Awards for Excellence 2005
Santander
No bank is better at retail banking than Santander
| Emilio Botín |
Traditionally, Euromoney’s award for the world’s best bank goes to one of the powerhouses that are present across the globe, with strong wholesale banking businesses that complement other strengths in areas such as private banking or fund management. This year, the award goes to a bank that concentrates largely on the less glamorous side of finance – retail banking. Its business has changed beyond recognition over the past decade, to become one of the world’s 10 largest financial institutions by market capitalization. And it is no exaggeration to claim that this bank has played a fundamental role in changing the landscape in global retail banking.
Who would have thought 20 years ago that Santander, then the sixth-largest bank in Spain and the 152nd-largest in the world, would be the first European bank to complete a major cross-border acquisition? That’s exactly what it achieved in the second half of 2004, with the £8.5 billion ($15.5 billion) takeover of Abbey, the UK’s sixth-largest bank.
The Abbey deal showed that barriers to cross-border banking in Europe were not insurmountable. Abbey faced down a hostile UK press, and a concerted effort from rival bidder HBOS – now its main competitor in the UK – to secure regulatory approval within weeks. The entire process took just over 100 days from announcing an agreed offer to completing it, minimizing the uncertainty that can sometimes dog bank mergers.
Moreover, Santander set a template for future pan-European consolidation with an all-share offer. It was a bold move to ask sterling-based UK investors – many of them account holders at Abbey who inherited shares at its demutualization – to accept shares denominated in euros and listed in Madrid. Despite predictions of massive flowback on completion, only 10% of Abbey’s 1.6 million shareholders divested their shares, giving Santander a much broader investor base than before.
Santander was also able to convert technology from an obstacle to a driver of consolidation. It believes its Parthenon platform will help drive down costs and drive up business, meaning that the process of standardizing technology is a boost rather than a drag on earnings.
The successful execution of the Abbey deal has, nine months later, made other European banks jump into to the cross-border market. Italy’s UniCredit launched a bid for Germany’s HVB in June that would usurp Santander/Abbey as the largest such deal to date, with its bid valued at $18.5 billion. ABN Amro has made an offer for Italy’s Banco Antonveneta, and Santander’s main Spanish rival BBVA is also seeking an Italian purchase in Banca Nationale del Lavoro.
But Abbey means much more to Santander than mere kudos. At a stroke, it made Santander one of the 10 largest banks in the world, a stated aim of its long-standing chairman Emilio Botín. It gave the Spanish firm exposure to Europe’s largest and most profitable, if most competitive, banking market. It also helped reduce Santander’s exposure to Latin America, where earnings can be enormously volatile.
That said, Santander has arguably been more successful in banking in Latin America than any of its competitors. In 2004 Latin America contributed €1.039 billion of total attributable net income across the group of €3.136 billion, and it has a regional market share of lending of 11.6%.
Santander is also a growing presence in consumer finance, both in its core banking markets in Europe and Latin America and in new countries through recent acquisitions in Poland, Norway and the Netherlands in 2004.
Santander is not just growing through acquisitions. Its investment in technology, its focus on costs and the attention to detail of its senior management is paying dividends in all key ratios. From 2002 to 2004 (excluding Abbey) its cost/income ratio has fallen from 52.3% to 47.4%; its return on equity grown from 16% to 19.2%; its NPL ratio fallen from 1.89% to 1.27%; and its coverage ratio jumped from 140% to 208%.
The performance continues to improve, with earnings rising to €1.185 billion in Q1 2005, up 38.5% on the same period in 2004 and 20.6% excluding Abbey. With a €717 million extraordinary capital gain to be realized from a sale of shares in Royal Bank of Scotland, it seems Santander’s profits could breach the €5 billion mark for 2005.
Santander’s senior managers say that Botín remains crucial to the bank’s success. As one of his most trusted lieutenants says: “Botín is one of the major assets of Santander. He has a real sense of anticipation, and a strategic vision, and understands the implications of trends that are driving the market. At the same time he knows every detail about the bank, and always has the right figures and data to hand.”
