Angel Corcostegui, CEO of Spain's Banco Santander Central Hispano (BSCH), runs one of Europe's best-performing banks and is likely to be a pioneer in attempting one of the first large cross-border mergers on the Continent. An ace at bank acquisitions, with a decade of merger experience, he presided over the marriage of Banco Central with Banco Hispano Americano and helped engineer the merger of Banco Bilbao and Banco de Vizcaya, now BSCH's top rival.
At BSCH, Corcostegui has already nabbed two banks in Portugal and has a network of five alliances through cross-shareholdings with banks throughout Europe, including Royal Bank of Scotland and France's Soci?t? G?n?rale. The 49-year-old manager, a civil engineer by training with a PhD in finance from Wharton, is a skilled consensus builder with big ambitions.
Corcostegui spoke with BusinessWeek Rome Bureau Chief Gail Edmondson and European Finance Correspondent David Fairlamb in the Madrid office of BSCH. Edited excerpts from their conversation follow:
Q: Spanish banks have gone through a dramatic transformation. What kind of bank will BSCH be five years from now?
A: Ten years ago, Spanish banks were provincial banks. We are about to become global banks. The first step was domestic consolidation, which we completed faster, compared with other European markets. Once that was achieved, we invested first in Latin America, where we had competitive advantage. Latin America gave us muscle, and we became more international. Now we are becoming global banks. This is our next challenge.
Q: Some analysts worry you have invested too much in Latin America, where markets are more volatile. Are you seeking to rebalance the bank's exposure with investments in Europe?
A: We have invested $15 billion in Latin America -- $10 billion over the last two years, when big opportunities became available. We have also invested $6.6 billion in European bank stakes. We are very well positioned for Europe, where we have a number of special alliances. They are a unique observatory to know exactly what's going on.
Q: When will cross-border consolidation begin?
A: Things are close to changing. At this moment, we are not contemplating a big acquisition. But we are well positioned to understand what the big players are thinking. All of us are waiting to see euro bills and coins arrive on the streets of Frankfurt, Rome, and Paris.
Q: What do you get out of your European alliances with players like Royal Bank of Scotland or Soci?t? G?n?rale?
A: Through our alliances, we get a feeling of what it's like to do business together. We have good working teams. When they need help, we help them. Royal helped us when we bought [Brazilian bank] Banespa. We are learning how to do business with an entirely different nationality. And we make money -- it's a good financial investment. We have a lot of capital gains [6 billion euros] from the bank stocks.
Q: What's your goal in going cross-border? Can you take on Citibank?
A: No one is Citibank. But our market cap is second or third in the eurozone, behind Deutsche Bank. If you look to Europe in the future, there will be wholesale business, capital markets and asset management, and retail distribution. You can be successful in any of those areas, but it is important to do it well. You need good quality, service, and cost control. We now have 35 million to 36 million clients -- we would like to double the number of clients. We will not rest until our cost-income ratio is close to 40.
Q: Some analysts worry that you overpaid for the 30% stake in Brazilian bank Banespa. What's your response?
A: That's an unfair reaction of the financial community. Brazil is the strongest economy [in Latin America] and a powerful position was critical. S?o Paolo alone is about the size of Argentina. It's a once-in-a-lifetime move. We wanted to have it. I believe Banespa's net profit in three years will make $750 million. It has outstanding potential. It was our last piece in Latin America. And it was a rational price.
The success of the share-tender offer [for remaining shares] has permitted us to reduce significantly the cost of the transaction. The total investment in Banespa following the acquisition of 97% of shares is $4.87 billion, or 2.1 times book value at the time the bank was acquired last November.
Q: How important is investment banking to your strategy?
A: We have to define precisely where we compete. We have left aside products where we can't compete. We reduced our Asian market activities and operate there through an agreement with Soci?t? G?n?rale. We are No. 1 in investment banking in Spain and Portugal. And 2001 will be an important year for investment banking in Latin America.
The franchise in Latin America is connected to our New York securities house, where we have strong team focused on Latin American products. We want to become specialists. Can we survive? We are making very good money -- $400 million to $500 million a year. Compared to the big names, that's not bad, and its very low risk. We have nine Treasury rooms around the world with unified trading platforms. We are very active in fixed-income markets. It's a very focused business, like a specialized investment bank. We underwrite many initial public offerings and take care of institutional and wholesale markets.
Q: Hasn't Latin America been slower to develop and pay back your investment than anticipated?
A: We are getting one-third of our profits from Latin America. We are getting a lot of deposits. And we have very good margins. Look at the basics of the economics, and...one-third of our profit comes from bullet-proof business. If there is a regional recession, it will not affect us much.
Q: If you don't worry much about Latin America, what do you worry about?
A: I don't worry so much about Latin America, I worry about the speed of change in the rest of the world. Things are moving very quickly. You have to make strategic decisions very quickly which will affect you in two to three years. You have to move now, because if you don't, you will lose leadership.... My second worry is to attract and retain very good people.
Q: How have you succeeded at keeping loan losses relatively low in Latin America?
A: You cannot imagine the amount of time we spend looking at loans, one by one, in the portfolio. We spend so much time, country by country and client by client. Our main strength is controlling risk. It's a very complete model. We separate risk from the rest of the business, and all that business goes to the risk committee, which reports to the board of directors. Risk control is centralized and carefully controlled. We have 450 people responsible for internal audits and 1,600 to 1,700 risk managers applying the model. We bring Latin American bankers into our group here and give them a lot of training.
Q: Analysts also worry that BSCH overpaid for Internet financial portal Patagon. What's your response?
A: Patagon has been very important for the culture they brought us. We are No. 1 in online trading today in Brazil and Argentina. All the banks of our group have a perfect connection to online banking. Second, Patagon has changed the processes inside BSCH. We plan over the next three to four years to have more and more processes on the Web. The more clients use the Web, the more we will remodel ourselves. We have to have a strategic response in this area of banking. We have 100,000 clients and will break even in 2002-03. It's a very low-cost investment. This year, we will offer full Internet online banking in Germany.
Q: What is the strategy behind your industrial holdings?
A: Our strategy is very focused on the New Economy. We have two industrial projects. One is a B2B [business-to-business project] with Spanish companies. We've hired a top team and are investing $150 million. The second is a B2C [business-to-consumer] portal. We have joined forces with AOL Time Warner in a venture that is 40% AOL, 60% BSCH, where we are also investing $150 million. This is less than 3% of the industrial portfolio, but it gives us a foot into two new segments of the industry. We want to be prudent, but we want to be there as new markets develop. Sometimes you have to pay a price to move quickly and to be a first mover.