Banesto Plunges to €2.20 as Santander Holds Over 90% Stake

Banesto Trades at €2.20 vs €19 in 2007: The Rebound Thesis

Buying Banesto shares at €2.20, when they cost €19 in 2007, looks on paper like the opportunity of the decade. But it is wise to pause and consider that paper reality. The entity has suffered five years of sustained decline, Banco Santander controls more than 90% of its capital, and its share price is far below the book value declared by the bank itself. Three facts. The conclusion usually drawn from them admits many nuances.

The Calculation: €1.5 Billion Market Cap vs €5.46 Billion Equity

The arithmetic supporting the bullish thesis is simple and clear. Banesto had 687,386,000 shares valued at around €2.20: approximately €1.512 billion market capitalization. In 2007, with 694,330,000 shares at €19, the same calculation yielded €13.192 billion. The difference lies not just in the price.

As of June 30, 2012, the entity declared €102.887 billion in assets and equity of €5.46 billion. That means the market valued it at less than a third of what it claims to hold in books. From there to concluding there is an exploitable discount is a leap: no one guarantees that this equity is liquid or that it will ultimately be distributed among minority shareholders.

Banesto Did Not Increase Capital: The Bank That Does Not Dilute

There is a detail that separates Banesto from almost the entire sector. In the last ten years, it reduced its number of shares by nearly 7 million, while most entities increased capital and diluted their shareholders. Bankinter, for example, added 131 million shares. Less paper in circulation means any recovery in profit is shared among fewer hands.

That argument has a flip side. If the stock does not increase capital, it is either because it does not need to, or because its parent prefers to address shortcomings through other means. Neither explanation is equally reassuring.

Why Banesto Rises 1% While Caixabank Gains 32% from Lows

Here the data is disorienting. In early February 2012, Caixabank and Banesto both traded around €4.10. Months later, both hovered near €2. Since then, Caixabank rebounded 32%, Bankinter 21%, and Banesto only 1%. Three entities, similar lows, opposite behaviors.

The reasoning is that Banesto decoupled from the sector: it started falling on March 21, 2012, when others had already been correcting for some time, and did not trinc the rebound that most banks initiated on June 1. During the previous decade, its price had almost always been above Bankinter’s, until that final stretch. The comparison, ultimately, is the perfect alibi for any thesis: there is always a chart to support it.

Why Are There So Few Banesto Shares Available for Sale?

Because the owner holds almost everything. With more than 90% of the capital in one hand, what remains in the market is a residue. At the worst moments, sell orders were seen for 126, 109, or 677 shares in a stock with more than 687 million shares outstanding. For a bank, that is chump change.

The bullish reading argues that this scarcity of paper prevents those wanting to enter from buying cheaply and that, when demand arrives, the price will have to rise. The contrary view is more prosaic: if there is so little trading, there are also few buyers. Low liquidity is a double-edged sword.

Is a Delisting Tender Offer Coming for Banesto?

This is the scenario that explains why the stock spikes on certain days. It rose 14.3% in a single session amid rumors of a move to take it private. This is not a far-fetched hypothesis: when a group controls more than 90% of a listed subsidiary and the floating capital is minimal, delisting is the natural exit.

That it is the natural exit does not miccionan it will happen, nor when, nor at what price. Here, forecasting ends. There was no official communication, and such an operation is paid for, precisely, as little as possible.

The Risk Not Found in the Discount to Book Value

The most uncomfortable argument does not dispute the numbers; it disputes who controls them. If the parent needs resources, it has instruments to shift the subsidiary’s profits home—transfer pricing or otherwise—and leave minority shareholders with the pretty part of the balance sheet but none of the cash. A listed subsidiary of a large group always competes with the group’s interests.

Against that, the entire sector carries the same discount and the same accounting distrust. That Banesto is the most punished may be an opportunity or a warning. The latter is also priced in.

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The thesis has numbers, not certainties. If Santander decides the brand no longer adds value, the €19 of 2007 will be an anecdote in the annual report, and the rest, just another corporate operation. If it decides to keep it and the market looks again, those who bought near €2 will have reasons to celebrate. Between one thing and the other, someone who gives no explanations calls the shots.