Santander, the eurozone’s largest bank and one of the world’s most profitable during the economic crisis, has joined the queue of Spanish banks planning to issue billions of euros of preference shares to strengthen capital ratios and liquidity.
Santander is seeking permission from the market regulator to issue up to €2.5bn ($3.5bn) of preference shares, according to financial sources in Madrid on Thursday. An official announcement is expected shortly.
BBVA, Spain’s second biggest bank, raised €1bn in this way six months ago. A dozen banks and cajas, the unlisted regional savings bank, have since followed suit, raising or preparing to raise nearly €12bn through preference shares.
Santander executives described the planned issue as routine and said it would replace other preference issues, worth €2.35bn, that are being redeemed by the bank after five years, in accordance with normal Spanish practice.
Under Emilio Botín, chairman, Santander has expanded aggressively overseas in recent years – especially in the UK, Latin America and the US – and has only recently drawn in its horns as a result of the crisis.
In November last year, the bank rushed through a deeply discounted €7.2bn rights issue to shore up its capital, and Mr Botín’s confidence in the bank’s ability to prosper in spite of the downturn has steadily increased since then. From next year, Santander will rebrand its UK operations – Abbey, Alliance & Leicester and the deposits and branches of Bradford & Bingley – under its own name.
Spanish cajas, some of them badly weakened by the collapse of the Spanish housing market, are paying up to 8.25 per cent in annual interest on their new preference shares, but the well capitalised and highly rated Santander is likely to pay something closer to 6 per cent.
“We have plenty of capital,” said one Santander executive on Thursday. The bank’s latest tier one capital, a measure of capital strength that includes equity, reserves and preference shares, stood at a solid 8.9 per cent.
Preference share issues are highly attractive to bank customers and other investors, since the interest rates they pay are far in excess of those offered on normal deposit accounts, which are typically around 1 per cent at present.
Bad loan ratios have risen sharply in the Spanish market in recent months, and banks such as Santander have spent much of their time renegotiating loans and mortgages with businesses and individuals.
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