Santander, the Spanish bank that owns Abbey National, Alliance & Leicester and Bradford & Bingley's British savings business, bowed to economic pressure yesterday and announced a €7.2bn (£5.9bn) rights issue.
The cash call, which sent its shares down 5 per cent, made Santander the latest of a slew of European banks to shore up capital reserves.
The move comes less than two weeks after Spain's biggest bank said it had no need to raise capital. It also said yesterday that it was cancelling planned asset sales – another way to raise cash – until markets recovered.
Santander's chairman, Emilio Botín, known for his aggressive growth strategy and autocratic management, said the rights issue will allow Santander to "strengthen its capital through a superb investment opportunity for its shareholders".
Santander was involved in talks on the UK bank bailout but turned down the Government's cash. Instead, it moved £1bn to its British business, boosting the tier-one capital ratio for Abbey-A&L to about 9.25 per cent. Santander's group tier-one ratio stands at a weaker 7.89 per cent and its core tier-one ratio is 6.31 per cent.
That measure would have been considered strong a month ago but now looks thin compared with the European average for major banks of more than 9 per cent for core capital. The ratio could have dropped further as the bank is about to complete acquisitions. Santander said it was aiming for a core tier-one ratio of 7 per cent.
As well as the economic slowdown, the bank's acquisitive growth strategy has stretched its balance sheet. Santander has spent billions of pounds on buying rivals since the acquisition of its first British business, Abbey, in 2004. Its purchases include the South American assets of Dutch bank ABN Amro, the British mortgage lender Alliance & Leicester and the savings business of Bradford & Bingley. The credit crisis has created opportunities for cheap deals and Santander has been one of the few banks able and brave enough to take advantage of this.
It has reaped the benefits of its traditional retail banking businesses and the Bank of Spain's insistence that lenders shun racy credit assets and build impairment reserves.Reuse content