Banco Santander SA, Spain's largest bank, yesterday said that it has agreed to buy 173 German retail bank branches from Swedish bank Skandinaviska Enskilda Banken AB's (SEB) for about €555 million ($698 million) to expand in Europe's largest economy.

Santander, also the eurozone's largest bank, which last month paid $2.5 billion in cash to acquire Bank of America's 24.9-per cent stake in Santander's Mexican unit in order to consolidate its operations in Mexico's growing economy, (See: Banco Santander to buy BoA's stake in Mexican unit for $2.5 billion) outbid Italy's UniCredit SpA for SEB's German branches.

The deal, which is expected to close at the end of 2010 or in 2011, will almost double Santander's number of branches in Germany and also add one million customers to the 6 million customers and 176 retail branches it already has in the country.

The transaction encompasses all 173 branch offices of SEB, 1 million private customers and some 2,000 employees. As of year end 2009, SEB's loan and deposit volumes amounted to €8.5 billion and €4.6 billion respectively, and risk-weighted assets to €4.7 billion.

Stockholm-based SEB, founded in 1972, and controlled by the powerful Swedish Wallenberg family through its investment company Investor AB, said that the sale will allow it to concentrate on its core areas of competitive advantage in Germany.

Santander said in a statement that the acquisition would improve the group's key financial ratios - the cost to income ratio will improve by 0.04, return on equity increase by 0.60 percentage points and the core capital ratio will be strengthened by 0.50 percentage points, it added.

"The sale of our German retail banking business will free up capital that will be reinvested in SEB's core strategic growth areas. Germany, the largest economy in Europe, remains an important market for us. We have been present there for nearly 35 years and going forward we will focus on Merchant Banking and Wealth Management - both profitable and growing businesses in Germany," said Annika Falkengren, SEB president and group chief executive.

Santander, which operates Santander Consumer Bank AG in Germany, has in recent years, bought the German consumer finance business of Royal Bank of Scotland Group PLC (RBS) and the German units of General Electric Money.

Santander, which already owns UK's Abbey, Alliance & Leicester and the savings arm of Bradford & Bingley, in the past few years also acquired the German consumer finance business of Royal Bank of Scotland (RBS) and the German units of General Electric Money.

It has also submitted bid and is seen as a frontrunner in buying RBS's Williams & Glyn's branch network with Richard Branson's Virgin Money and National Australia Bank (NAB) close on the heels. (See: Santander leads race for RBS' Williams & Glyn's brand)