Long-time observers of European banking may feel they have heard enough about banking alliances. Time and again these have been launched amid great fanfare only to come to little. BSCH’s task is to convince investors that its alliances contain greater substance.
“Before, these investments were financial investments with a little flavour added in terms of meetings and exchange of information,” says José Luis del Valle, BSCH’s finance director. “They were first-generational alliances. Now we are turning them into second-generational alliances with some co-operation that has to be translated into the bottom line. At the end of the year we want to be able to say this alliance added x amount to the bottom line.”
Looking further ahead to an era in which cross-border banking mergers in Europe become reality, the alliances could form the basis of full-blown partnerships. But right now, as Emilio Botín has himself said: “Cross-border mergers of equals is a cock-and-bull story as far as European banking is concerned.” That means new ways have to be found of co-operating midway between full mergers and merely financial holdings.
Santander’s relationship with Royal Bank of Scotland (RBS) goes back to the late 1980s and it also developed one with San Paolo IMI. With the merger with BCH came two further alliances with Société Générale (SG) and Commerzbank. The current BSCH shareholdings are 9.64% of RBS, 6.01% of SG, 6.9% of San Paolo IMI and 4.83% of Commerzbank.
It is the relationship with SG that has become the most interesting following BSCH’s role in defending SG from a hostile takeover attempt by BNP last year. The two banks got to know each other better and became interested in doing more together. But regulatory barriers can be formidable.
One plan, according to a source close to BSCH, was to combine asset management operations and headquarter them in London. Lack of harmonization in tax and corporate regulation prevented this from taking off. Now the emphasis is on building new businesses and working together in such areas as asset management, consumer finance, internet and investment banking.
The banks also have an agreement that BSCH will look after SG’s business in Latin America and vice versa in Asia, allowing BSCH to close down its remaining Asian operations. Another possibility is for the banks to jointly purchase a US asset manager.
BSCH chief executive Ángel Corcóstegui says that the alliances are a base for building other things. “No-one knows what the European banking scene is going to look like in five years. We have to wait until the single currency becomes a reality in 2002. We can’t go too fast.We have to develop trust.”
Many observers see the pace of change as painfully slow.
“European consolidation is still at a very early stage and there are problems in some countries just strengthening ties between national banks,” says Jesús Martínez, an analyst with Standard&Poor’s in Madrid. “The alliance between BSCH and SG, even if they have identiWed business areas to co-operate in, is still more of a letter of intent than anything else. It’s very slow progress partly due to the regulations. With Royal Bank of Scotland it’s been successful in terms of a financial investment and in sharing knowledge but it’s not a partnership to build a business together.”
The San Paolo and Commerzbank alliances can be seen in the same light as the RBS one. In fact Commerzbank chairman Martin Kohlhaussen has openly stated that his main agenda is a national, not cross-border, strategy. “Our so-called European relatives are a nice expression, a good story,” he said in April. “But let’s face it…it’s the second-best option. The first, best option would be joining forces in a convincing way – through takeovers, acquisitions, or joining forces – in Germany.”
Yet, according to Simon Samuels, an analyst with Schroder Salomon Smith Barney, the European alliances were a factor in persuading NatWest’s institutional shareholders to accept the RBS bid rather than that of Bank of Scotland. “Institutions recognized that having a seat at the European table was a good thing that BSCH offered. They didn’t show the typical Anglo-Saxon scepticism by saying: ‘What’s the point of these cross-shareholdings?'”
In fact, the relationship between BSCH and RBS is a good deal more lively than might be expected. The alliance was started by Emilio Botín’s father after a chance encounter with former RBS chairman Sir Michael Herries at an IMF meeting. Since then the banks have given each other advice on such things as restructuring and cutting costs, leading to BSCH’s critical role in helping RBS buy NatWest.
“In the early 1990s when we were busy centralizing back offices, we learnt a lot from Santander which only had three or four staff in their branches. Theirs was very much a family-run business and we gave them advice on how to operate as a public company and do things for shareholders,” says Viscount Younger of Leckie, current RBS chairman.
Executives from the two banks meet several times a month. RBS executive deputy chairman Sir George Mathewson and Botín are said to get on particularly well together, both having a blunt manner and a penchant for plain speaking. There is also a social element. Botín is a keen golfer and usually manages to get in some play during his visits to Scotland. Younger takes his family to stay at Botín’s Spanish estate in the hunting season. Gradually the sceptics of European alliances are being won over.
