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Mexico: Santander subsidiary may go for IPO

Spanish bank buys BofA’s minority stake; Valuation now $10 billion

Santander’s acquisition of Bank of America Merrill Lynch’s minority stake in its Mexican subsidiary has increased the likelihood that it will follow in the footsteps of its Brazilian operation and undertake an IPO, according to a source.

Although no details have yet emerged, Santander is well positioned to list Santander Mexico after paying Bank of America $2.5 billion for its 24.9% stake last month. The deal means that Santander now owns 99.9% of the bank. It is likely to mop up the remaining 0.1%, held by a disparate group of investors, in due course.

Santander originally sold the stake to Bank of America in 2003 for $1.6 billion, valuing the bank at $6.4 billion. The transaction last month means that the bank is now valued at $10 billion.

Santander will pay for the stake through its cash reserves. Its core capital will be marginally affected, by 31 basis points, an amount that it takes the group four months to generate organically. The deal will boost earnings per share by 1.3% in the first year and provide a return on capital of 15% from the third year, according to Santander.

With full ownership of the bank, Mexico’s contribution to group profit will increase by two percentage points to 7%.

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