Banking Queen Botin Plans U.K. IPO in Santander Succession Test

Ana Patricia Botin, the boss’s daughter, has come to the U.K., where she will have the chance to prove she can lead the bank in Spain that her family has run for more than six decades.

With her appointment as chief executive officer of Banco Santander SA (SAN)’s U.K. unit in November, Botin became the most powerful woman in London finance. Now, if she can repair the bank’s customer-service reputation and pull off an initial public offering, she will have improved her odds of succeeding her father, 76-year-old Chairman Emilio Botin, who built Santander into the euro region’s most valuable lender through more than $70 billion of acquisitions.

“What she wanted, she usually got,” said Jose de Ochoa, who worked with Ana Botin expanding Santander in Latin America, including the 1997 purchase of Colombian lender Bancoquia.

London will be the toughest test yet for Botin, 50, whose performance is being closely watched in Spain, where Botins have helped manage Santander for 115 years. She takes charge after former U.K. head Antonio Horta-Osorio defected to lead rival Lloyds Banking Group Plc. (LLOY) An IPO was postponed this year, and Botin will have to explain to investors that Santander’s outlook is solid at a time of doubt about Spain’s banking system, said Simon Maughan, an analyst at MF Global Holdings Ltd. in London.

Photographer: Denis Doyle/Bloomberg

Ana Patricia Botin, seen here as chairman of Banco Espanol de Credito SA (Banesto), speaking in Madrid, 2010. Close

Ana Patricia Botin, seen here as chairman of Banco Espanol de Credito SA (Banesto),... Read More

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Photographer: Denis Doyle/Bloomberg

Ana Patricia Botin, seen here as chairman of Banco Espanol de Credito SA (Banesto), speaking in Madrid, 2010.

Lloyds, RBS

Engineering an IPO won’t be an easy job for Botin as mortgage lending in the U.K. is shrinking, interest rates are rising and Santander’s biggest competitors, Lloyds and Royal Bank of Scotland Group Plc (RBS), are regrouping after bailouts.

The Santander, Spain-based bank may sell as much as 25 percent of its U.K. unit, which includes the former Abbey National, according to a person with knowledge of the talks who declined to be identified because the information isn’t public. The offering will probably take place in the fourth quarter of this year, Emilio Botin said Feb. 3.

Selling a 20 percent stake in the U.K. unit may raise about 4 billion pounds ($6.5 billion), said Arturo de Frias, head of banking research at Evolution Securities Ltd. in London. That would make it the biggest IPO in the U.K. since Moscow-based VTB Bank OJSC (VTBR) raised $8 billion in May 2007. And it could help increase Santander’s core Tier 1 ratio, a gauge of financial strength, to more than 9 percent from about 8.8 percent, de Frias said.

‘Most-Complained-About’

Ana Botin, who declined to be interviewed, also will have to address the bank’s reputation for poor customer service. Santander was dubbed Britain’s “most-complained-about bank” in September by Which?, a U.K. consumer magazine, after the lender received 216,958 complaints, or eight per 1,000 accounts, in the first six months of last year. The bank said in December it mistakenly mailed as many as 35,000 statements to the wrong people in the U.K., sharing customers’ financial details.

In an appearance before the House of Commons Treasury Committee on Jan. 18, Botin said Santander hired 1,000 people in the U.K. to augment service.

“We are beginning to improve, but there is a lot of work to be done,” she said.

The bank intends to bolster service by building closer relationships between staff and clients, a feature of retail banking in Spain, Botin told 2,500 managers at the Earls Court exhibition center in London in late February, according to an executive who attended the event and asked not to be identified in line with company policy.

Business Lending

Botin, who boosted lending to small and medium-sized businesses at Banco Espanol de Credito SA, or Banesto, the retail arm of Santander she ran before moving to London, wants to do the same in the U.K., where 80 percent of the bank’s business is with retail customers, the person said. She has brought in executives she worked with at Banesto, including Chief Risk Officer Jose Maria Nus, to replace those who left for Lloyds with Horta-Osorio.

Her other priority, she told managers, is increasing profitability and efficiency as she prepares for the IPO. Profit at the unit rose to 1.7 billion pounds last year from 1.5 billion pounds in 2009, the bank reported on Feb. 3.

Botin ranked 38th on Forbes magazine’s list of the world’s most powerful women last year, three notches ahead of the Queen of England. One of only two women on Santander’s 20-member board, she has been proving herself since she took her first banking job in Madrid as a 20-year-old. One of her earliest bosses, Martin Benegas, a former head of J.P. Morgan & Co.’s loan-transaction unit in New York, said he was impressed with her as a hard-working team player.

