Spanish banking giant Banco Santander has pulled through the credit crisis with a much higher profile than ever before. I was initially skeptical that the firm was hiding huge losses at it had exposure in Spain, the UK and the US, all terrible bubble markets. Yet, it has seemed to come through swimmingly and is using the current market turmoil to consolidate its overseas positions.
The latest move by Santander is its merger discussions with Sovereign Bancorp, the beleaguered U.S. regional bank based in Philadelphia. Regional banks in the U.S. have suffered more because mark-to-market rules under accounting rule FAS 157 has put off foreign buyers afraid of significant credit writedowns applicable under a merger due to the FAS 157 rule. Rumors have circulated that Canadian banks have avoided the U.S. for just this reason.
With Santander looking seriously at Sovereign, this should put the likes of NCC and Fifth Third into play as well. I reckon this news will further fuel a massive rally in financial shares come Monday morning.
Banco Santander of Spain is in advanced talks to acquire Sovereign Bancorp for virtually no premium, people briefed on the matter said, as the acquisition of weakened banks continued apace in another hectic weekend.
Santander is likely to pay $3.81 a share for Sovereign, a savings and loan that has been hobbled by bad mortgages. That would mean buying Sovereign for about $2.53 billion, these people said.
The move would bolster Santander’s footprint in the United States, something the Spanish bank has desired for some time. Unlike other banking giants throughout the world, the firm has been largely unhurt by the global credit crisis, having foregone trading in subprime mortgages and other risky debt that have since imploded.
Santander has been considered a logical white-knight for Sovereign, ever since it took a nearly 25 percent stake in the bank three years ago and filled three seats on its board. By buying out the remaining shares, Banco Santander will be able to put Sovereign on stronger financial footing. It also would reduce the chance that its original stake would be wiped out as Sovereign’s prospects soured.
Shares in Sovereign have plunged 77 percent over the past year, but closed up 16.9 percent on Friday.
As other Spanish banks are deluged by losses, Banco Santander has been one of the more robust players to emerge from the credit crisis. It steered clear of many of the problems tied to American subprime mortgages and other complex investments, and is now seizing opportunities on a global stage. On Friday, it completed its bargain-basement 1.3 billion pound purchase of Britain’s Alliance & Leicester. And it had been among the early bidders for Washington Mutual and Wachovia in the United States.
The bank is no stranger to mergers: Its current form was born in 1999 by the merger of Banco Santander and Banco Hispano, giving it big presences in Europe and Latin America. In 2004, Santander bought Abbey National of Britain for $15.6 billion.
Along with Banco Bilbao Vizcaya Argentaria, Banco Santander has been seeking gain a bigger foothold faster-growing American markets, especially places like Florida, Texas, and Arizona that have strong ties to Latin America where it also has expanded.
Sovereign, a Northeast regional player based in Wyomissing, Penn., outside suburban Philadelphia, has suffered mightily as the housing crisis worsens. After barreling into new markets in the southeastern and southwestern United States, it became swamped by mortgage and home equity losses as home values in those regions collapsed.
The bank has also been hit hard large auto loan portfolio and big holdings of Fannie Mae and Freddie Mac preferred stock, which have effectively been wiped out. As a result, it has sharply pulled back from making new loans.
Santander In Advanced Talks to Buy Sovereign – Deal Book