Grupo Santander , Spain’s largest bank, will absorb two subsidiaries, Banesto and Banif, and unify its presence in its home country under the Santander brand. This move is in line with the restructuring of the Spanish financial system. Grupo Santander owns 100% of Banif and 90% of Banesto. Thus, their operations and results are quite integrated already, and the Banesto payment will be neutral to Grupo Santander’s capital ratios.
For the remaining 10% of Banesto shares, Santander will pay a 25% premium to the preannouncement trading price in the form of Grupo Santander shares. Naturally, we would have liked a smaller premium. However, according to management, Grupo Santander’s capital ratios will not be negatively affected, which would have been investor’s main concern.
On the positive side, with all three units operating under the same brand, Santander will be able to close some branches. At this juncture, management projects reducing its current branch count around 15% which should generate some cost savings. The bank projects it will be able to generate more than EUR 500 million in synergies by 2016.
Even though management said branch closures and layoffs will be gradual, we still think there is significant headline risk. As Spain’s largest lender, firing people in a country deeply mired in a recession and with a 25% unemployment rate will require some brilliant brinkmanship to avoid public unrest.
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