Spain’s Santander said yesterday it would swap securities issued by its subsidiaries for new securities from the parent bank to strengthen its balance sheet and improve capital structure efficiency.
Santander, the eurozone’s largest bank by market capital, said it would make exchange offers for 30 outstanding US dollar, euro, sterling and yen Tier 1 hybrid securities and upper Tier 2 securities worth €9.1bn (£7.8bn).
By exchanging instruments from various Santander affiliates for securities registered on its central books, the swap is an attempt by the group to simplify its capital structure, and should also help boost core capital.
Santander, led by chief executive Alfredo Saenz, said its core capital ratio had risen from the 7.3 per cent registered at the end of the first quarter by an expected 10 to 15 basis points per quarter.
Santander said it was likely to book capital gains from the exchange by buying below par.
Also, participating securities holders would receive a premium for the swap.
“I think it’s positive for the potential holders of the securities and for Santander,” said Credit Suisse banking analyst Santiago Lopez Diaz.
Investors taking up the offer would receive new securities with a coupon of between 6.5 and 11.3 per cent and a one-off cash premium, the bank said in a statement.
Any capital gain would not be included in 2009’s ordinary profit, and the deal should not increase annual funding costs, Santander said.
Lopez said: “I don’t think they will use this to strengthen their core capital.”
He added: “There are several ways to use it, but they will probably use it to boost provisions.”
The exchange will cover certain types of 22 outstanding euro, sterling and yen Tier 1 hybrid securities or upper Tier 2 securities with a nominal value of around €5.9bn.