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— Analysis —
 "If you don't fully understand an instrument, don't buy it," Emilio Botín, chairman of Spain's Banco Santander SA told bankers at a London awards ceremony in July. "If you would not buy for yourself a specific product, don't sell it. If you don't know your customers very well, don't lend them any money. If you do all these things, you will be a better banker, my son," he added, with a nod to Rudyard Kipling's 1895 poem, "If." The advice was as sweetly simple as it was bitter to swallow. By the time Botín delivered his maxims-for-better-banking, it was evident that a failure to respect those basic principles had sown the seeds of destruction in the world's financial markets. Bear Stearns Cos. had collapsed, Lehman Brothers Inc. was soon to follow and ... you know the rest of the story.
Not yet clear when Botín spoke was how aggressively, and quickly,
Madrid-based Santander would move to exploit the opportunities the
crisis created. A few days after his London soiree, Santander bought embattled U.K. mortgage lender Alliance & Leicester plc for a cut-rate £1.3 billion ($2.2 billion). In September it picked up the choice assets of nationalized British mortgage lender Bradford & Bingley plc, and earlier this month swooped in on Sovereign Bancorp Inc.,
the No. 1 U.S. thrift. From bread-and-butter lending, Santander amassed
the capital to dramatically raise its profile as a global banking power.
"Santander has pursued a conservative model based on retail and commercial banking," says Antonio Ramirez, a London-based analyst with Keefe, Bruyette & Woods Ltd. "The result is that it is now one of the strongest banks in Europe." At the end of July, Santander's key Tier 1 capital ratio stood at 7.88%, just 0.02 percentage points lower than a year earlier. In the past four months, while many of his peers scrambled to shore up their battered balance sheets, Botín deployed his capital, spending $5.1 billion to add about $130 billion of deposits and 1,200 branches to its operations. He struck his biggest U.S. deal in mid-October, answering an SOS from Sovereign Bancorp. Santander agreed to pay $1.9 billion in stock for the 75.65% of Sovereign it didn't already own after Sovereign's share price plunged and savers at the Philadelphia lender withdrew about 9% of their deposits during a bank run. An aversion to outsized risk and an appetite for the strategic acquisition has long defined Botín, 74. He took over Santander from his father, also Emilio, in 1986 and built the lender into Spain's No. 1 bank. In January, Santander was part of the triumvirate that bought and broke up Dutch banking giant ABN Amro Bank NV in a deal valued at €72 billion ($93 billion), the biggest ever banking acquisition. Notably, Botín's partners in that deal, Jean-Paul Votron, CEO of Fortis SA/NV, and Fred Goodwin, CEO of Royal Bank of Scotland Group plc, have both lost their jobs as their overstretched banks collapsed under the weight of the credit crisis. Botín's recent acquisitions are unashamedly opportunistic, yet they also tend to follow a strategic logic. The acquisitions of A&L and the Bradford & Bingley assets enabled Botín to realize an ambition to build on his 2004 purchase of Abbey National plc. Santander now controls about 13.3% of the U.K.'s mortgage market, up from 9.7% before the A&L and B&B deals, has a 10.1% share of retail deposits, up from 5.9%, and 10.3% of the U.K.'s branch network, up from 5.6%. The acquisition of the ABN assets enabled Santander to increase its exposure to its other key market of Latin America -- adding ABN's Banco Real in Brazil and extending its share of the Latin American market to just over 10%. Sovereign appears to be the odd bank out in Botín's recent deals. Far from a consolidation, the acquisition of the thrift appears to open a new front in Santander's expansion plans. "It wouldn't make sense to get a toehold in the U.S., which is what Sovereign represents, without seeking to build on it," says a source involved in the negotiations for the thrift. The source would not identify any potential names, but analysts have flagged Providence, R.I.-based Citizens Financial Group Inc., owned by RBS, as a possible target. Not everyone believes a deal would be the right move for Santander. "European banks have a poor track record in the U.S.," says Keefe Bruyette's Ramirez. But, as Botín has made quite clear, he's not just any old European banker. |
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