Santander could pull out from the UK - report

FT says giant European lender could be considering UK sale

Santander could pull out from the UK - report

Photo: Santander Bank branch in Headington (1) by David Hillas, CC BY-SA 2.0, via Wikimedia Commons

2024 was a year of challenges for Santander. Back in May, the Spanish-owned bank announced that it had been hacked, which meant that the details of 30 million customers and staff were exposed. Profits fell, and then new data showed that the bank was seeing a repeat of its experiences in 2013 when it saw its mortgage lending book drop by millions. Santander hasn’t been idle – it was the first bank to cut rates after the Bank of England’s interest rate reduction, but the battle for a share of the mortgage market continued as banks like HSBC close in on banks with larger market share.

Then the year got worse with the car loan commission scandal that continues to roll on – Santander could be on the hook for £295 million or more in restitution to affected customers. The credit rating agency Moody’s has predicted redress costs for affected lenders could reach as high as £30 billion. And, according to a report in the Financial Times, this may be the final straw for the giant mortgage lender.

The report says Santander is reassessing its position in the UK, two decades after acquiring Abbey National for £9 billion , which established it as a key player on the UK’s high streets, according to individuals with knowledge of the situation.

The Spanish banking giant is said to be considering various strategic options, including a potential exit from the UK market. However, those familiar with the matter emphasised that no immediate decisions or announcements are expected, as the review remains in its early stages.

This evaluation comes as Santander faces challenges tied to lower returns from its UK ringfenced operations, compared to its performance in other markets. Frustrations over Santander UK’s performance have reportedly emerged within the broader group, according to a former executive who spoke to the FT. Key concerns apparently include its relatively high operational costs, the regulatory constraints of the UK’s ringfencing rules, the independence of its board, and the fact that it hasn’t reaped the same benefits from rising interest rates as Santander’s other markets, such as Spain.

The former executive suggested it has "always been a possibility" that Ana Botín, Santander’s executive chair, might choose to sell the UK ringfenced bank due to these ongoing issues. However, two sources noted that it is unclear who might be interested in acquiring the unit. For now, Santander may still decide to retain its UK business.

Santander’s entry into the UK market dates back to 2004, when it purchased Abbey National, a former building society. The acquisition was followed by the integration of Alliance & Leicester and parts of Bradford & Bingley during the financial crisis, culminating in the creation of Santander UK in 2010.

At the time, the move was heralded as a significant foreign investment in Britain. Any potential sale of the UK arm might now be interpreted as a loss of confidence in the country, particularly at a time when the Labour government is grappling with economic challenges.

The Abbey National acquisition marked a turning point for Santander, transitioning it from a family-operated regional mortgage provider to a global banking powerhouse. Botín, whose family has controlled Banco Santander since the early 1900s, oversaw the UK business from 2010 until her appointment as group chair in 2014, following the death of her father.

Some shareholders in Spain have questioned the rationale behind Santander’s continued presence in such a diverse array of markets. Since Botín became chair, the bank’s share price has dropped by approximately 30%.

In the UK, Santander has already been streamlining its workforce. In October, it announced plans to reduce 1,400 roles as part of a cost-saving initiative known as “Project Nike.” The bank currently employs around 21,000 people in the UK and serves 14 million customers. It also said it was planning to bring call centres back to the UK, from Asia, following customer complaints.

Insiders have suggested that Santander’s potential withdrawal from the UK aligns with its strategy to prioritise high-growth regions, such as the United States. Recently, the bank has been expanding its corporate and investment banking operations, hiring extensively from former Credit Suisse staff.

Should Santander decide to exit UK retail and commercial banking, sources indicate that it would still maintain a presence in corporate and investment banking, with a London office supporting those operations.

In the first nine months of 2024, Santander UK reported pre-tax profits of £947 million, a decline from £1.73 billion during the same period in 2023. The drop was attributed to a reduction in net interest income and the allocation for the car loan ruling. The bank’s total assets stood at £275 billion as of the end of September. As of the first quarter of 2024, the bank's mortgage lending portfolio stood at £172.7 billion, reflecting a decrease from £183 billion in the same period the previous year.

A Santander spokesperson told the FT: “The UK is a core market for Santander, and this remains unchanged.”

Santander and the UK

In 2004, Spanish banking giant Santander made a significant entry into the UK market with its £9 billion acquisition of Abbey National, a former building society.

The purchase of Abbey National provided Santander with an extensive retail banking network and a strong foothold in the UK’s mortgage market. Building on this success, Santander expanded further during the 2008 financial crisis by acquiring Alliance & Leicester and portions of Bradford & Bingley. These strategic acquisitions consolidated its presence in the UK, transforming the combined operations into Santander UK, which officially rebranded in 2010.

Santander's expansion brought a fresh approach to UK banking, leveraging its global expertise and innovative digital services. The bank quickly became one of Britain’s largest lenders, serving millions of customers with a comprehensive range of financial products.

2023, however, saw its mortgage lending share slip - in the first half of last year it saw an 11.4% share slump to just 6.7%. If the bank had maintained its 2022 market share, it would have allowed it to claim to be the UK’s third biggest mortgage lender. Its 2023 results, however, left it languishing in sixth.

“Right now we see a slight pick-up in demand [and] obviously pressure to compete for that increased demand,” José García Cantera, Santander’s chief financial officer told the FT at the time.