Santander buys RBS branches

 

Spain's Santander has sealed the purchase of over 300 UK branches from Royal Bank of Scotland for 1.65 billion pounds and pumped billions of euros into its British arm ahead of an expected spin-off.

The euro zone's biggest bank also said on Wednesday it had provided 4.46 billion pounds of equity capital to its UK business to "support organic and inorganic growth as well as a planned reorganization of group companies in the UK."

The bank is considering listing part of its British operations, sources familiar with the situation have told Reuters. The parent group could receive funds when that occurs, replacing its cash injection now.

Santander has been in exclusive talks with RBS and has long been the front runner to buy the 318 branches, attracted by the significant small- and medium-sized business customers.

The move will strengthen its burgeoning UK business, helping offset Spanish operations which are still in the doldrums as the economy struggles to fully recover from a severe recession after years of excess.

"Santander is buying very reasonably priced assets in countries they already know well, where they already have presence and IT, therefore making synergies much easier, and that tend to have high return on equity" Arturo de Frias, analyst at Evolution Securities in London, said.

About 17 percent of Santander's profits come from Britain, compared with 22 percent from Spanish retail banking.

Analysts also said the purchase of RBS branches could be funded with no pressure on capital ratios.

Javier Bernat at Caja Madrid said Santander had just issued 1.2 billion euros in bonds, which could help with the funding, and that the final price was at the lower end of expectations.

The price of the deal could be adjusted upon completion, which is expected to be in December 2011. The price will be a 350 million pound premium to net asset value, which was about 1.3 billion pounds at the end of 2009.

By 0900 GMT Santander shares were down 1.5 percent, in line with a weak European bank index RBS dipped 0.3 percent.

FORCED SALE

RBS, 83-percent owned by the British taxpayer, was told to sell the branches as a price for taking billions of pounds in rescue funds from the government.

It is also near to selling its payment processing business to private equity firms Advent International and Bain Capital for between 2 billion and 2.5 billion pounds, sources have said. That deal could come before its half-year results on Friday.

Santander continues to expand abroad despite problems at home, where the bursting of a decade-long housing bubble and a euro zone debt crisis sparked fears over its banks.

A "stress test" of Europe's banks last month showed Santander had a strong capital position.

The deal with RBS will add 1.8 million retail customers and most importantly about 244,000 small and medium size business (SME) customers it has targeted for growth.

After the deal, Santander will have about 1,645 branches, or 12 percent of the British market, consolidate its position as the second-biggest home loan provider and lift its share of the SME market to over 8 percent.

It will be able to cut costs by folding the new business into its existing British business. It bought lender Abbey in 2004 and has since added Alliance & Leicester and Bradford & Bingley.

Santander's British business made a profit of 449 million pounds in the second quarter, up 7 percent on the year, and said it would add 600 jobs by the end of this year.