Santander plans London flotation

SPANISH banking giant Santander may list its British and US operations on the stock market to free up cash for expansion.

Abbey, Alliance & Leicester and the savings arm of Bradford & Bingley could return to the market at a joint value of £15bn under the plan, which is one of a number of capital-raising schemes being investigated. The demerged group would go into the FTSE 100 and have a market value close to that of Royal Bank of Scotland (£18bn).

Santander could raise £3.8bn by selling a 25 per cent stake in the floated group. A small number of institutional investors are thought to have been sounded out about a float last week, while investment banks have been instructed to look at a range of options, including raising funds through debt.

The plan comes after Santander’s successful flotation of its Brazilian arm, which raised $7bn (£4.5bn) in October. The bank is also eyeing a possible flotation of its Sovereign Bancorp subsidiary in the US, possibly next year.

In the UK, Santander is one of the frontrunners to buy the 318 branches RBS put up for sale as a condition of the state aid it has received. The Spanish bank is up against Virgin Money and National Australia Bank, which have also expressed an interest in the RBS branch network. It includes small business customers as well as retail customers.

Santander’s UK arm posted a 30 per cent increase in 2009 profit to £1.5bn last week after grabbing a larger share of the mortgage and current account markets. An average valuation of 10 times profits would value the business at £15bn. Santander now ranks in third place, after RBS and Lloyds Banking Group, in terms of deposits.

The UK and Brazil are Santander’s most profitable businesses, with the UK accounting for 16 per cent of group profits.

By contrast, its Spanish business has suffered from a slump in the national economy and extra capital could be used to bolster its balance sheet as well as fund purchases. Santander has made it clear that any expansion in the UK has to be self-funded. It paid £9bn for Abbey in 2004.

Santander declined to comment on the flotation plans.