Financial Performance Analysis: Santander and Brazilian Subsidiary

This report presents a comprehensive financial analysis of Santander Bank, examining its performance in both the UK and Brazil. The analysis begins by comparing the financial performance of Santander's subsidiary in Brazil with its parent company in the UK, utilizing key financial ratios such as profitability, liquidity, and solvency ratios. The report then investigates the influence of Brazil's GDP growth trends on the subsidiary's financial results, highlighting the impact of economic fluctuations. Furthermore, the report explores the implications of Santander's entry strategy into the UK market in 2004, focusing on the acquisition of Abbey National, and assesses the current competitive conditions within the UK banking sector and their effect on Santander's risk-taking strategies. The findings reveal insights into the financial health of the bank and its strategic positioning within the international banking landscape, offering a valuable perspective on the interplay between financial performance, economic conditions, and market dynamics.

ANALYSIS OF FINANCIAL
AND ECONOMIC
CONDITION OF
INTERNATIONAL
BANKING

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................3
a. Comparing financial performance of subsidiary and parent company....................................3
b. Trends in GDP growth of Brazil and how it influences the financial performance of
subsidiary....................................................................................................................................5
c. Implication of Santander’s entry strategy into UK in 2004 along with current competitive
conditions in UK affecting risk taking in Santander...................................................................7
REFERENCES..............................................................................................................................10

MAIN BODY
a. Comparing financial performance of subsidiary and parent company
Banco Santander
Brazil Santander UK
Particulars 2008 2018 2008(in million) 2018 (in million)
Profitability ratio
Operating profit 1010011 15909771 1094 1545
Total assets 294189847 72386500 231742 283372
Current liability 3025207 5043375 169630 202966
Capital employed 291164640 67343125 62112 80406
Return on capital
employed 0.35% 23.62% 1.76% 1.92%
Net profit 707445 12799918 819 1104
Net sales 5573378 49506959 3004 4534
Net profit ratio 12.69% 25.85% 27.26% 24.35%
Operating profit 1010011 15909771 1094 1545
Net sales 5573378 49506959 3004 4534
Operating prfit
ratio 18.12% 32.14% 36.42% 34.08%
Liquidity ratios
Current assets 1150737 3885189 60231 30623
Current liability 3025207 5043375 169630 202966
Current ratio 0.38 0.77 0.36 0.15

Current asset 1150737 3885189 60231 30623
Inventory 0 0 0 0
Quick asset 1150737 3885189 60231 30623
Current liability 3025207 5043375 169630 202966
Quick ratio 0.38 0.77 0.36 0.15
Cash and cash
equivalent 23700500 31716345 2464 19747
Current liabilities 3025207 5043375 169630 202966
Cash ratio 7.83 6.29 0.015 0.097
Solvency ratio
Debt 8915245 14695898 41178 46692
Equity 49836478 91595460 4811 15909
Debt equity ratio 0.18 0.16 8.56 2.93
Interest 3383593 28557051 6143 2579
EBIT 1010011 15909771 1094 1545
Interest coverage
ratio 3.35 1.79 5.62 1.67
Interpretation- From the above assessment it has been interpreted that the profitability
performance of Banco Santander Brasil which is a subsidiary of the Santander UK is better. This
is because return on capital employed of the subsidiary is increasing with a greater value that is
from .35% to 23.62%. However, the ROCE of parent company is reducing which clearly reflects
that the parent company is not making an efficient use of its own capital. Similarly, over the
year, the net profit margin and operating profit margin of the subsidiary company is resulted as
rising as compared to the parent company. Moreover, this indicates that Banco Santander Brazil
is performing in better way than its parent company that is Santander UK.

