Santander’s float could repair losses

SANTANDER may use capital raised from the mooted £15bn float of its UK operations to repair heavy losses on its loan book, analysts said yesterday.

The Iberian lender is considering freeing up around £3.8bn by selling a quarter of Abbey, Alliance & Leicester and Bradford & Bingley through a stockmarket listing. It has been suggested the move could be used to fund a swoop on the 318 branches being sold off by Royal Bank of Scotland (RBS) under EC rules.

However, commentators pointed out that cash raised through a public offering would be in excess of the amount needed to buy the portfolio of RBS outlets.

Matrix Capital said it was likely the cash would instead be used as a provision against Santander’s expected €10.2bn (£8.9bn) loan write-downs in 2010, the majority of which are believed to come from Spain and Portugal. Santander has suffered in line with other banks lending in the region as soaring unemployment and the near-collapse of the construction sector have turned debts sour.

Banking analyst Andrew Lim said: “Santander managed to buy its UK operations on the cheap, so it seems to me the game plan is to release the capital gain on those to offset some more loan losses from Spain.”
Lim remarked that Santander’s spreads on credit default swaps were rising in line with the government’s.

Nomura analyst Daragh Quinn added: “It’s a combination of how much profit they want to generate and how much provision they want to put into the loans book next year.”