On Wednesday, February 3, 2010, a sign was displayed from the branch of Banco Santander, London, UK.
Simon Dawson | Bloomberg via Getty Images
In one move, Santander silenced months of speculation about his loyalty to the UK’s High Street. And it complicated the year-long consolidation Saga in the Spanish banking sector.
On Tuesday, Spain’s biggest lender said it had agreed to buy the UK’s high street lender TSB from Sabadell, Catalonia, for £2.65 billion ($3.6 billion). The transaction will generate more than 20% return on investment capital and raise the UK’s tangible stock profit margin to 16% by 2028 from 11% last year, Santander said.
The acquisition was at the heart of Santander’s UK expansion after entering the market through the purchase of Abbey National in 2004. However, profitability at its UK branches has dropped by 38% per year last year, bringing questions about Santander’s long-term presence in the UK. The March announcement of potential layoffs and 95 branch closures did little to alleviate rumors despite frequent denials of CEO Anabotin.
“We didn’t think leaving the UK was very important to us,” Santander’s chief financial officer Jose Garcia Cantera told CNBC’s “Scoobox” on Wednesday. “It’s actually the biggest balance sheet in every country [where] We operate. This is a high quality, low risk business, predictable returns, hard currency, sterling, which helps to stabilize the risk return profile. ”
He added that the UK has always been a very important and core component of Santander’s diversification strategy.
Meanwhile, the acquisition of TSB “not only makes sense strategically, but also is very convincing financially, not only to support the UK’s risk return profile.”
The deal could serve as a defensive play from Sabadell, who took over the TSB from Lloyds in 2015 and tried to stop the purchase bid from Spain’s Pier BBVA. The two banks are in conflict as Sabadell rejected BBVA’s first full-stock merger offer last May, and they have underestimated their acquisition targets.
Currently entrenched in the potential for a hostile 14 billion acquisition, the BBVA has decided to continue its bids alive despite recent terms from the Spanish government, despite the acquisition could only progress if the two banks do not consolidate their operations for at least three years.
Over this period, both entities will be maintained [must] According to a CNBC translation, Spanish economist Carlos Querpo said in a briefing in the press, Spanish economist Carlos Querpo said separate judicial identities and assets, and autonomy in managing their activities.
Spanish bank competition “The toughest in Europe”
Madrid, under Prime Minister Pedro Sanchez, relies on the political party in Sabadell’s Catalonian home base – has long opposed the contract amid concerns over unemployment and paid a late May attention from the European Commission to unfairly block the merger.
According to Reuters, Olof Gill, a spokesman for Financial Services for the European Commission, said: Spanish anti-trust watchdog has already cleared its acquisition.
It remains to be seen whether TSB sales will blunt the appetite of BBVA Chairman Carlos Torres Villa.
RBC analysts on Wednesday evaluated Santander’s acquisition of TSB as “like the last major effort to persuade them.” [Sabadell]”Shareholders who will not accept BBVA’s offer during the upcoming acquisition period” are likely to further complicate the acquisition of BBVA.
“We are completely neutral in the Sabadell-BBVA transaction,” Santander’s Garcia Cantera told CNBC. “This is an asset that will become available in one of the countries we operate in, and it is our fiduciary duty to see all these opportunities and do our best for our shareholders.”
However, he recognizes that the current competition in Spanish banking is “probably the toughest in Europe,” citing the low prices of domestic mortgages.
“I don’t think this is going to make Spanish banking more comfortable. I’m probably against it,” Garcia Cantera said.
