(Bloomberg) -- Banco Santander SA can’t currently afford to buy Portugal’s Novo Banco SA, even if the deal makes sense strategically, an analyst at Alantra Partners SA said.
Santander’s capital cushion isn’t big enough “to afford such an M&A opportunity,” Alantra analyst Francisco Riquel said in a note Wednesday. Still, buying Novo Banco “would make strategic and industrial sense for Santander” as it would boost its presence in Portugal and offer cost-cutting potential.
Santander executive Pedro Castro e Almeida said potential acquisitions in Portugal are “a question of opportunities and a question of prices,” when asked about potential M&A plans including Novo Banco. “We are here to look at all opportunities,” Castro said Tuesday at a conference in Lisbon.
Santander reported a capital cushion, expressed as common equity tier 1 ratio, of 12.5% at the end of the third quarter. It’s targeting 12%, taking into account future capital rule changes known as Basel.
An initial public offering is the most likely future route for Novo Banco, Alantra’s Riquel said in the note. Potential strategic buyers that may be interested in Novo Banco include domestic rival Banco Comercial Portugues SA and Spain’s CaixaBank SA, he said.
“Our view is that the Portuguese government will end up favoring the creation of a national champion around BCP,” Riquel said.
Novo Banco is majority-owned by private equity firm Lone Star. The bank has repeatedly said it’s preparing for a possible IPO, calling the transaction the “base case” scenario for its future.
The lender, which emerged from the breakup of Banco Espirito Santo SA a decade ago, is the fourth largest bank in Portugal, according to Alantra. Lone Star owns about 75% and the Portuguese government holds the rest through various vehicles.
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