Santander doubles down on UK presence amid Spain’s banking M&A turmoil

In a single transfer, Santander has silenced months of hypothesis over it is allegiance to the British excessive road – and complex a year-long consolidation saga in Spain’s banking sector.

On Tuesday, Spain’s largest lender stated it agreed to purchase British excessive road lender TSB for £2.65 billion ($3.6 billion) from Catalonia’s Sabadell in an all-cash deal topic to approval. The transaction will generate a return on invested capital of greater than 20%, bringing its return on tangible fairness within the U.Okay. from 11% final 12 months to 16% by 2028, Santander stated.

Acquisitions have been on the coronary heart of Santander’s British growth after it entered the market in 2004 by the acquisition of Abbey Nationwide. However the profitability of the U.Okay. department has faltered — with pre-tax revenue down by an annual 38% final 12 months — sparking questions over Santander’s long-term presence in Britain. A March announcement of potential layoffs and 95 department closures did little to abate the rumors regardless of CEO Ana Botin’s frequent denials.

“We by no means considered leaving the U.Okay. The U.Okay. is essential for us,” Santander Chief Monetary Officer Jose Garcia Cantera instructed CNBC’s “Squawk Field” on Wednesday. “It is really the biggest stability sheet of all of the nations [where] we function. It is a top quality, low-risk enterprise, predictable returns, in arduous forex, in sterling, and this helps to stabilize our risk-return profile.” 

He added that the U.Okay. has “all the time been an important and core element of Santander’s diversification technique.”

The TSB acquisition, in the meantime, “not solely is smart strategically, as I stated, the U.Okay. helps with our risk-return profile, however it’s additionally financially very, very compelling.”

The deal might work as a defensive play from Sabadell, which solely took over TSB from Lloyds in 2015 and seeks to cease a takeover bid from Spanish peer BBVA. The 2 banks have been locked at odds since Sabadell rejected BBVA’s preliminary all-share merger provide in Might final 12 months, on grounds of it undervaluing the acquisition goal.

Now entrenched in a possible 14-billion-euro hostile takeover, BBVA has determined to maintain its bid alive regardless of a current situation from the Spanish authorities that the takeover could solely proceed if the 2 banks don’t combine their operations for not less than three years.

Over this era, “each entities preserve [must] separate judicial id and property, in addition to autonomy within the administration of their actions,” Spanish Economist Minister Carlos Cuerpo stated throughout a press briefing, in response to a CNBC translation.

Madrid — whose authorities beneath Prime Minister Pedro Sanchez is dependent upon events in Sabadell’s house base of Catalonia — has lengthy opposed the deal amid considerations over job losses, acquired a late-Might warning from the European Fee in opposition to hindering the merger unduly.

“It is vital that banking sector consolidation can happen with out undue or inappropriate obstacles being imposed,” stated Olof Gill, the European Fee’s spokesperson for monetary companies, in response to Reuters. Spain’s antitrust watchdog has already cleared the acquisition. 

It stays to be seen whether or not the TSB sale will boring BBVA Chairman Carlos Torres Vila’s urge for food to press forward with submitting a merger provide to Sabadell shareholders as soon as permissions come by.

RBC analysts on Wednesday assessed that Santander’s acquisition of TSB “appears to be a final main effort to persuade [Sabadell]’s shareholders to not settle for BBVA’s provide throughout the upcoming take-up interval” and would “probably additional complicate” BBVA’s takeover.

“We’re fully impartial on the Sabadell-BBVA transaction,” Santander’s Garcia Cantera instructed CNBC. “That is an asset that turns into accessible in one of many nations the place we function, and it is our fiduciary responsibility to take a look at all these alternatives and attempt to do our greatest for our shareholders.”

But he acknowledged that competitors in Spanish banking at current is “in all probability the hardest in Europe,” citing the weak value of home mortgages.

“I do not assume that is going to make banking in Spain extra comfy. Most likely the other,” Garcia Cantera stated.