Spanish banks, battered in the financial crisis by 197 billion euros ($209 billion) of soured loans, are resuming expansion abroad as they seek to avert future shocks by spreading their risk.
Banco de Sabadell SA, the country’s fifth-largest lender, said Thursday it’s in talks to buy the U.K.’s TSB Banking Group Plc for 1.7 billion pounds ($2.5 billion). Banco Popular Espanol SA was negotiating to acquire the Central American units of Citigroup Inc., while Banco Santander SA and CaixaBank SA are looking at purchases in Portugal.
A real estate crash in 2008 forced Spain to bail out some of the nation’s banks and seek 41 billion euros in funds from the European Union. Now, as lenders complete the clean-up of their balance sheets and Spain’s economy leads the region’s return to growth, they are tapping other markets.
“Spanish banks have seen that peers that survived the crisis in a better position have been the ones that had geographical diversification,” said Ricardo Wehrhahn, a Madrid-based managing partner at Intral Strategy Execution, a banking and business consultant. “The crisis is over, and they can seek international opportunities now. Latin America and Portugal are seen as natural markets for Spanish banks, as is the U.K., where Santander has had a very good experience.”
So far, investors remain unconvinced about the benefits of such deals. Sabadell shares dropped Thursday 7 percent, the most since 2012, after gaining 13 percent this year. Popular shares are down 2 percent this year, and CaixaBank has declined 4 percent. That compares with an 11 percent gain in the benchmark STOXX 600 Banks Index, which tracks 49 of the region’s banks.
Sabadell is proposing to buy Britain’s sixth-biggest lender by market value. After growing during Spain’s banking crisis by buying lenders such as Caja de Ahorros del Mediterraneo, the company needs to deliver returns and diversify internationally, Chief Executive Officer Jaime Guardiola said in an interview last month.
“Geographical diversification works, and the evidence has been that Spanish players that get their earnings from different countries have been able to better confront risky situations because economic cycles often compensate each other,” said Guardiola, who has been CEO since 2007.
Sabadell, based in the northeast Spanish city of the same name in the region of Catalonia, operates in Miami and Mexico and is open to future deals in Europe and Latin America, he said then. A possible move by Catalonia to secede from Spain could add to the bank’s geopolitical risks.
The bank is seeking to almost triple its 371 million-euro net annual profit to 1 billion euros by 2016 by increasing lending, especially to small- and medium-sized companies, reducing non-performing loans and real estate assets. It had about 163 billion euros of assets in December.
By entering the U.K., Sabadell would follow a move that has benefited Santander, whose U.K. unit was the most profit among its 10 global divisions last year. The company built its U.K. operation in the past 11 years through acquisitions including Abbey National and Alliance & Leicester.
Santander weathered the financial crisis without needing state funds and is now looking at expanding in Portugal, where it already runs a domestic lender and may buy a competitor.
Portugal is seeking offers for Novo Banco SA, the lender that was created from the reorganization and the bailout of Banco Espirito Santo SA in August. Initial bids are due March 20, and Santander has said it may make an offer.
Another Portuguese lender is also attracting Spanish interest. CaixaBank, the country’s third-largest, has bid for the remainder of Banco BPI SA it doesn’t own in a 1.1 billion-euro transaction.
Meanwhile, Popular, Spain’s sixth-biggest lender, had been close to buying Citigroup’s Central American operations for $1.5 billion, people with knowledge of the matter said on March 7. Popular said on Wednesday it ended those talks.
“This is a major change of strategy for Sabadell,” said Antonio Hormigos, who oversees 110 million euros as head of investment management at Mirabaud Asset Management in Barcelona. “Up to now, it has been focusing on the domestic Spanish market, and this perplexing move causes uncertainty.”