September 22, 2019

Santander to Take Full Control of Banesto in Bid to Cut Costs

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

Santander, the biggest bank in Spain by assets at the end of September, said it would buy out minority investors in Banesto, in which it already owns 90 percent of the equity, by offering them Santander shares in a deal that values Banesto at about €2.6 billion, or $3.4 billion.

The offer values the Banesto shares at €3.73 each, a premium of 25 percent over the closing price Friday. The shares closed Monday at €3.54.

Santander predicted that its absorption of Banesto would yield €520 million in savings within three years through the branch cuts and economies of scale gained by centralizing back-office operations and management. Santander did not quantify how many layoffs the transaction would entail, but said that any job cuts would be implemented “gradually.”

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 led banks in the country to curtail their bloated branch networks to offset tumbling domestic earnings.

In October, Banesto reported an 83 percent decline in third-quarter earnings as it raised its provisioning against bad loans.

Over all, Santander forecast that banking consolidation in Spain 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 branch closures, led by Bankia, a giant lender whose near-collapse required 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 resulted in its seizure by the Bank of Spain and eventually led to a jail sentence for its flamboyant chairman, Mario Conde.

After the 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. Ms. Botín was in charge of Banesto until 2010, when she took the helm of Santander’s British subsidiary.

Daragh Quinn, a banking analyst in London for 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 problem 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.

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