Also the liquidity position of subsidiary seems to be better than the parent company
because its current, quick and the cash ratio is higher. This in turn shows that the subsidiary firm
is making effective use of its current assets and has higher current assets than current liabilities.
It also indicates that subsidiary company can meet its current obligation in an effective manner
by using its current assets in comparison to its parent company.
Debt equity ratio of Banco depicted as better because it has higher equity than its debt.
However, D/E ratio of Santander does not see as good because its equities are very low than its
debts. This means that the parent company has higher financial burden and high borrowed funds
that in turn reflects poor solvency position. However, the interest coverage ratio of parent
company is better as higher the ratio better position of firm. This means that it has sufficient
profits in meeting its interest obligation.
Thus, overall the financial performance of subsidiary in Brazil is better and sound as
compared to the parent company.
b. Trends in GDP growth of Brazil and how it influences the financial performance of subsidiary
Year
GDP growth (in terms of
%)
2008 5.09
2009 -0.13
2010 7.53
2011 3.97
2012 1.92
2013 3.00
2014 0.50
2015 -3.55
2016 -3.31
2017 1.06
2018 1.12

Interpretation: from the above data and graph it is interpreted that in trend of GDP of
Brazil there are many fluctuations in the rate of GDP from the year 2008 to 2018. The GDP rate
is the rate which help the company in measuring that how fast is the economy growing. Thus, it
is very necessary for the government of company to maintain a high GDP rate for the country.
Hence in the year 2008 the GDP was good and was 5.09 % for Brazil. This reflected that the
economy was growing well and has a good level of working and income within the economy
(GDP growth (annual %) Brazil, 2019).
But in the year 2009 it was in negative that is (0.13) which reflected that the working
condition of Brazilian economy was not at all good. Thereafter the economy recovered and the
GDP was at the increasing trend although there was little fluctuation in rate of GDP. But in the
year 2015 and 2016 the condition was worse as the GDP rates were in negative. For the year
2015 it was (3.55) and for 2016 it was (3.31). This stated that in these year the economy faced a
heavy slowdown and this hampered the development of the country as a whole.
Influence on financial performance of subsidiary
The major influence on the financial performance of Latin American country that is
Brazil is that this will impact on the interest rates of the banks. This is majorly because of the
reason that there due to low GDP the money flow is not there in the economy. Thus, for this the

interest rate will be lowered so this will increase the flow of money within the county. Thus, this
will increase the financial performance of the company. It is so because of the reason that now to
improve the business the companies and people will take loans from banks and this will increase
the performance of Santander bank and its subsidiaries.
Another major influence on the subsidiary that is Brazil and its financial performance is
that this also impacts in the financial decision making by the government and other people and
companies. This is majorly because of the reason that there is no money within the economy and
also the prices within the economy will be high and whether to purchase the consumer goods or
not.
One more crucial impact over the financial performance of company is that the consumer
spending will be lower as there is no money in the economy and also the prices are high resulting
in inflation. Hence this will effect on the financial performance of company as if they want to
increase their business then they will have to lower the cost of product. If thy reduce the cost of
product, then they will face loss. Thus, this will directly have a negative impact over the
financial performance of the company.
c. Implication of Santander’s entry strategy into UK in 2004 along with current competitive
conditions in UK affecting risk taking in Santander
Implications
Banco Santander is a company which deals in financial and banking services and this is a
Spanish multinational bank which is based in Madrid and Spain. The company was founded in
the year 1857 and deals in every type of services provided by banks like private banking, asset
management, insurance, private equity, retail and corporate banking and many other services.
The company in the year 2004 entered in UK with help of mode of acquisition of another bank
named Abbey National plc. The acquisition is a mode of entering into a new market with help of
purchasing or partnering with already existing firms and companies (Dimri and Ganguli, 2019).
This can be both small companies and large organizations. This is a good method of entering into
the market as the company will have many benefits because of acquiring the other company by
way of purchasing the shares of other company. Here the shares are being purchased because of
the reason that the shares provide the right to the company to control the working and
functioning of the company which has been acquired.

