Santander buying Alliance & Leicester for £1.3 billion

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Banco Santander of Spain is using the down market to snap up some UK assets on the cheap. It has announced the acquisition of Alliance & Leicester, the former building society which demutualised in 1997, for £1.3 billion ($2.6 billion)

Despite speculations of other bank mergers in Europe, few have occurred as many European banks feel under pressure as a result of the credit crisis. The acquisition of the German banking unit of Citibank by Crédit Mutuel, the French bank was the first major acquisition in Europe in quite some time.

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Banco Santander already owns Abbey National in the UK. Along with Lloyd’s TSB, Santander seems to be one of the few large European banks poised to benefit from the low valuations of European banking shares. I am still waiting for greater writedowns from Santander. However, to date, the have weathered the storm quite well.

Banco Santander SA, Spain’s biggest bank, said it agreed to acquire beleaguered U.K. mortgage lender Alliance & Leicester Plc for 1.26 billion pounds ($2.6 billion).

Alliance & Leicester rose as much as 54 percent, the most since the company went public in 1997, after the bank said in a statement today it’s in “advanced” takeover talks.

Santander Chairman Emilio Botin is bidding for Alliance & Leicester after buying Abbey National, the U.K.’s second-biggest mortgage lender, for 9.2 billion pounds in 2004. Alliance & Leicester lost half its market value this year after Britain’s worst housing market in more than 15 years and credit writedowns forced it to abandon the 2008 profit target.

“Santander is a deal-machine focused on costs savings,” said Simon Maughan, a London-based analyst at MF Global Securities Ltd. who has a “hold” rating on Alliance & Leicester. “It’s been looking at increasing its returns in the U.K., which are lower than anywhere else in the world. Whenever it looks to increase returns, it does so by acquisition,” Maughan said.

Bloomberg, 14 Jul 2008

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The hope is that more such acquisitions by the remaining strong players in European banking can take place so that consolidation will help to strengthen the collective balance sheets of European financial institutions.

Other sources
El Santander compra el banco hipotecario Alliance & Leicester por 1.574 millones, El País
Santander’s takeover of Alliance & Leicester spells shake-up of high street banks, Telegraph

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