Santander writes a new chapter as it emerges as banking predator

By Victor Mallet
Published: October 21 2008 03:00 Last updated: October 21 2008 03:00

Emilio Botín, chairman of Santander and the third person of that name to head the Spanish bank since it was founded in 1857, makes the art of banking sound deceptively simple even in the midst of a global financial crisis.
The world's banks, Mr Botín said last week, needed to focus on customers, make the most of recurrent business, manage risks prudently and reinforce corporate governance.
Under Mr Botín, now 74, Santander has expanded rapidly in Europe and the Americas over the past two decades. Yet envious executives at rival banks are asking whether Mr Botín, for all his sermons, has overreached himself with his latest round of acquisitions.
Merrill Lynch yesterday listed Santander as one of the big European banks that might need to raise more capital.
Shares in Santander, the biggest bank in the eurozone by market capitalisation, have been pummelled along with those of other banks during the crisis.
Santander, however, has emerged not only as a survivor but as a predator exploiting the credit crunch to purchase weaker banks.
José Antonio Alvarez, chief financial officer, said recently that Santander could benefit from a "winner takes all" market in the crisis "by rescuing falling banks at attractive prices".
Five days later, Santander announced a $1.9bn deal to buy Sovereign Bancorp of the US.
Earlier, Mr Botín had boasted to shareholders: "We are really in a magnificent position compared with our competitors."
Having bought Abbey National, Alliance & Leicester and the deposits and branches of the nationalised Bradford & Bingley, Santander is now a force in British retail banking as well as in Spain and Latin America.
Santiago López Díaz, an analyst for Credit Suisse, says the crisis has given Santander the chance to make acquisitions far more cheaply than in its dozens of previous deals.
"Right now Santander, in relative terms, is in a much better position than most of the European banks," he says.
Santander has succeeded with the help of a lot of skill and a little luck.
As Mr Botín likes to remind his listeners, risk control requires hard work, not fancy innovations.
Five directors on Santander's risk management committee meet twice a week for at least four hours. The bank's good fortune in this crisis is in its focus on retail rather than investment banking, and in the Bank of Spain's determined opposition as national regulator to the off-balance-sheet assets that turned toxic and sank banks elsewhere.
That still leaves Santander, which aims to increase net profit this year by 10 per cent to €10bn ($13.3bn), exposed to any weakness in key markets such as the UK, Spain and Latin America, and to the wholesale financing drought that is affecting the entire international banking system.
Even in these areas, however, analysts believe the risks are limited.
In Spain, for example, property developers, the borrowers most exposed to the country's residential property crash, account for only 6.8 per cent of Santander's portfolio of well provisioned Spanish assets.
Santander is a heavy user of wholesale finance - it needs more than a quarter of the €80bn that matures and needs refinancing for Spanish banks next year, according to one market analyst - but it has industrial assets to sell if needed.
Its senior executives, furthermore, helped persuade José Luis Rodríguez Zapatero, the Socialist prime minister, to promise up to €150bn in asset purchases and state guarantees to keep the country's banks liquid up to the end of 2009.
"We feel comfortable with their [Santander's] liquidity position," says Maria Cabanyes of Moody's, the credit rating agency.
One concern is that Santander might have extended too much capital on acquisitions, leaving it vulnerable in a world populated by rival banks that have received emergency capital injections from their respective governments.
The latest deals, however, have only a small impact on Santander's core capital ratio - a reduction of 20 basis points in the case of the Sovereign deal - and senior executives say they will be devoting their time to consolidating what they have bought and rebuilding core capital from just under 6 per cent now to over 7 per cent at the end of next year.
Thereafter, the chances are that Santander, once an obscure provincial bank, will set out again on the global acquisition trail under Mr Botín or his successors.
Copyright The Financial Times Limited 2008