 20% below Deutsche's MXN4 billion estimate.
The investment bank said it is most-concerned about the sharp
increase it sees in Santander Mexico's nonperforming loans
following a push to raise consumer credit. Deutsche notes a 16%
quarter-on-quarter increase in provision charges given a
40-basis-point increase in the bad-loan ratio, mainly related to
Santander Mexico's credit card and auto portfolios.
While optimism for the Mexican economy is elevated and the
operating environment for banks is solid, "earnings expectations
are high and traditional valuation multiples stretched," Mr. Pierry
wrote, saying that Santander Mexico is trading at premiums of 70%
to 140% over Santander's Brazilian and Chilean operations.
Write to Amy Guthrie at amy.guthrie@dowjones.com
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