Monday, 14 July 2008
Santander to the rescue?
The proposed purchase of A&L today took me by surprise (I wish it had not, share price up 50% ina day!). Santander, already the owner of Abbey, will have a huge 40% share of the UK mortgage market - just as the property bubble deflates.
At the same time, as I have noted before many times, the Spanish economy is in meltdown and has no good news coming out of it. Domestic construction in particular, which Santander is heavily exposed to in its loan book, is in a massive slump. Where Santander scores high marks is in not being exposed to the main credit crunch in terms of owning any mortgage-backed securities.
A&L therefore must be seriously undervalued for this deal to make sense, or else the Spanish are nuts. Santander has a very efficient back office system that allows it to beat most other banks to profitability hands down, hence its success. No doubt it sees A&L as a perfect addition to its successful Abbey purchase.
But it is going to take more than that to make this work; Another Spanish-UK mega-takeover comes to mind - Ferrocial buying BAA - a disastrous acquisition all round.
However, could there be another angle? As A&L will have a very odd looking book Santander can write this down to near zero value and book the acquisition as goodwill. Which generates a tax break under Spanish law (up until the EU intervenes). Very shrewd perhaps....
Posted by CityUnslicker