Some shareholders are pushing Spain’s two biggest banks to quit the US, as a multimillion-dollar settlement at Banco Santander SA adds to a raft of bad news for them coming out of the world’s biggest economy.
Banco Santander SA’s US subprime auto-loans unit agreed to settle a dispute with 34 US states for more than $550mn, a blow to the stronger of its two businesses in the country. Just weeks earlier, Banco Bilbao Vizcaya Argentaria SA took a $2.3bn charge for troubled loans in the country — much of it tied to the oil-and-gas industry — the fourth since it bought its business in the country 13 years ago.
The serial problems for the Spanish banks in the US are prompting renewed questions from institutional investors on whether they should cut their losses by reducing their presence in the US The banks are unlikely to win the kind of the top-tier market share they enjoy in countries such as Mexico and Brazil, said an investor in both banks who spoke before the Santander settlement was announced.
Some of the banks’ institutional shareholders say they have questioned executives over the viability of the US businesses for years as one poor result after another came in.
“Apart from having a pin in the map, I’m not really sure what the added value has been to both Santander and BBVA of having a retail or commercial bank in the US,” said Daragh Quinn, an analyst at Keefe, Bruyette & Woods. “The structure of the US market is certainly different and for whatever reason BBVA and Santander haven’t been able to leverage their operating model from other markets.”
Representatives for Santander and BBVA declined to comment on the investor concerns.
Santander Consumer SA, the auto-lending business, violated consumer protection laws by selling auto loans that it knew had a high probability of default, a group of state attorneys general led by Kwame Raoul of Illinois said on Tuesday.
The unit said in a statement on Wednesday that it has been strengthening its risk management to identify and prevent dealer misconduct. “We are pleased to put this matter behind us,” it said.
BBVA’s huge US writedown contributed to a group net loss of €3.8bn. The lender, which has banks across the US “sun belt,” has struggled since it purchased the business in 2007, booking writedowns in 2009, 2011 and 2020 as well as a €162mn impairment after a push into consumer lending backfired last year.
One BBVA investor said they’d told the lender they didn’t see the US as part of its future and that the bank should focus its capital on profitable businesses such as Mexico. That country accounts for almost half of the bank’s profit. The investors asked not to be named describing the shareholder discussions.
While BBVA’s US business has only a slightly lower book value than its Mexico subsidiary, it generates less than a quarter of the income.
At least officially, both lenders say their US operations can be turned around.
“We’re the fourth biggest bank in Texas,” BBVA Chairman Carlos Torres said in January, adding that the US state would be the fourth biggest economy in Europe. “It’s a very relevant part of our business, a franchise with enormous potential that complements our presence in emerging markets.”
For Santander, the relatively successful auto-lending business often masks the shortcomings of the retail bank, which has been weighed down by legacy issues since the lender bought it in 2013. Underlying profit for the consumer finance business grew 12% in the first quarter while it fell 16% at the retail lender.
The bank last year reshuffled its leadership in the US, naming Mahesh Adityaas CEO of the auto division and Timothy Wennes to head the retail bank it operates in the Northeast.
The Spanish banks have hedged against a sluggish domestic market with their foreign operations, but the US isn’t the only region that’s caused headaches. Santander last year took a €1.5bn charge over its UK business, which has struggled to boost profit amid stricter regulations and a competitive mortgage market.
At BBVA, political and economic volatility have consistently dragged down its business in Turkey as the bank has had to navigate a currency crisis and make provisions for rising loan losses.
Santander chairman Ana Botin acknowledged in an interview last year that the US businesses have punched below their weight. With Santander’s main operations being in Latin America, the US can act as an important link for US companies that trade there, she said. The lender is targeting a return on tangible equity of 12% in the next couple of years, she said on Bloomberg TV.
Overall, the underlying profit at the US unit has tripled since 2017, while net income at the retail business has been almost flat over that period.
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