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Primary markets: Santander finds ethics shorted

The credit crisis has, so far, raised Santander’s relative standing among its peers, as the Spanish bank has sidestepped some of the pitfalls of its rivals and picked up a few bargain acquisitions. The bank’s reputation for savvy deal-making has also been enhanced, making it surely one of the most sought after financial sector clients for any investment bank.

As a result when Santander this November announced that it would bow to investor pressure and raise capital to lift its tier 1 ratio to 7% from 6.3% through a €7.2 billion rights issue to be completed by the end of the month, many leading investment banks rushed to say that they would be willing to commit capital at a 35% discount if they were appointed as bookrunners on the transaction.

Yet as the market digested the news and the bank’s share price fell 3%, the bank found that some of the investment banks that had only very recently indicated their willingness to commit capital at a 35% discount were turning down offers to act as bookrunners on the deal even though the discount had been widened to 40%. In the end only Merrill Lynch, Bank of America and Credit Suisse took up the deal.

Santander’s shares are now trading at €5.11, just 61 euro cents above the rights price and down from €8.34 before the deal was announced.

Stories of investment banks making such representations only to back out of them at the last minute are on the rise and ECM bankers in the City report an increase in investment banks going "short ethics" since regulators in many jurisdictions introduced short-selling restrictions on stocks.

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