Santander mulls over partial sale of UK banking business
Flotation would help to fund bid for Williams & Glyn's and inject capital into bank
BANCO Santander, Europe's second biggest banking group, is considering a partial flotation of its British businesses.
The move – which could value the operation at £15bn – would help to fund its attempt to buy Royal Bank of Scotland's Williams & Glyn's, which the latter has been ordered to sell by the EU as the payment for the massive injection of state cash it has received.
Santander's British businesses include Abbey, Alliance & Leicester and Bradford & Bingley's deposit accounts. It accounted for about half of the new mortgages sold in Britain last year.
As well as funding a deal, a float would provide an injection of capital for Santander which would help to insulate it in the event of further disruption to the Spanish economy, currently reeling from the effects of the property crash.
Santander's reliance on its Spanish heartland has fallen to 25 per cent as a result of its rapid international expansion of recent years. However, the company increased its bad loan provisions in 2009 by 43.7 per cent to €9.84bn (£8.6bn) as soured debt levels rose to 3.24 per cent at the end of the year from 2.04 per cent at the end of 2008.
A spokesman for the bank declined to comment on the possible flotation, whose £15bn valuation is based on 10 times its £1.5bn profits in the UK last year – a 20 per cent increase.
However, City sources said Santander had talked to investment banks about listing as much as 25 per cent of the UK operation, in a move similar to the partial flotation of Santander's Brazilian operations last year, which contributed €1.4bn (£1.2bn) to the bank's €8.9bn profit in 2009. Williams & Glyn's, which has 300 branches, has attracted Santander's interest because of its presence in the business banking market, a weak point for the company's UK arm.
However, it could switch its attention to the 600-strong network of Lloyds branches which that bank has to sell as a consequence of its bailout.
Even with the problems in its home market, however, it would be hard for a competitor to outbid Santander for the Williams & Glyn's business.
Barclays and HSBC – the other members of Britain's "big four" along with RBS and Lloyds – have been barred from the auction because the Government wants to see an increase in competition for UK banking.
With the Lloyds branches and Northern Rock's "good bank" also being readied for sale, bankers have warned of a glut of assets that might struggle to find buyers. Said one industry source: "We think some of the assets coming on the market across Europe will struggle to find buyers. We'll have a look, but we can't buy everything, and you have to ask, who will? It's not as if even healthy banks have a lot of capital to play with."
John Hitchins, UK banking leader at PricewaterhouseCoopers, said new entrants or foreign buyers could mop up the assets, but prices would not be high: "At the moment, banks are capital constrained.
"There are not too many people interested or able to buy the assets that are coming on to the market. And the UK is not a very attractive market to buy into in banking because of the difficulties with the economy."
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments