Market jitters force delay to Santander flotation plan

Hopes that Banco Santander will kick off a rush of autumn flotations with a partial sell-off of its UK arm are set to be dashed, it has emerged.

The hotly anticipated float is now likely to be shelved until at least 2011 because of continuing economic and market uncertainties and may even be dropped altogether because of doubts about whether such float – of up to a quarter of the business – would be sufficient to raise the capital Santander needs.

That could be a blow to nearly two million UK shareholders in the bank, who gained their investments as a result of Santander using new shares to buy up UK building societies. It is understood that Santander has been working on ways to give its UK shareholder base a way of swapping their Spanish shares for shares in the new business if it does come to the market. While no final decision has been taken, this would be attractive to many UK investors because the new shares would be denominated in sterling. It would also free them from Spanish tax liabilities such as the country's withholding tax.

Santander is adding more than 300 Royal Bank of Scotland (RBS) branches to its existing UK operations – which include Abbey, Alliance & Leicester and parts of Bradford & Bingley – in an attempt to create a "fifth force" in British banking to take on the four biggest players, Barclays, Lloyds, HSBC and RBS.

The partial flotation of those businesses now looks unlikely to start until spring next year at the earliest, and could even slip back to the autumn, assuming the bank pushes ahead at all. This will come as a blow to the City which had been hoping that the autumn would see a recovery in the torpid IPO market. A successful Santander float could have persuaded others to try their luck.