Sept. 21 (Bloomberg) -- Banco Santander SA, Spain’s largest bank, aims to raise as much as 13.1 billion reais ($7.2 billion) by selling shares in its Brazilian business to fund expansion of the unit and bolster the group’s capital.

Banco Santander (Brasil) SA will sell 525 million units at 22 reais to 25 reais, the Spanish lender said today in a statement. Each unit will include 55 common shares and 50 preferred shares. The offering, managed by Credit Suisse AG, is equivalent to 16.2 percent of the current capital of the Brazilian unit, Santander said.

“The maximum amount is slightly higher than I expected and it may be an indication of strong demand,” said Daragh Quinn, an analyst at Nomura International in Madrid. “The sale will strengthen Santander’s capital position and will help fund possible growth opportunities in Brazil.”

Santander Chairman Emilio Botin said last year the bank planned to invest 2.56 billion reais in Brazil and open 400 branches as it seeks to become the country’s biggest non- government lender. The bank, based in the Spanish city of the same name, is also boosting capital as its businesses are buffeted by recessions in Spain, the U.K. and Mexico.

The share sale would be Brazil’s biggest, topping the record 8.4 billion reais raised by Cia. Brasileira de Meios de Pagamento in June. At least 12 Brazilian companies have filed to sell stock since July 31. The benchmark Bovespa Index has gained 62 percent this year.

Growing Middle Class

Santander, which traces its involvement in Brazil to the late 1950s, bought Banco do Estado de Sao Paulo SA for $4.8 billion in 2000 and paid 11 billion euros ($16.1 billion) for ABN Amro Holding NV’s Brazilian unit, Banco Real, in 2007.

The company’s bet on Brazil is based on expectations for a surge in demand for banking services from an emerging middle class, which grew by 12.7 million people from 2003 to 2008, Francisco Luzon, Santander’s head of Latin America, has said.

Brazil already contributes about a fifth of Santander’s group earnings. It is the biggest division in the company’s Latin American unit, which the bank says is worth $46 billion.

The Brazilian unit will book a third-quarter pretax charge of 2.3 billion reais to cover bad loans and costs related to the purchase of the ABN Amro unit, the lender said today in a separate release. Santander (Brasil) will sell stakes in some units to a Madrid-based division of the parent company, generating a gross capital gain of 2.1 billion reais, it said.

Global Trend

Santander fell 5.5 cents, or 0.5 percent, to 11 euros in Madrid trading, giving the company a market value of 89.7 billion euros. The stock has risen 63 percent this year, compared with a 51 percent increase in the 64-member Bloomberg Europe Banks and Financial Services Index.

Banks worldwide are also raising capital as financial shares rise on optimism the worst of the recession is over.

Edinburgh-based Royal Bank of Scotland Group Plc may raise as much as 5 billion pounds ($8.1 billion), two people familiar with talks said today. UniCredit SpA, based in Milan, today said the bank is “working on all possible options” to shore up its capital ratios.

Santander’s net income fell 2 percent last year to 8.88 billion euros after it set aside 350 million euros for costs tied to Bernard Madoff’s fraud. Santander has reported about 7 billion euros of credit losses and writedowns since the start of the credit crisis, the most of any Spanish lender, according to data compiled by Bloomberg.

Loan Losses

The parent company may set aside 10 billion euros to cover bad loans this year, up from 5.98 billion euros in 2008, Chief Executive Officer Alfred Saenz said in July.

Spanish banks are facing rising loan losses as the country’s worst recession in 60 years makes it harder for borrowers to repay debts. Bad loans throughout the industry rose to 4.73 percent of total lending in July, double the figure from a year earlier, according to the Bank of Spain.

Santander had a core capital ratio, a gauge of its ability to absorb losses, of 7.5 percent at the end of June, up from 7 percent three months earlier. HSBC Holdings Plc, Europe’s biggest bank, had a ratio of 8.8 percent. It was 6.9 percent at Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank.

The Brazilian offering will be priced on Oct. 6, Santander said. The units will begin trading on the New York Stock Exchange as American depositary receipts on Oct. 7 and a day later in Brazil.

In addition to the offering announced today, the underwriters have a so-called green shoe option to sell an additional 100 million units depending on investor demand, Santander’s Brazilian unit said in a regulatory filing.

To contact the reporters on this story: Paul Tobin in Madrid at ptobin@bloomberg.netCharles Penty in Madrid at cpenty@bloomberg.net;

Last Updated: September 21, 2009 12:06 EDT