FOCUS: Santander On The Path To More Local Listings

2nd Aug 2010 07:25

By Christopher Bjork Of Dow Jones Newswires MADRID (Dow Jones)--Banco Santander SA (STD) appears to be moving forward on a strategy of giving more autonomy to local units by listing subsidiaries in its main markets, boosting their independence from headquarters in Spain. Europe's second-largest bank by market capitalization did that in Brazil last year by listing a 15% stake in its fast-growing subsidiary there. Santander is considering doing it in the U.K., with management hinting that this is a strategy that can be taken to other markets, allowing more independence and stronger capital and liquidity management to each subsidiary. "Regulators prefer the subsidiary model, and this model favors the entry of minority shareholders," Santander Chief Executive Officer Alfredo Saenz said during the bank's earnings presentation last week. Like its bigger rival HSBC Holdings PLC (HBC), Santander's foreign units are subsidiaries as opposed to branches. "We also believe it's good for the local management teams, because having local minority shareholders breathing down their neck keeps them on their toes, and it's a good way of identifying the franchise as local, instead of foreign." The IPO increased the visibility of Santander Brazil, allowed the parent to raise more than EUR5 billion ($6.5 billion) in capital, and put a higher value on the franchise than what analysts were giving it before the float. "I think Santander is sort of an unpolished diamond in the sense that there is a lot more value in the company than what is expressed in the stock market at the group," said Christian Blaabjerg, head of equity strategy at Saxo Bank. Saenz confirmed Santander is studying a listing of its U.K. unit, though it said no decision had been made on if and when to do it. If the U.K. float is equally successful, Santander could repeat the trick in other relevant markets, such as Mexico. Santander recently paid $2.5 billion for the 25% stake it didn't already own in Santander Mexico from Bank of America Corp. (BAC), a move that some analysts took as a prelude to a listing. A Santander official declined to comment on the bank's plans for the Mexican unit. When Santander sold 15% of its Brazilian unit, the unit alone was valued at EUR34 billion, more than European rivals Deutsche Bank AG (DB) or Societe Generale (GLE.FR). Evolution Securities, a U.K. brokerage, said in a report that it expects Santander U.K. to be valued around EUR20 billion in an IPO. The whole of Santander was Friday valued at EUR82.3 billion. The bank last Thursday reported a 1.6% drop in first-half net profit, of EUR4.45 billion. As the Spanish economy continues to slump, the bank relies more on growth in faster-growing Latin American economies and the U.K. Listing a subsidiary "is also a very elegant way of raising capital in order to meet higher future requirements for regulatory capital," Saxo Bank's Blaabjerg said. For the acquisitive bank, a local listing brings other advantages. It could use the subsidiary as an acquisition vehicle, paying for assets with new stock from the local unit. That would be less complicated for local shareholders and it would avoid the legal and tax-related complexities associated with cross-border deals. The move to grant more autonomy via listings coincides with other moves aimed at unifying the group. The bank is rebranding foreign subsidiaries that earlier operated under a different name as Santander, and it is installing the group's proprietary information-technology system in all markets. It also has business units that work across all of the geographical regions, such as asset management and its wholesale-banking business. Santander was founded more than 150 years ago in the northern Spanish city that it takes its name from, but it long ago moved its headquarters to Madrid. The bank remains under the control of the Botin family: Members of the family have held the chairmanship for three generations, and under chairman Emilio Botin, now 75, Santander has taken a quantum leap, morphing from a midsize Spanish player into a global banking powerhouse with 170,000 employees thanks to a constant drip of acquisitions and decades of franchise building. His daughter, Ana Patricia Botin, who runs Santander subsidiary Banco Espanol de Credito SA, is widely tipped to take over the reins when Emilio Botin retires. Santander planted its flag first in Latin America in the early 1990s, where it built a regional network that now contributes 37% of the bank's profit. Brazil now equals Spain as a profit generator, and the bank expects it to become the biggest earner this year for the first time. In 2004, it moved into the U.K.; that business now accounts for 17% of profits. Santander has laid the groundwork for a U.S. and German expansion plan, too. It bought Philadelphia-lender Sovereign Bank at firesale prices during the financial crisis, and earlier this month it bought a small German retail-banking franchise. "We decided on it a year ago, we started preparing structurally to do retail banking in Germany," Saenz said. In Germany, Santander first installed its IT system it uses in Spain and elsewhere, getting its tiny branch network ready to offer retail-banking products and not just car loans and other consumer-finance products. Then it bought the retail-banking unit of Skandinaviska Enskilda Banken AB (SEB-A.SK), doubling its network to more than 300 branches. The bank said it has nine core markets. Its head of strategy, Juan Rodriguez Inciarte, said recently that even if Santander has global ambitions, it will draw the line at 12 core markets, because it would be tough to find strong local management for that many markets. -By Christopher Bjork, Dow Jones Newswires; +34 606 396 093; [email protected] (END) Dow Jones Newswires August 02, 2010 02:25 ET (06:25 GMT)