MADRID/CHARLOTTE, North Carolina Spanish bank Santander (SAN.MC) shrugged off concerns over a debt crisis at home and showed its overseas expansion ambitions are still intact with the buyout of its Mexican division for $2.5 billion.
Spain's biggest bank will buy the remaining 24.9 percent of Santander Mexico from Bank of America Corp (BAC.N) in a deal that analysts said was no surprise and strategically smart.
Santander shares rose 3.26 percent on the news to 7.59 euros, outperforming a firmer blue-chip IBEX index .IBEX. Bank of America shares were up 0.46 percent at $15.40
The sale is the second in two weeks by Bank of America to shed what it deems "non-core" international investments in South and Latin America.
On May 18, the U.S. bank announced plans to sell its preferred and common share stake in Brazil's largest bank, Itau Unibanco, for $4.5 billion.
Bank of America spokesman Jerry Dubrowski said customers in Mexico will continue to be served by Bank of America's existing operations and the bank expected "no impact on clients in the region.
The Santander Mexico sale does not materially add to the $3 billion in new capital that Bank of America is required to raise as a condition of its the December 2009 repayment of $45 billion in U.S. government aid, Dubrowski said.
Bank of America has until the end of June to raise the funds.
Santander Chairman Emilio Botin has been a canny deal-maker in the past -- notably with early entry into Brazil and timely transactions in Italy and Britain -- and has his eye on other assets.
Santander is close to entering exclusive talks to buy a network of branches from Royal Bank of Scotland to bulk up in Britain, sources said, which could cost near 2 billion pounds.
It is also expected to attempt to build up its U.S. bank Sovereign, targeting the U.S. Northeast.
"Santander is showing that it can still make decisions and go on with its business plan despite the liquidity problems in the markets," said Venture Finanzas analyst Ignacio Mendez.
Apart from further U.S. expansion, analysts have long flagged Mexico as a country where Santander was keen to expand, taking advantage of the sharp uptick in economic growth expected there over the next few years.
The Mexican government's target is for the economy to grow 4.1 percent this year.
The Mexico deal will boost earnings per share by 1.3 percent in the first year after the deal and will provide a return on capital of 15 percent from the third year, Santander said.
The deal will shave about 0.31 percentage point off its core capital.
MEXICO GOOD GROWTH BET
"The acquisition is positive news, although using our own estimates, the impact on earnings falls somewhat behind Santander's figures at 0.8 percent," BPI analysts said in a note to clients.
Santander Mexico is the country's third-largest financial firm, behind BBVA and Citigroup Inc's (C.N) Banamex unit, with a 15 percent market share of deposits and 13 percent of loans. Santander sold the 25 percent stake to Bank of America for $1.6 billion in 2003.
"This is a good move for Santander, although not a surprise. Buying out Bank of America's stake in Santander Mexico was probably the only way it could significantly expand in the country," said a leading Spanish bank analyst, who requested anonymity.
Santander's arch rival, Spain's No. 2 bank, BBVA (BBVA.MC), said last month it expected its Mexican unit Bancomer to post a substantial increase in profit in 2011, benefiting from an upturn in economic growth.
Mexico's financial industry is mostly in the hands of foreign banks like Santander, BBVA, Citigroup and Scotiabank (BNS.TO).
Banks in Mexico have been on a drive to capture more business. Only 25 percent of Mexicans have a bank account.
(Reporting by Judith Macinnes in Madrid and Joe Rauch in Charlotte, N.C.; Additional reporting by Michael O'Boyle in Mexico City; Editing by Dan Lalor, Hans Peters and John Wallace)