View more on these topics

The reign of Spain

Evidence of Spanish dominance is all around us. As if it was not enough for the Spanish football team to win Euro 2008 and Rafael Nadal to triumph at Wimbledon, we now have their biggest bank, Santander, snatching Alliance & Leicester from under everyone’s noses for a knockdown price of £1.3bn.

Unlike the Spanish Armada, which was ultimately doomed to fail, it looks as if Santander will join its fellow countrymen in another victory. The deal prices A&L ridiculously cheaply but there are no alternative bids on the table. The only banks potentially capable of a bid of their own Lloyds TSB and National Australia Bank (owner of Yorkshire Bank and Clydesdale) have remained quiet.

Santander has an enviably strong financial position, with no exposure to sub-prime mortgages, focusing instead on its core retail banking business. This strategy has enabled it to thrive, taking over Abbey in 2004. Despite the bargain price for A&L, the deal is a welcome vote of confidence in the UK’s battered financial system. A takeover will help stabilise one of our weaker lenders.

Santander says it will inject a further £1bn of capital into A&L to cover restructuring costs, further write-downs on the portfolio of treasury assets and the possibility of higher loan losses on its mortgage portfolio. It does not sound as if it is buying a bank on the top of its game.

The alternative to the takeover another UK bank in trouble does not bear thinking about. Instead, chairman Emilio Botin has achieved a fait accompli over a weekend of negotiations. There were rumours that A&L was in trouble but the deal is practically done with little apparent fuss or fanfare. This offer provides certainty for a weak bank in what are uncertain times.

What are the practicalities for the mortgage market? There will be less choice for borrowers as there will be one less lender. A&L is a top 10 lender known for flexible products but a merged Abbey/A&L will be a force to be reckoned with. It could end up with a combined 12.7 per cent share of the UK mortgage market, making it the second biggest lender. This could make it a real threat to HBOS which has not had a serious challenge to its dominant position for a long time.

With stronger competition, consumers should ultimately benefit. What they may have lost from having one fewer lender to choose from, they should gain in better pricing. It may even help the market gain a semblance of normality quicker than it would have done if HBOS is forced to compete to retain its market share.

Whatever is thought of this particular deal, it is far better than the alternative, which could have been another UK bank in trouble. Santander has a good track record as Abbey was also in a vulnerable state when it was acquired for £9.5bn. Now, it is one of the few lenders which are willing and able to lend during this liquidity squeeze. Santander has proven that it can integrate a UK bank into the fold with minimal fuss and is likely to do the same with A&L.

It would be amazing if this were to be the last of it. Consolidation is likely to be a feature of the UK banking sector in coming months. Other vulnerable banks will be snared by stronger rivals. Post-credit crunch, the banking scene is likely to look very different but I would argue that it will be stronger and better positioned to thrive.

Mark Harris is managing director at Savills Private Finance


Co-habit forming

The recent Burden case has thrown the inheritance tax treatment of unmarried people living together into the spotlight.

Orphan assets belong to the policyholders

I might be naive but, after over 40 years in financial services, I fail to understand how the Prudential can do what it proposes with its orphan assets.

International jurisdictions

By Neil Jones, Canada Life Investing through international providers has grown in popularity over recent years as investors seek out the benefits of gross roll-up and the wider range of investment options that can be available. When considering a recommendation for a lump sum investment, not only does the adviser have to select a suitable tax wrapper […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm