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Santander in insurance deal with Zurich in Latin America

Spanish bank to generate capital gain of 884 million euros from operation

Leading Spanish bank Banco Santander said Tuesday that Swiss insurer Zurich Financial Services Group has agreed to acquire a 51-percent stake in its insurance business in Latin America for a minimum of $1.67 billion (1.2 billion euros).

The joint venture will pool together Santander's insurance business in its five key markets in Latin America — Brazil, Chile, Mexico, Argentina and Uruguay — in a holding company in which the Spanish bank will retain a 49-percent stake.

In a statement to the National Securities Commission (CNMV), Santander said the deal forms part of a 25-year tie-up to distribute the alliance's insurance products in each country for 25 years.

Santander said its insurance units included in the transaction are valued at $3.275 billion. Zurich will pay Santander 51 percent of that amount when the deal is sealed. In addition, during the 25 years of the alliance, Santander could receive a further $420 million (307 million euros) under a performance-based arrangement.

Santander said the deal will generate capital gains of $1.21 billion (884 million euros), which the euro zone's largest bank will use to strengthen its balance sheet.

Zurich said it expects to complete the agreement in the first half of this year. "Santander's Latin American insurance operations offer a rare combination of high growth potential and strong cash-flow generation," Zurich Chief Executive Officer Martin Senn said in a statement posted on the company's website.

Zurich said its business in Latin America combined with that of Santander would have produced $3.9 billion (2.8 billion euros) and $2.9 billion in pension contributions (2.1 billion euros) in 2010. The alliance with Santander provides Zurich with access to over 5,600 bank branches and an additional 36 million customers in the region.

Zurich said it would have management control of the joint venture. "It's an interesting and promising deal, because they (Zurich) achieve scale in the biggest Latin American markets: Mexico, Brazil and Argentina," Bloomberg quoted Stefan Schuermann, a Zurich-based analyst with Vontobel Holding, as saying.