Santander to Absorb Banesto in Bid to Cut Costs

MADRID — Banco Santander said Monday it would absorb Banesto, its main domestic subsidiary and once one of Spain’s leading banks, as part of a plan to cut 700 branches, or about 15 percent of its retail network.

Santander, Spain’s largest bank, said it would offer €293 million, or $384 million, to buy out minority investors in Banesto, in which it already owns 90 percent of the equity.

The offer values the shares of Banesto at €3.73 each, a premium of 25 percent over their closing price Friday. The shares, which had been suspended Monday morning pending the announcement, traded later in the day at €3.58.

Santander predicted its absorption of Banesto would yield €520 million in savings by the third year through the branch cuts and economies of scale from centralizing back-office operations and management.

The bank said it would also absorb Banif, a private banking subsidiary that has been operating under its own brand name.

The decision to unify Santander’s main brands and reduce its network to about 4,000 branches in Spain comes amid a banking crisis that has forced the country’s banks to slash their bloated retail networks in order to offset tumbling domestic earnings.

In October, Banesto reported a decline of 83 percent in third-quarter earnings as it was forced to raise its provisioning against bad loans.

Overall, Santander forecast that Spain’s banking consolidation would shrink the domestic network to 30,000 branches by the end of 2015, a decline of about 16,000 branches, or 35 percent, in the eight years since the financial crisis started.

“This transaction is part of the restructuring of the Spanish financial system, which involves a significant reduction in the number of competitors and the creation of larger financial institutions,” Santander said.

Several other Spanish banks have recently announced significant office closures, led by Bankia, a giant lender whose near-collapse forced the government to negotiate a European banking bailout worth €100 billion in June.

Santander took over Banesto in 1994, after Banesto got entangled in a fraud scandal that forced its seizure by the Bank of Spain and eventually led to a jail sentence for its flamboyant chairman, Mario Conde.

Following Santander’s takeover, however, Banesto continued to operate under its own management. In fact, some of Santander’s leading executives had stints running Banesto, including Ana Patricia Botín, the daughter of Santander’s chairman, Emilio Botín, who was in charge of Banesto until 2010, when she took the helm instead of Santander’s British subsidiary.

Daraigh Quinn, a London-based banking analyst at Nomura, wrote in a note to investors that Santander was making “a strategically good move,” particularly given the challenge facing Banesto of setting aside enough funds for non-performing loans.

“Although Banesto has been able to avoid raising any capital so far during the crisis, the current provisioning needs were maybe a little too much to absorb with ongoing profits,” Mr. Quinn said.

Article source: http://www.nytimes.com/2012/12/18/business/global/santander-to-absorb-banesto-in-bid-to-cut-costs.html?partner=rss&emc=rss