Trader’s Narrative

Santander’s takeover of Sovereign Bancorp is a great example of the smart money vs. the dumb money. Santander has had Sovereign in its sights for a long time and had been rebuffed by them. But Santander is now using this crisis as a catalyst to buy up the remainder of Sovereign it doesn’t already own.

Emilio Botín, the head of Santander, has banking in his blood. His family has had control of Santander for four generations. He took over a staid, lazy bank and took it to the top position in Spain. Not content with that, he then started to expand outward. He’s already 71 and after his retirement the family legacy is expected to continue with his daughter, Ana Patricia Botín taking over.

Santander is already one of the world’s largest banks and earlier this year Euromoney named it as the world’s best bank for 2008. It has operations in Europe, as well as in England and Latin America. This new acquisition brings Santander into the US.

Here is Botin schooling the rest of the banking world in his thick Spanish accent on the 3 important principles of banking - the video goes wonky towards the end but the sound is good, so listen up Wall St.!

Got that?

Keep in mind that the strongest banks in the world are in Canada (as a group).

According to a recently released Global Competitiveness report from the World Economic Forum, Canada has the “soundest” banking system in the world.

With runners up being:

Sweden, Luxembourg, Australia, Denmark, Netherlands

And coming in third:

Belgium, New Zealand, Ireland, Malta

The United States? Ranked 40th. Zimbabwe? 122nd.

The methodology for the results isn’t all that clear but it was based on the opinion of 12,000 executives which ranked banks based on a scale of 1 (insolvent) to 7 (healthy).

So then, why are the Canadian banks getting spanked in the stock market? Here’s a chart of the weakest Canadian bank, CIBC, having fallen about 53% from the when the market topped in October 2007:

In comparison, Bank of America (BAC) has fallen 59% in the same time span and Citigroup (C) 68%. Case of the baby getting thrown out with the bathwater?

So after all that breathless preamble… this?

Interactive Brokers (IBKR) faltered right out of the gate and kept stumbling.

Oh well.

It’s easy to be neutral when you don’t have any vested interest - I didn’t get allocated any shares. And I didn’t like the market action so I stood aside. Disappointing.

On the plus side, I narrowly skirted becoming a crystal ball gazing, tarot-card slash palm reader. IBKR didn’t open at $32 as I had predicted. It opened at $33. And it didn’t hit $35. It didn’t even hit $34. It just petered out.

Today I was also keeping an eye on another security: TSX Group Inc. (TSE:X) - the holding company for the Toronto Stock Exchange. Yesterday their share price was pounded by news that a consortium made up of all six Canadian banks (BMO Capital Markets (TSE:BMO), CIBC World Markets (TSE:CM), National Bank Financial (TSE:NA), RBC Capital Markets (TSE:RY), Scotia Capital (TSE:BNS) and TD Securities (TSE:TD)) plus Cannacord Capital (TSE:CCI) would set up their own ECN to compete with it.

The announcement was just that, an announcement. And to show how early they are in the project, they don’t even have a name picked out for the ECN and are using the code-name, “Alpha”. So obviously yesterday’s panic selling was a tad overdone. Today it gapped up and recovered all morning.

I’ll continue to watch both IBKR and TSX Group.