Banco Santander consolidates Banesto, Banif amid Spanish restructuring

Banco Santander approved on Monday a proposal to absorb Banesto through a merger. Banco Santander currently holds 89.74% of Banesto’s share capital. Santander Chairman Emilio Botín said in a press release that “this is a good transaction for everyone. For the shareholders of Santander and Banesto, who will receive a premium of 25% and shares with the most attractive dividend in the market; and for customers of Banesto, who will have access to the Group’s 14,000 branches around the world.” Botín referred to Santander as “the strongest, most solid bank in Spain.”

This transaction is part of the restructuring of the Spanish financial system, which involves a significant reduction in the number of competitors and the creation of larger financial institutions. Against this backdrop, Banco Santander has decided to operate under a single brand in Spain by absorbing Banesto and Banif.

The minority shareholders of Banesto, who hold 10.26% of its capital, will receive existing shares in Banco Santander at a rate of exchange that will include a premium of 24.9% over the Banesto closing quote of Friday, Dec. 14.

The Santander stock has one of the best per share remunerations in the market. Employees of Banesto will join Banco Santander and have access to better career possibilities, with international opportunities.

Santander, Banesto and Banif customers will also benefit from the integration through access to a broader branch network, with 4,000 branches in Spain under a single corporate brand. Brand Finance has ranked Santander as the most valuable banking brand in Spain and the fourth most valuable in the world.

“Banesto customers will benefit from the integration through access to a wider range of products and the largest international branch network in the world, with more than 14,000 offices in twelve markets,” Santander explained.

The integration of Santander, Banesto and Banif will rationalize the branch network, with the closure of about 700 of the three banks’ 4,664 offices. Santander will reinforce its specialized business network, as Banesto is leader in SME financing, and in private banking, where Banif is the market leader in Spain.

The group’s combined market share of branches in Spain will increase from 10% in 2008 to 13% in 2015, as the expected reduction in branches is considerably less than the decline in the sector as a whole. At the end of 2015, Spain will have an estimated 30,000 bank branches, an overall decline of 16,000, or 35%, in eight years.

According to Banco Santander, the reduction in total employment stemming from the branch closures “will be implemented gradually, without abrupt cuts. This will be achieved by transfers to other units of the Group, in Spain as well as abroad, natural turnover and incentivized departures.”

Banco Santander expects this restructuring to generate cost savings equivalent to 10%, or about EUR 420 million in the third year and revenues to increase by EUR 100 million, providing total annual pre-tax synergies of EUR 520 million from the third year. “The merger will add value from the start, increasing earnings per share by 3% in the third year.”

“Banesto staff will continue to play a key role in the Santander group in the coming years,” said Santander Chief Executive Alfredo Sáenz

As for Banif, it has EUR 36 billion of assets under management and 550 employees in 52 branches. Grupo Santander is the leader in wealth management in Spain, with some EUR 78 billion of assets under management.

Banco Santander was named Best Bank in the World by Euromoney magazine in 2012. In its stress test of the Spanish financial sector, Oliver Wyman confirmed Santander was the only bank that would increase its capital ratios, even in the most adverse scenario, with surplus capital of EUR 25,300 million in 2014, without ever having received state aid. Santander’s absorption of Banesto will have a neutral effect on its capital ratios.