Coming soon: the flotation of a minority stake in the Spanish bank's UK operations...
Banco Santander, the biggest bank in the euro zone by market cap (€80 billion), is considering a float of its UK operations on the London Stock Exchange.
The Spanish acquisitions
The Spanish bank has extensive interests here in the UK.
In a series of well-timed acquisitions, it snapped up Abbey and Alliance & Leicester, plus the savings arm of busted bank Bradford & Bingley. By January 2010, both Abbey and B&B had been rebranded as Santander, with A&L to follow later this year.
Now Santander is mulling plans to float a minority stake in its UK assets via a UK listing. According to the bank, its UK arm generates around a sixth (16%) of total pre-tax profits in 2009 of nearly €12 billion.
Were Santander to raise a rumoured £3 billion ($4.5 billion) for a 20% stake, this would value its UK businesses at a tidy £15 billion. This would catapult 'Santander UK plc' into the blue-chip FTSE 100 index.
Although there has been no definitive word from Santander, a London listing could take place this autumn. This would help serial acquirer Santander to fund its estimated £1.6-£1.8 billion bid for 318 branches of Royal Bank of Scotland (LSE: RBS).
A tough time to float
Although an initial public offering of this quality is likely to prove mouth-wateringly attractive to investment bankers and City advisers, getting an IPO of this size off the ground could prove tricky.
After all, several recent IPOs have been pulled due to ongoing economic uncertainty and investor doubts. A week ago, Fairfield Energy dropped its plans to raise $500 million in a London listing, which would have valued the British oil and gas firm at $1.1 billion.
Likewise, lack of demand for its shares forced online retailer Ocado (LSE: OCDO) to slash its proposed flotation price from a range of 200p-275p to a mere 180p. What's more, the grocer's shares trade at 160p as I write, an 11% drop after yesterday's IPO.
In addition, investor appetite for banks may be curbed by the proposed £2 billion-a-year levy on UK banks due to take effect in January 2011. Similarly, new EU rules governing capital ratios and liquidity are set to hit future bank profits.
The Barcelona of banks?
Nevertheless, Santander -- which largely avoided the meltdown in US mortgage-backed securities -- is a top-flight bank, ranked eighth in the world by market cap. Therefore, if it decides to go ahead with its UK float, then I suspect it will be a rare success in what is shaping up to be a poor year for IPOs. Indeed, Santander raised $7 billion last year by floating part of its Brazilian subsidiary.
At the very least, a financially stronger Santander should provide more effective competition to challenge the stranglehold which the 'Big Four' enjoy in high-street banking. In the meantime, expect Santander to keep snapping up cash-strapped banks around Europe and Latin America...
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