Banco Santander: Is another big bank what Britain needs?
Faced with worries and complaints about big banks, the government has ended up bringing another, even bigger, bank onto the British high street. If customers do not like the Big Four, why does allowing Banco Santander (NYSE:STD) to become Britain’s Big Fifth bank help?
Santander is not only the biggest bank in Spain, it is the sixth biggest bank in the world – or the largest, based on its number of branches. It is larger than the big British banks that the government worries are too big to fail and which customers think have become too big to be competitive.
The Spanish bank entered the British market in 2004 which its takeover of Abbey National, putting it on the cusp of the Big Four retail banks. But it has used the aftermath of the credit crunch to increase that presence with opportunistic purchases. It bought the troubled Alliance & Leicester, quickly followed by buying the bankrupt Bradford & Bingley’s savers and branches (leaving the troubled loans with the government). Now it has put in the only bid for the 318 branches – with their customers, savings and debts - that Royal Bank of Scotland is being forced to sell as an EU condition of state rescue.
So Santander has turned a sizable UK base into a very substantial one, but it is another big bank.
Since the millennium, NatWest has been merged into RBS and Halifax into Bank of Scotland, reducing competition. Halifax/BoS has since been taken over by Lloyds, which had already bought TSB. Even of the eight retail banks left in the FTSE 100 at the start of the crisis in 2007, only HSBC and Barclays remain as independent banks: Santander and the UK government have taken over the rest.
Of the promised new banks, the American-owned Metro has delayed its UK opening and plans a slow roll out anyway and Virgin, rejected as a buyer of the RBS branches, must decide between steady organic growth or hoping it has more luck buying 600 branches that Lloyds has been told by the EU to sell.
Surely the competition regulators could not allow Santander to add the Lloyds outlets and customers to its already substantial network? Or to buy Northern Rock from the government too?
It is neither the size not the number of British banks that militates against competition – a quartet of big supermarkets show cutthroat rivalry to the customers’ benefit. Santander may be the banker that introduces service and efficiency into the UK market, its very size making it more of a threat to the traditional banks.
But ironically, the biggest shake up of British banking could come from one of the supermarkets: Tesco, having achieved saturation in food sales, is proposing its brand, its branches and its balance sheet to break into the banking sector with current accounts, savings products, loans and mortgages on a big scale. It could thus be a retailer who shakes up retail banking rather than a foreign banker.
