Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Banco Santander Making Money?

Banco Santander SA (NYSE: SAN) has been making headlines by offering a payment app, currency converter, and digital wallet for Ripple (XRP) lately. That got me to wondering if Santander is a value investment and a smart way to cash in on the cryptocurrency bubble.

After all Santander is very cheap right now, its shares were trading at $7 on February 7, 2018. The company is growing its revenues increased by 8.85% during 4th quarter 2017, rising to $9.52 billion. Operating income also grew by 11.7% to $3.02 billion during the same period.

Best of all, Santander has a lot of cash that is growing fast; the bank’s cash on hand increased by an incredible 408.75% during 4th Quarter 2017 rising to $110.99 billion. All this makes Santander look like value diamond in the rough but there are some serious problems at the company.

The profit margin fell by 11.34% during 4th Quarter 2017, and the company is making less money despite the increased income. The net income fell by 3.5% dropping to $3.02 billion during 4th Quarter 2017.

Those are value characteristics because Santander is making money but having some problems. That and the low price sound like a classic value buy, but it raises a question what is Banco Santander?

Banco Santander at a Glance

Banco Santander Central Hispano is a Spanish-based bank and fin-tech company that operates around the world. Its activities include consumer and investment banking, private banking, consumer lending, and money transfer.

Santander currently has major operations in Spain, the United Kingdom Italy, Sweden, Germany, Portugal, Mexico, Chile, the United States, Argentina, Brazil, and Colombia. It also maintains branches in Singapore, Hong Kong, Australia, the People’s Republic of China, and South Korea.

Santander’s footprint is pretty extensive; it has 650 branches and 2,000 ATMs in the Northeastern United States, for example. Santander also maintains extensive online banking and lending operations in the United Kingdom.

Santander’s involvement with Ripple goes beyond the app it is also using that cryptocurrency for cross-border payments in the United Kingdom. Santander’s use of Ripple includes cross-border payments between the United States and the UK in conjunction with American Express (NYSE: AXP).

Beyond Ripple, Santander is participating in the Ethereum Enterprise Alliance with many other companies. The alliance is an effort to build commercial decentralized applications (Dapps) for the Ethereum ecosystem. Such Dapps would presumably work with the Ethereum (ETH) cryptocurrency and ERC20 utility tokens.

The Opportunities at Santander

This makes Santander an interesting opportunity because it is a major bank with physical assets that is willing to work with cryptocurrency.

The biggest opportunity for Santander is to create interfaces between the cryptocurrency and fiat currency ecosystems. The biggest potential moneymaker created by such a development would be the ability to convert fiat currencies; including paper cash into cryptocurrencies or reverse the process.

Potential uses of that capability include digital wallets, smartphone payment apps, cryptocurrency debit and credit cards, money transfer, wire transfer, international remittances, investment banking, brokerage accounts, commodity investment, currency trading, initial cryptocurrency offerings, and cryptocurrency exchanges.

Santander’s ATMs can be used to convert paper cash into cryptocurrency. Another big use of ATMs is for individuals to convert altcoins into paper cash. Another opportunity is to offer cryptocurrency payment solutions for brick and mortar businesses.

There are serious limitations to these opportunities including Visa and MasterCard’s refusal to work with cryptocurrencies. A major opportunity for Santander would be to offer a Ripple-linked American Express card.

Another intriguing opportunity would be to integrate its banks with MoneyGram’s (NASDAQ: MGI) wire transfer system.  MoneyGram is also experimenting with cryptocurrency remittances and transfers, a press release indicates. There is no evidence MoneyGram and Santander are working together on transfers.

How Santander can Cash in on Remittances

A major opportunity for Santander is remittances and money transfer between the United States and Latin America particularly Mexico. Since Santander has banks in Mexico and the US, it can be a facilitator of cryptocurrency transactions between those countries.

This opportunity can be vast because Mexicans sent $26.10 billion in remittances from the USA to Mexico between January and November 2017, CNN Money reported. That amount was a $2 billion increase from the $24.1 billion sent in the same period in 2016.

Remittances have been growing fast because of the falling prices of the Mexican peso, hysteria about President Donald J. Trump’s (R-New York) intentions, and a recent earthquake in Mexico. Growth in remittances has been dramatic they rose to a record $2.6 billion in October 2017.

Santander is a Speculative Play with Value Potential

All of this makes Santander a speculative investment with value potential. Santander is speculative because the new technologies it is working with might tap huge new streams of revenue.

Banco Santander is a potential value investment because its business is unfamiliar to average Americans and decidedly unsexy. Consumer banking and money transfer can be lucrative but they are also underappreciated and often ignored by the markets.

If you want to take a risk on a low-priced financial stock, Banco Santander is worth a look. It is risky but potentially a solid moneymaker because of management’s willingness to gamble on new technologies.