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November 11, 2008

Santander proposes €7.2 billion rights issue

by Gill Montia

Story link: Santander proposes €7.2 billion rights issue

Spanish banking group, Santander, is raising €7.2 billion (£5.9 billion) in a rights issue.

The move comes two weeks after the bank reported that its balance sheet was strong enough to resist a fundraising, despite a string of acquisitions.

In October, Santander acquired part of the collapsed Bradford & Bingley, having made a successful bid for Alliance & Leicester, in July.

The group, which already owns Abbey, is also in the process of buying 100% of Sovereign Bancorp Inc., the US bank in which it holds a substantial stake.

However, Santander is under pressure to maintain a respectable Tier one ratio and investors, already nervous about the bank’s capitalisation, could be further spooked by the need for a rights issue.

The group’s Tier 1 capital ratio stood at 6.3% at the end of September and the fundraising should increase it to 7%.

The reasons for Santander’s confidence during the credit crisis are well known.

Its exposure to the US sub-prime mortgage crisis has been minimal because it is predominantly a retail bank with conservative investment strategies.

In addition, profits have been bolstered by its acquisitions in the fast growing economies of Latin America, which included the assets management business of ABN Amro.

However, the collapse of the Spanish property market will impact on its fortunes and a slowing of growth in Latin America could leave it vulnerable.

The new shares will be issued at a 46% discount.

 

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