Santander Mexico raised around 2.77 billion euros ($3.57 billion) for its Spanish parent in September via a dual U.S.-Mexico share offering of 25% of the bank. That deal, the largest stock offering in the U.S. last year after Facebook Inc.'s (FB) and the biggest ever in Mexico, was roughly five times oversubscribed. Yet December data released earlier Wednesday by Mexican bank regulator CNBV indicates that Santander Mexico's latest quarterly results are likely to come well below market expectations, Deutsche said.
"Such a shortfall is likely to lead to a great deal of discomfort to investors, which are likely to question the credibility of management given the proximity to the IPO and the weak track-record of the [Santander] Brazilian operation following its IPO," analyst Mario Pierry wrote.
Santander Mexico's B shares lost 7.6% to 38.39 pesos on the Mexican Stock Exchange Wednesday. In New York the financial group's American Depositary Shares fell 6.8% to $15.20.
The CNBV data leads Deutsche Bank to believe the bank could report fourth-quarter net income of MXN3.2 billion to MXN3.4 billion, about 20% below Deutsche's MXN4 billion estimate.
The investment bank said it is most-concerned about the sharp increase it sees in Santander Mexico's nonperforming loans following a push to raise consumer credit. Deutsche notes a 16% quarter-on-quarter increase in provision charges given a 40-basis-point increase in the bad-loan ratio, mainly related to Santander Mexico's credit card and auto portfolios.
While optimism for the Mexican economy is elevated and the operating environment for banks is solid, "earnings expectations are high and traditional valuation multiples stretched," Mr. Pierry wrote, saying that Santander Mexico is trading at premiums of 70% to 140% over Santander's Brazilian and Chilean operations.
Write to Amy Guthrie at amy.guthrie@dowjones.com
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