Spanish banking giant Banco Santander SA (STD) took a major step this week to build up muscle in its competition with Brazilian rivals.

On Thursday night, Santander filed a preliminary prospectus to hold an initial public offering of shares in its Brazilian unit. The filing was made with the U.S. Securities and Exchange Commission, the SEC.

The sale of a 15% stake in Brazil's third-largest private bank could fetch EUR2.3 billion, according to estimates from Lisbon-based brokerage BPI.

In Brazil, banking analyst Aloisio Lemos of the Agora Senior brokerage, said, "The bank will use proceeds from the operation to build up a competitive edge against Brazilian rivals." Lemos noted that "in Brazil, Santander is already an important contender."

In July, Santander formally stated its intention to hold an IPO in Brazil. However, so far, it has not filed a prospectus with local regulators.

"We intend to use the net proceeds from the global offering to expand our business in Brazil by growing our physical presence and increasing our capital base. We also intend to enhance our funding structure and, along with our traditional funding sources, increase our current credit transactions," Santander said in the preliminary prospectus filed with the SEC.

The bank said it will offer its shares in the form of units. Each unit will be represented by 55 common shares and 50 preferred shares. The bank will list its shares under the local exchange's Level 2 rubric. Under Level 2 rules, Santander will be obliged to gradually increase its free float of shares to 25% of total stock.

Santander said it will negotiate with the Brazilian Stock Exchange regarding the timetable for reaching the 25% free float.

Santander, however, did not unveil the exact volume or the timetable for holding its IPO. It will offer its shares in Brazil and to foreign investors in the U.S. in the form of American Depositary Shares. The bank's shares will trade under the ticker symbol "SANB11.BR."

The bank has invested heavily in Brazil over the last decade and wants to establish itself alongside the two major private banking titans Itau Unibanco (ITUB) and Banco Bradesco SA (BBD).

Santander in Brazil has a network of 2,091 branches and 1,521 on-site service units located at corporate customers' premises. The bank has 21 million customers in the country.

The bank plans to open 600 more branches in Brazil by 2013, part of what Lemos called the bank's search for a competitive edge.

The Spanish bank has been building its presence in Brazil since 2000, when it acquired Sao Paulo state-controlled bank Banespa for 7 billion Brazilan reals ($3.75 billion).

Then in 2007, the Spanish bank acquired local retail bank Banco Real as part of a consortium deal with Real's previous owner, Dutch bank ABN Amro Holding NV.

As a result, Santander became Brazil's third-largest private bank, with Itau Unibanco as No. 1 and Bradesco as No. 2. Government-controlled Banco do Brasil (BBAS3.BR) is Brazil's largest bank.

If it takes place before the end of 2009, Santander's offering will be the third billion-dollar IPO in Brazil this year, reflecting global appetite for local shares even at this most turbulent of times.

In June, shareholders of local credit-card services provider Companhia Brasileira de Meios de Pagamento (VNET3.BR), or VisaNet do Brasil, raised BRL8.4 billion through an IPO, the most ever on the Brazilian market.

Later, Brasil Foods (PDA), or BRF, raised BRL5.29 billion from the sale of shares through a primary offering on the Brazilian Stock Exchange.

"Santander's offer is likely to attract huge interest from investors, especially foreign ones, who already have a strong appetite for Brazilian assets," said Lemos. "Imagine their interest in a company with global assets and a strong presence in Brazil."

-By Rogerio Jelmayer, Dow Jones Newswires; 5511-2847-4521; rogerio.jelmayer@dowjones.com