London/Madrid: Spain's Santander has sealed the purchase of over 300 UK branches from Royal Bank of Scotland for £1.65 billion (Dh9 billion) and pumped billions of euros into its British arm ahead of an expected spin-off.
The Eurozone's biggest bank also said yesterday it had provided £4.46 billion of equity capital to its UK business to "support organic and inorganic growth as well as a planned reorganisation 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 per cent of Santander's profits come from Britain, compared with 22 per cent 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 (Dh5 billion) 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 premium to net asset value, which was about £1.3 billion at the end of 2009.
By 0900 GMT Santander shares were down 1.5 per cent, in line with a weak European bank index. RBS dipped 0.3 per cent.
Forced sale
RBS, 83 per cent 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, sources have said. That deal could come before its half-year results tomorrow.
Santander continues to expand abroad despite problems at home, where the bursting of a decade-long housing bubble and a Eurozone 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.
