In an effort to boost its market share in Mexico, Banco Santander (STD), the Spanish bank holding company, has reached an agreement to buy back its 24.9% stake in its Mexican arm, Grupo Financiero Santander from Bank of America Corp. (BAC) for $2.5 billion.
  
The acquisition of this 24.9% stake will increase Banco Santander’s stake to 99.9% in the Mexican unit. The deal is subject to regulatory approval and is estimated to close within the next 90 days. Santander expects the deal to have a positive impact of 1.3% on its earnings per share from the first year itself and a 15% return on investments from the third year.
 
This stake that Santander is buying back was sold to Bank of America in 2003 for $1.6 billion, valuing the bank at $6.4 billion. The current deal values the bank at $10 billion. However, the acquisition will reduce Santander’s core capital by 31 basis points.
 
The stake acquisition in Banco Santander Mexico, the third biggest financial group in that country, is a strategic feat. The Mexican economy is expected to grow meaningfully this year and, therefore, this increase in exposure to Mexico augurs well.
  
Additionally, Santander’s home market is experiencing a deep recession and there remain worries over the Spanish sovereign’s debt that resulted in tough financing conditions for the Spanish banks. Hence this deal expands the company’s geographic diversification and is expected to be its key driver of growth.

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