FILE PHOTO: The logo of Santander bank is seen on the facade of a branch in Mexico City, Mexico June 17, 2024. REUTERS/Henry Romero/File Photo
LONDON: Banco Santander SA’s frustrations with its British business are piling up, with job cuts and an expensive car finance review last week just the latest headaches for executives as they make other countries more of a priority.
Spain’s most valuable bank became a UK household name with its 2004 acquisition of building society Abbey National, in a deal Santander’s then-chairman Emilio Botin said would “reinforce our pan-European franchise” and give the bank “a more balanced stream of earnings”.
Two decades on, both the bank and its feelings towards the United Kingdom have shifted.
Santander branches are still a familiar sight in British towns and it remains one of the biggest mortgage lenders, yet its Latin American markets offer greater returns.
Santander has trimmed the relative size of the British business: risk-weighted assets in the United Kingdom have been falling from around 14.7% of the group’s total in 2018 to around 12.7%. in the first half of this year.
The bank previously considered divesting assets in the United Kingdom and may consider doing so again if it felt it may fetch a good price for any of them, according to two people familiar with the matter.
There are no active deliberations at the moment and chances of any deal in the future are low, they said, asking not to be named discussing non-public information.
The bank delayed its full UK results yesterday so it could assess the cost of an industrywide regulatory probe into mis-sold car finance.
Chief financial officer Jose Garcia Cantera said it would come in “significantly lower” than €600mil (US$649mil), though analysts have touted a total bill of €1bil.
Even at the lower end, this represents a big charge for Santander UK, where earnings fell 21.5% to €975mil in the three quarters through September. The bank paid more to retain customers and lost more to fraud.
Santander has also kicked off a round of job cuts at its UK headquarters in Milton Keynes, and expects to lose almost 1,500 staff in the country this year.
These issues add to the negative sentiment around the British arm, where Santander has moved out around £2bil to the parent company over the last 18 months.
Over three years, the percentage of profits paid as dividends to the group has been higher than in other core markets such as Brazil and Mexico.
“At the moment they are in a holding pattern, not allocating capital to the division, seeing more upside in other regions,” said Benjamin Toms, an analyst at Royal Bank of Canada.
“They probably need to take some of inorganic action at some point. The bank’s exposure to UK motor finance commissions could also be an unhelpful headwind.”
UK boss Mike Regnier alluded to some of the challenges at a parliamentary hearing in March, where he warned that “even in a really good year, the level of returns that we are able to make in the UK are not as high as the shareholders of our parent would expect”.
Regnier blamed the low returns on fierce competition for UK savers and borrowers, higher tax rates on banks, and the growing burden on finance firms to reimburse fraud victims, something that is “quite unusually globally.” — Bloomberg
