European banks (2): Spanish Pharaoh still calls the shots

But when the dust began to settle on euroland's most recent banking mega-merger, it became clear that Botín had once more stolen a march on the market. "The operation was a good deal more subtle than people might have imagined," says Mariano Colmenar, banking analyst at Credit Suisse First Boston in Madrid. "Botín knows that the market is no longer prepared to accept the concept of a family-owned bank. He is also aware that banks need to focus on boosting their capitalization to increase shareholder value. One of the new group's biggest shareholders is Botín and his family, hence from his point of view the merger made perfect sense."

Indeed, if that 15% is an accurate estimate of Botín's shareholding, he stood to make a $90 million profit on his holding in the first two months after the merger announcement during which more than one-third was added to Banco Santander's market value. A Banco Santander source who attended a meeting of top-ranking executives from both banks puts it this way: "Botín addressed the group with the self confidence of a man who is very much on top of the situation." Botín is accustomed to being on top: apart from security guards, secretaries and a few assistants, he sits alone on the vast top floor of his bank's Madrid headquarters. "The psychological implication is clear," says a Banco Santander source. "Anyone who wants to see the boss has to go upstairs."

BSCH, as the new bank is called, became euroland's third biggest bank by market capitalization ($36 billion) behind ING and Fortis (both of which make much of their money from insurance rather than banking). At a stroke BSCH acquired a 20% share of the Spanish banking system and 22 million customers, making it arguably the biggest bank in relation to domestic market size in any large developed country. And all this with the blessing of the Bank of Spain.

The real shocker came when Ana Patricia Botín, the boss's 38-year-old daughter and widely acclaimed heir apparent announced that she had "relinquished all executive responsibilities within the group" while retaining a seat on the BSCH board. Under the new management structure she was to have headed up global investment banking. The announcement came the day after the leading Spanish newspaper El País published an eight-page feature hailing the glamorous Botín as "the most powerful woman in Spain". BSCH's chief executive officer Angel Corcóstegui was reportedly enraged by what he interpreted as an affront to the new bank's promise to shareholders to run the organization along professional, decentralized lines.

Sources close to Corcóstegui say he was on the verge of calling off the merger. To save the day, Botín cheerfully placed his daughter on the sacrificial altar - for now. As one banker puts it, "Botín is Botín, and Corcóstegui is an employee. We shall see what happens in a few years' time. Botín could conceivably recall Ana Patricia from the wilderness to take charge of the bank."

For starters, Botín's position will be enhanced simply through attrition. BSCH's co-chairman José María Amusátegui, who headed Banco Central Hispano, retires in three years at the of age 70, leaving Botín alone at the helm. Botín, 65, has no interest in putting his feet up and if he follows family tradition he is likely to be around for some time. (His father, also Emilio, stepped down reluctantly as chairman of Banco Santander aged 84.)

The BSCH deal left its main rival, Banco Bilbao Vizcaya (BBV), previously Spain's largest bank and the top player in Latin America, with some egg on its face. BBV's flamboyant chief executive Pedro Luis Uriarte was mischievously dropping hints last year that a merger between BBV and Banco Santander would be akin to a marriage made in heaven. Botín was not amused: The Pharaoh, as he is known in Spanish banking circles, swiftly denied that he was engaged in talks with BBV or, for that matter, that he had any intention of making his bank a merger candidate.

Botín had in fact approached Banco Popular Español, Spain's fifth biggest bank, with a merger proposal and was shown the door by its dour chairman Luis Valls. Botín then went to Banco Central Hispano, knowing that he would need to act swiftly. A deal was struck in only two weeks. The terms of the transaction - three Banco Santander shares for every five of BCH, gives an idea of which bank came out on top. "BCH's management sold out cheaply," says a Spanish banking analyst. "Santander was fairly valued but BCH was trading at a discount, with an upside of 30% compared with about 10% for Banco Santander."

Undoubtedly, BBV has been left in a difficult situation. Its strategy has been to go for market share and economies of scale, in Spain as well as in Latin America, and now it finds itself pipped at the post by its chief rival. "Given the recent merger flurries in France and Italy as well, management here is clearly under pressure to make a move," says a BBV source. But there are few opportunities left for it in the Spanish market. Banco Popular is determined see off all suitors. And a lot of bad blood remains between many of Argentaria's top executives and BBV, dating back to the 1988 merger of Banco de Bilbao and Banco de Vizcaya.