Awards for Excellence 2009: Spain

Best Bank: Santander Best Investment Bank: Lazard

In Spain, Santander operates through two large networks, one carrying its own name, the other that of Banesto in which it has the majority stake. Either bank could win this award in its own right. Together they are extremely powerful and, combined, give the bank leading shares in the domestic market for loans, customer funds under management, numbers of individual customers, assets and profits.

It’s a leading position but not a dominant one. The proliferation of savings banks, which have opened some 5,000 branches in the past seven years, leaves Santander with an overall share of around 14% of the Spanish banking market.

As the Spanish economy entered a recession, the Santander and Banesto networks – amounting to more than 4,800 branches – turned their emphasis from loans and investment products to deposits and management of risks, margins and costs, yielding impressive financial results: 16.2% profit growth in the Santander branch network and 12.8% at Banesto.

The strategy of shifting customers’ money out of savings products and back into traditional bank deposits might seem self-serving, but as financial markets collapsed customers will have had reason to be grateful.

The keys to this – and to the bank’s efforts to emerge in decent shape from a recession that might well mark the end for some smaller Spanish banks, especially those with concentrated exposure to areas of previously rapid growth in second-home ownership – has been managing recoveries on troubled loans.

The bank has been detailing more and more of its people to deal with troubled borrowers. The Banesto network, headed by Ana Patricia Botín, has even named its trouble-shooting unit after the special forces wing of the Spanish army. It works on larger and more problematic loans to small and medium-sized enterprises and even individual mortgage borrowers. The idea is to try to keep people in their homes in return for renegotiated terms carrying additional guarantees, for example from a borrower’s extended family. It’s an approach now being adopted throughout the Santander network.

It’s a tough time for lenders and borrowers alike in Spain. The good news for Santander is that much of its residential mortgage exposure is secured against primary residences – not second homes – at initially conservative loan-to-value ratios. Where it has picked up properties from troubled developers, it has so far managed its way through the problem by selling hundreds of millions of euros-worth of property on – albeit at a discount – without taking a hit. In fact, the bank claims it is likely to make a profit on some €4.3 billion of properties picked up from developers as the price of keeping them out of default.

Although primarily a retail and commercial bank, Santander remains a leading corporate financier at home. It led or co-led/co-managed Spain’s most prominent refinancings and corporate transactions in 2008: Enel’s €8.9 billion acquisition of 25% of Endesa from Acciona; Sacyr’s €5.2 billion refinancing; the sale of Itinere to Citi Infrastructures; and refinancings by Ferrovial, Telefónica and Iberdrola.

When trouble hits, the strong and the capable stand revealed. Renowned as an M&A adviser, Lazard made a big statement last year when the Spanish property market crumbled. It advised the quoted Madrid-based developer Metrovacesa and the Sanahuja family, which owned an 80% interest in it, on a debt restructuring.

Metrovacesa had sprung to European prominence in 2007 when it bought HSBC’s headquarters tower in Canary Wharf, London, for £1.1 billion and leased it back to the bank. In the process, it had taken out a bridge loan from, of course, HSBC. In 2008, that bridge loan blew up and HSBC got its tower back, crystallizing a hefty loss for Metrovacesa. Meanwhile the holding companies through which the Sanahuja family had held shares in Metrovacesa were unable to service their debts. Lazard helped negotiate a debt-for-equity swap whereby a group of mainly Spanish banks ended up owning 65% of Metrovacesa and several properties previously owned by the family holding companies.

It was a phenomenally complex transaction that in sum amounted to a significant deleveraging sufficient to stabilize the company. It also showed the strength of the Lazard platform. Its property and restructuring teams’ skills were brought to bear, because Lazard’s Spanish office gained the trust of the Sanahuja family and had credibility with Spanish bank creditors.

That was a €14 billion restructuring assignment. Lazard’s Spanish team, led by Pedro Pasquín, also advised Colonial on the restructuring of €7 billion of debt. On the M&A side, it advised ACS on the sale of its stake in Unión Fenosa to Gas Natural in an industry-defining €7.6 billion transaction among other deals.