Sept. 27 (Bloomberg) -- Banco Santander Brasil SA, the Brazilian unit of Spain’s biggest lender, rose the most on record after saying it would pay out 6 billion reais ($2.6 billion) to stockholders.
The shares rallied 7.6 percent to 15.50 reais at the close in Sao Paulo, the biggest advance since the company started trading in October 2009. It was the best performance on the benchmark Ibovespa, which lost 0.1 percent.
Santander Brasil said yesterday in a regulatory filing that it will issue subordinated debt to replace the shareholders’ money and keep the same level of capitalization. The bank will maintain a 21.5 percent capital ratio, a gauge of leverage measuring total capital in relation to risk-weighted assets, according to the filing. If approved by shareholders, the plan would be implemented in early 2014.
“The bank was not especially efficiently set up with its balance sheet, and this will improve that,” Bill Rudman, who helps manage $400 million of emerging-market stocks at Blackfriars Asset Management in London, said in a phone interview.
Representatives of Santander Brasil and Brazil’s central bank didn’t respond to phone calls seeking comment.
The proposal “makes sense” as long as, by replacing equity with debt in its capital structure, Santander Brasil is switching to capital instruments with lower cost, analysts at the brokerage firm Planner Corretora led by Mario Roberto Mariante wrote in a note to clients today.
Santander Brasil, the best capitalized of the nation’s four biggest banks by market value, has posted profit declines for two straight years as loan growth stalled. Net income dropped 14 percent in the second quarter from a year earlier, and is down almost 16 percent since the end of 2011.
Santander Brasil’s total return, which includes dividends, is the worst among the top four banks since the Sao Paulo-based company’s IPO in 2009, according to data compiled by Bloomberg.
The distribution of 6 billion reais of equity back to shareholders is equivalent to an 11 percent yield, Mario Pierry, a Deutsche Bank AG analyst, said in a report.
“We were positively surprised by the timing of the announcement,” Pierry wrote.
Shareholders will have the option of using their payments to acquire the subordinated debt, the bank said. The goal of the plan, which also includes a reverse stock split to reduce transaction costs for investors, is to increase shareholder returns while shifting to a cheaper form of capital, the company said.
The deal would conclude around January if approved at a meeting of shareholders. The bank’s Madrid-based parent committed to buying the debt in an amount proportional to its stake, Santander Brasil said.
Santander Brasil has refrained from increasing lending on concern such growth would backfire given high delinquency rates in Brazil, and shifted toward safer and less profitable lines such as mortgages. The strategy pushed non-performing loans down 60 basis points to 5.2 percent of total loans as write-offs grew 32 percent from the first quarter to 947 million reais.
Santander Brasil’s 21.5 percent capital ratio compares with 17.5 percent at Itau Unibanco Holding SA, the biggest Brazilian bank by market value, and 15.4 percent at Banco Bradesco SA, the second-biggest. Banco do Brasil, the biggest bank by assets, has a 15.9 percent ratio.
Under Basel III capital-adequacy rules, the capital ratio of Santander will fall to 18.8 percent, the bank said in the filing.
Santander Brasil announced on July 15 a memorandum of understanding to buy GetNet Tecnologia em Captura & Processamento de Transacoes Eletronicas Hua SA, a credit-card and debt-card processing company, without providing more details.
Santander Brasil’s parent company agreed on May 31 to sell half of its asset-management division to U.S. buyout firms Warburg Pincus LLC and General Atlantic LLC in a deal that values the unit at 2.05 billion euros ($2.8 billion). The Brazilian unit will book a net gain of 1.2 billion reais from the transaction, according to Banco Itau BBA SA analysts.
To contact the reporter on this story: Denyse Godoy in Sao Paulo at email@example.com