The major implication of entry strategy of Santander over the competition in UK banking
is that this provide a pre- established market in the new country. If Santander would have entered
in UK as a new bank, then it would have to start a new fresh as compared to entering with help
of acquisition (Ogbuanya and Chukwuedo, 2017). This is majorly because of the reason that the
company which has been acquired by Santander has some market. Thus, this market will be
enjoyed by Santander as they have acquired Abbey National and all the clients of Abbey
National now will deal with Santander. Hence, this increased the market share of Santander as
they entered in UK and that without much efforts.
Another major implication is that this acquisition was advantageous for Santander as all
the assets and liabilities of both the banks merged and this provided the benefit of economies of
scale to the bank. This is so as Abbey National now works as a subsidiary of Banco Santander
and now Santander can use all the resources which were owned and operated by Abbey National.
Also, this includes all the assets which were earlier owned by Abbey National are now under the
use of Santander without any extra pay or investment.
One more important implication over the working of both bank was that there were some
problems as the culture of employees was different. Thus, this posed some problems at time of
acquiring of Abbey National. This is majorly because of the reason that in the bank there are
employees coming from many different cultural backgrounds and this posed a problem for the
employees in getting and understanding the culture of other people. Also, this will take a lot of
time for the employees to get settle in the new business environment. Hence, this will take a lot
of time by the employees.
Another major implication at time of entering in UK in 2004 was the accounting for the
acquisition of Abbey National. This is majorly because of the reason that before acquiring
Santander needs to pay for the cost of using all the assets and other resources of the company.
Also, Santander need to pay for the goodwill of the company to Abbey National because
Santander will have to pay the purchase price to Abbey National (Lombardi, Griffiths and
Lualdi, 2018). For this the goodwill will be calculated as purchase price less the net identifiable
asset. Then the amount coming after the deduction will be paid to Abbey National as the
goodwill.
In the end, it can be said that there is a great implication of the increase or decrease of
GDP that is Gross Domestic Product over the financial performance of the company. This is

majorly because of the reason that GDP reflects the financial performance of the whole economy
and if the financial performance of economy is not good then automatically the financial
performance of companies will not be good. This is basically because of the reason that
companies also work and operate in economy.
Current competitive condition in UK
The current situation in the UK banking condition is very high and the competition within
the banking industry is also very high. Thus, to face the competition the banks has to take many
initiatives and has to continuously research for the changes taking place within the market. This
is majorly because of the reason that to face the competition Santander need to study the changes
taking place in economic condition of country as this will impact on the working of bank. Thus,
this will effect on the risk taking capacity of Santander. This is so because of the reason that if
there will be inflation within the economy then to fulfil the needs of person they will take loans
and this will increase the business of Santander.
Another current issue in the competitive banking environment is the adaption to the
digital technology which can add to the risk of Santander. This is majorly because of the reason
that there are many new technological advances in the banking industry. These need to be
adapted by Santander and if they will not adapt then their efficiency of working will decrease
and this will result in decrease in productivity and profitability of the bank. Also, this may be a
risk if the employees of the bank resist to adapt to the new and latest technologies (Jia, Yan and
Wang, 2018). This is majorly because of the reason that employees might feel that if they will
adapt to the technology then their importance in the company will be decreased. This will
increase the risk taking of Santander as they have taken the risk of implementing new technology
within the business and it has not been successfully applied within workplace. Thus, this will
increase the loss for Santander and will increase loss and decrease the productivity of bank.

REFERENCES
Books and Journals
Dimri, V.P. and Ganguli, S.S., 2019. Fractal theory and its implication for acquisition,
processing and interpretation (API) of geophysical investigation: a review. Journal of
the Geological Society of India. 93(2). pp.142-152.
Jia, J., Yan, X. and Wang, Y., 2018, December. Optimization of energy acquisition and
environmental implication in Aquifer thermal energy storage. In IOP Conference Series:
Materials Science and Engineering (Vol. 452, No. 2, p. 022030). IOP Publishing.
Lombardi, F., Griffiths, H.D. and Lualdi, M., 2018. Sparse Ground Penetrating Radar
Acquisition: Implication for Buried Landmine Localization and Reconstruction. IEEE
Geoscience and Remote Sensing Letters. 16(3). pp.362-366.
Ogbuanya, T.C. and Chukwuedo, S.O., 2017. Career-training mentorship intervention via the
Dreyfus model: Implication for career behaviors and practical skills acquisition in
vocational electronic technology. Journal of Vocational Behavior. 103. pp.88-105.
Online
GDP growth (annual %) Brazil. 2019. [Online]. Available through: <
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=BR>