labels: M&A
Banco Santander bids $2.53-billion for distressed Sovereign Bancorp news
13 October 2008

Spain's largest bank, Banco Santander, is in advanced talks to fully acquire the 106-year old Sovereign Bank, the largest remaining US savings and loan bank for a reported amount of $2.53 billion as it became burdened with mortgage and home equity losses, giving the Spanish bank a foot into the large US Hispanic market.

Santander had bought 24.9 per cent of Sovereign in 2005 and 2006 for $2.9 billion, 14 per cent more than its current total market value and filled three seats on its board. It will now acquire the remaining 75.1 per cent by offering about $3.81 a share, which was Sovereign's closing stock price on Friday, valuing it for $2.5 billion, making this the third acquisition in three months.

In a bid to avoid becoming the 16th casualty among failed US institutions this year, Sovereign reached out to Santander to acquire the remaining 75.1 per cent of stock. To Santander, the acquisition makes strong financial sense as it would not like to see a loss of $2.9 billion it had invested in Sovereign three years ago if Sovereign were to collapse. moreover, the acquisition enables it to enter the US market which has a large Hispanic population.

Although Sovereign says in its website that it is well capitalised, it lost nearly 60 per cent of its value in the last year due to the housing crisis that entered in a big way in the southeastern and southwestern US market and later saw home values in those regions collapse.

It has also been left holding a large portfolio of auto loan defaults and saw 622.6 million of preferred stocks in the failed two mortgage giants, Fannie Mae and Freddie Mac being wiped out.

Sovereign reported a decline of 13.6 per cent in its profit for the second quarter as its provision for credit losses more than doubled to $132 million from $51 million last year. To offset the loan losses it raised $1.39 billion this year by issuing common stock, as its non-performing loans jumped from $282.4 million last June to $490.5 million this June.

It had unused committed liquidity of $12.0 billion from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve, in the wake of the current financial crunch.

Depositors with Sovereign Bank are insured up to $250,000 by the Federal deposit Insurance Corporation, that is being used by the US treasury administration to prop up distressed banks.

Sovereign Bank's roots go back to 1902, when it began operations as a Wyomissing building and loan association created to help textile workers become homeowners.

Since then it had successfully completed more than two dozen mergers and acquisitions since the late 1980s, and has $12.9 billion in deposits and is now an $85-billion institution with approximately 750 branches in eight states and more than 2,300 ATMs, employing about 12,000 people making it one of the largest banking institutions in the Northeastern United States.

Banco Santander, the largest bank in Spain, which originated in Santander, Cantabria, Spain, is the second largest bank in Europe in terms of market capitalisation behind HSBC.

Chairman Emilio Botin has made more than $60 billion of acquisitions, helping Santander become Europe's second-biggest bank by market value.
On Friday, it completed ?1.3-billion acquisition of Britain's Alliance & Leicester. It had also bid for Washington Mutual and Wachovia in the US.

Santander had bought Abbey National of Britain for $15.6 billion and it agreed to buy Alliance & Leicester Plc and deposits and branches of Bradford & Bingley Plc this year to make it the UK's third-largest lender by deposits.

In May 2007 Banco Santander joined Royal Bank of Scotland and Fortis to outbid Barclays to acquire ABN AMRO. As part of the deal, Santander acquired ABN AMRO's subsidiary in Brazil, Banco Real, and its subsidiary in Italy, Banca Antonveneta.


 search domain-b
  go
 
Banco Santander bids $2.53-billion for distressed Sovereign Bancorp