This story was printed from TODAYonline 
Wednesday • October 15, 2008
After snapping up stakes in two British banks hard hit by the financial crisis, Spain's biggest bank, Santander, has turned its sights across the Atlantic with the purchase of troubled US lender Sovereign Bancorp.
The Spanish bank said late Monday it had reached an agreement to buy the remaining 75.65 percent stake in the US bank it does not already own in an all-share deal worth 1.9 billion dollars (1.4 billion euros).
Santander, the largest bank in Europe's single-currency zone by market capitalization, said the deal was proposed by Philadelphia-based Sovereign, which has been pummelled by rising mortgage defaults.
"They approached us to see if we were in a position to make an offer during the weekend," the bank's chief financial officer Jose Antonio Alvarez told an analyst conference call on Tuesday.
Sovereign, which has 750 banks in the northeastern United States, posted a third quarter loss of 928 million dollars after the deal was announced, compared to a net profit of 58.1 million dollars in the same period last year.
In a statement, Sovereign board member Ralph Whitworth said the deal was "the right transaction at the right time" for the lender given the "unprecedented uncertainty in the current market environment".
The deal is part of a wave of consolidation in the banking industry as it struggles to deal with the the global financial crisis.
It also highlights the relative health of Santander, which like most Spanish banks has avoided some of the problems in the US home loan derivatives market that have sunk many of its peers.
Last month it bought the best assets of British lender Bradford and Bingley for 612 million pounds (785 million euros, 1.1 billion dollars) after reaching an agreement in July to buy Alliance and Leicester in a deal worth 1.26 billion pounds.
Last week Alvarez indicated that Santander was open to more acquisitions, telling a conference in London that it could "add value by rescuing failing banks at attractive prices."
Under terms of the deal, Sovereign shareholders will receive roughly 0.29 American Depositary Shares of Banco Santander for every share of Sovereign common stock in a deal worth roughly 3.81 dollars a share.
It paid 27 dollars a share when it first entered Sovereign's capital in 2005.
Alvarez said the US lender, which offers a range of financial services from retail banking to insurance, was not heavily exposed to subprime mortgages.
"We are very comfortable with the risks we are taking from Sovereign," he said.
Santander will however make additional provisions of 1.2 billion dollars over the next two years and predicts its purchase of Sovereign will have a negative impact on earnings per share until 2011.
The bank will carry out a capital increase and issue approximately 147 million new shares, or approximately two percent of its capital, to finance the deal.
It had already carried out a capital increase of around two percent when it purchased Alliance and Leicester.
Fitch Ratings agency on Tuesday placed Santander's rating watch on "negative" following the announcement of its purchase of Sovereign.
"While the transaction represents a good opportunity for Santander to further diversify its activities and develop its retail banking business in the US market, it is currently in the process of integrating franchises in the UK and in Brazil under complex operating conditions," it said.
Shares in Santander closed up 0.88 percent at 10.28 euros while the Ibex-35 index of most-traded shares ended the day up 2.70 percent.
Last month Santander president Emilio Botin maintained the bank's forecast of a record 10-billion-euro net profit for 2008. — AFP