US bank Sovereign looking to raise $1.5 billion; may lose management control to Santander
10 May 2008
Sovereign Bancorp Inc., the 19th-largest banking institution in the US, is looking to raise around $1.5 billion in capital to tide over the ongoing financial crisis, and existing shareholder Spanish bank Banco Santander SA is willing to lend a helping hand.
However, this help may be conditional, as it may eventually gain control of the beleaguered American bank, considering it already owns 24.99 per cent of it.
Under the 2005 agreement that saw the Spanish bank take the stake in Sovereign, Santander would need to pay $40 per share if it took an additional stake in after 31st May, 2008. That day is fast approaching and recent reports have said that Sovereign would raise between $1 and $2 billion in capital from "a group of investors led by Banco Santander."
Considering Sovereign's current market capitalization is $3.8 billion, Banco Santander could wind up with a controlling stake, depending on the size of the capital injection and the makeup of the investor group. Sovereign shares closed down 30 cents at $7.46.
A capital infusion would help Sovereign combat mounting credit losses. CEO Joseph Campanelli is trying to shrink Sovereign's balance sheet, in part by selling a troubled portfolio of mortgages and auto loans, and focus on Sovereign's core Northeast and mid-Atlantic markets.
Sovereign has more than $80 billion in assets, operates more than 800 retail banking offices, over 2,000 ATMs, and employs approximately 12,000 people. The company is based in Reading, Pennsylvania, and its principal market is in the Northeastern United States. Sovereign offers an array of financial services and products including retail banking, mortgages, corporate banking, cash management, capital markets, trust and wealth management, and insurance.
Banco Santander is the third largest bank in Europe in terms of market capitalization, and also has numerous operations in Latin America. It is part of the Grupo Santander group, which consists of 126,000 employees, 68 million customers, 10,000 branches and 2.6 million shareholders.
