Santander avoids merger wave in favor of digital growth

Banco Santander SA is planning to sit out the wave of banking mergers sweeping its home market of Spain, opting instead to expand its digital platform.

“We’re not about to participate in any, let’s say, traditional bank consolidation,” Chairman Ana Botin said in a panel discussion at the Bloomberg New Economy Forum on Tuesday. “We don’t believe that is the right thing for us at the moment. We’re much more likely to continue buying technology platforms or add-on acquisitions.”

Ana Botin, executive chairman of Banco Santander SAAna Botin, executive chairman of Banco Santander SA. Photographer: Victor J. Blue/Bloomberg

In the latest round of consolidation, Spain’s biggest bank — and the second-largest in the euro zone by market value — has remained conspicuously on the sidelines. On Monday, hours after Banco Bilbao Vizcaya Argentaria SA and Banco de Sabadell SA announced they were in merger talks, Santander announced the purchase of technological assets that belonged to Wirecard AG.

With banking executives and policy makers throughout Europe advocating the need for industry consolidation, Santander is merging its digital lender Openbank with its consumer-finance operation and combining its payments platforms to form a single unit that can compete with global giants.

With Spain’s economy one of the worst hit by the coronavirus and negative interest rates squeezing margins on lending, the country’s lenders are seeking to combine with domestic rivals to cut costs. The news of the potential tie-up between BBVA and Sabadell came just weeks after CaixaBank SA and Bankia SA agreed to merge. Unicaja SA and Liberbank SA are also in talks to form Spain’s fifth-largest lender.

Santander, a lender known for daring acquisitions and rapid global expansion, may have missed the last opportunity to grow at home, said Jaume Puig, general director of Barcelona-based fund manager GVC Gaesco.

“Santander has been left behind and I don’t see what their objective is,” Puig said. “They’re making a mistake because this is the second and last wave of bank mergers. If I was Santander, I wouldn’t have turned down this opportunity.”

Santander’s shares have dropped 34% this year, a steeper loss than Spain’s benchmark and the STOXX 600 gauge of bank stocks.

Puig, who has a stake in BBVA, said a Santander acquisition of Sabadell would make more economic sense than a combination with BBVA because their complementary portfolios of corporate clients would generate more synergies.

Still, the deal is a promising one for BBVA and will give the Bilbao-based bank opportunities to lower costs. The bank may cut as many as 6,000 jobs and close 1,250 branches if it ends up purchasing Sabadell, Cinco Dias reported.

BBVA is returning to the acquisition trail after pushing into digital banking and focusing on international operations in recent years. The bank on Monday announced the sale of its U.S. unit to PNC Financial Services Group Inc. allows it to offload a business that had generated four writedowns in 13 years; the 8.5 billion-euro ($10 billion) proceeds will be channeled toward the Sabadell purchase.

Merger Wave

If the deal to buy Sabadell goes ahead, the combined entity would have total assets of 596 billion euros in Spain, compared with 628 billion euros for CaixaBank and Bankia. Santander has about 1.5 trillion euros of assets globally, though only about a quarter of those are held in Spain.

Santander’s recent acquisitions have focused on technology, such as the purchase of foreign-exchange platform Ebury and the Wirecard assets.

Following the 1994 acquisition of Banco Espanol de Credito that made Santander the leading bank in Spain, it expanded into Latin America with purchases in Argentina, Brazil, Colombia, Mexico, Peru and Venezuela. During the 2000s, Santander grew in Europe and the U.S., buying Abbey National in the U.K. in 2004 and Sovereign Bancorp in the U.S.

It’s now headed for the first loss in its 163-year history after booking a goodwill writedown of 14.8 billion amid the recession spawned by the global pandemic.

Home Market

Santander risks trailing in Spain as its two closest rivals gain market share and generate cost savings through greater scale, said Ricardo Wehrhahn, chief executive of banking strategy consultancy Intral Strategy Solutions.

“Santander was created from mergers, in order to create scale and get ahead of the others and here it’s getting left behind in the merger game,” Wehrhahn said. “It’s going to get stuck in the middle – neither niche or big.”

Santander purchased distressed Banco Popular Espanol SA for 1 euro in 2017. The move allowed the lender to diversify its loan book away from mortgages and into the small- and medium-sized business market.

Participating in consolidation just to gain size isn’t necessarily the best option, said Benjie Creelan-Sandford, an analyst at Jefferies in London.

“Not all management teams, rightly I’d suggest, see absolute market share as an end in itself,” Creelan-Sandford said. “While sensible, in-market deals can create value, it’s not the case that all acquisitions represent a ‘slam-dunk’ opportunity, or that M&A is the only way to deliver share value.”

Instead of looking for buying opportunities, Santander should follow BBVA’s example and look to exit a U.S. market where its franchise has underperformed, said Daragh Quinn, an analyst at Keefe, Bruyette & Woods in Madrid. With a shortage of potential buyers in the U.S., BBVA’s disposal in the country makes a sale less likely.

“Certain people, including myself, have been saying for a long time that both BBVA and Santander have U.S. franchises that have failed to deliver and it would be better for them to sell,” Quinn said. “BBVA have done that, in an ideal world Santander would too.”

— Charlie Devereux and Erik Schatzker (Bloomberg)