“It was a pure meritocracy, and she came in on her own merits,” said Benegas, who hired her in the mid-1980s to trade Latin American loans and is now a partner at Delphos Investment, a consulting, asset-management and financial-services firm in Buenos Aires. “She always wanted to do better and improve.”

Growing Up ‘Normal’

The eldest of six children told Santander’s in-house magazine in 2005 that she had never considered “whether I’m a Botin or not” since starting at the bank in 1988. The article talked about her growing up in a “normal” household, where she’d make her own bed and her father would sometimes eat sardines from a can for breakfast. Her mother, Paloma O’Shea, is a pianist and arts patron.

In that interview, she described how her father offered her the job running Banesto in 2002.

“He looked at me in such a way that I realized I had exactly 10 seconds” to decide, she said.

Profit Decline

Emilio Botin has run Santander for 25 years, building it from the sixth-largest Spanish lender to the biggest, with 179,000 employees and 1.2 trillion euros ($1.7 trillion) in assets, about the size of the entire Spanish economy. He is the third member of his family to be chairman of Santander, though the Botins control only about 2 percent of the shares. He was 52, two years older than his daughter is now, when he succeeded his father as chairman in 1986.

“There’s always going to be the issue of who her father is,” said Julian Chillingworth, who helps manage about 15 billion pounds at Rathbone Brothers Plc in London. “She comes with a reasonable reputation, so let’s see how she gets on.”

Santander grew through the global financial crisis, adding 300 billion euros of assets since 2007. Profit dipped last year to 8.18 billion euros, down about 10 percent from the peak. The bank earned 26 billion euros in the previous three years.

Shares have declined 21 percent over the past year compared with a 3 percent drop in the 48-member Bloomberg Europe Banks and Financial Services Index.

After buying Abbey National in 2004, Santander expanded its presence in the U.K. by purchasing Alliance & Leicester Plc and parts of Bradford & Bingley Plc. It acquired more than 300 branches from Edinburgh-based RBS last year, bringing its total to about 1,400 branches across Britain, compared with 2,900 for Lloyds. It is now the U.K.’s second-largest mortgage lender.

Leaving Banesto

The younger Botin left Banesto in November as falling lending revenue and rising bad loans from the financial crisis caused 2010 profit to decline 18 percent to 460 million euros, or 5.5 percent less than in 2002, when she took over.

Banesto earned 1.18 billion euros of pretax gains from the 2006 sale of its 50 percent stake in developer Inmobiliaria Urbis SA, a year before Spain’s property crash. Return on equity, a measure of profitability, was 17.3 percent when Botin arrived and 8.4 percent when she left.

“She did pretty well,” said Daragh Quinn, an analyst at Nomura International Plc in Madrid. “They sold their real estate company at the top of the cycle, and they seem to have managed their exposure to property reasonably well. On the other hand, Banesto is not an independent company, so that makes it harder to judge her individual performance.”

Belgravia Home

The move to London opens new doors for Botin, said Mauro Guillen, a professor of international management at the Wharton School at the University of Pennsylvania in Philadelphia and co- author of a 2008 history of Santander.

“It’s very clever for Santander to have Ana Patricia Botin in the City of London -- it’s quite brilliant frankly,” Guillen said. “Not only does she learn more about running the bank, but she builds some relationships that will be important when, and if, she takes over from her father.”

Botin’s husband, banker Guillermo Morenes, last year bought a six-bedroom home in Belgravia, one of London’s wealthiest neighborhoods, according to documents at the Land Registry. A similarly sized adjacent property sold for more than 16 million pounds in 2009, records show. The seven-story home is part of a terraced development set behind security gates and landscaped gardens with underground parking and 18-hour-a-day concierge service, according to the marketing details for other houses in the enclave. The house has staff quarters, a cinema, an elevator and a wine room.

Madoff Complaint

Morenes made headlines in 2008 when M&B Capital Advisers, a brokerage he founded with his wife’s brother Javier, reported it invested 137 million euros in client funds with Bernard Madoff, who is serving a 150-year sentence for operating a Ponzi scheme.

Irving Picard, the trustee liquidating Madoff’s former firm, filed a complaint against M&B in December, saying it helped Zurich-based UBS AG (UBSN) found and distribute a feeder fund for the convicted swindler. The brokerage also started its own feeder fund that “herded” new investors to Madoff as it “obtained millions in fees for also ignoring red flags of fraud,” according to the complaint.

Morenes declined to comment for this story. A spokeswoman for Javier Botin’s firm, JB Capital Markets, who asked not to be named in line with company policy, also declined to comment.

Junior Golf Champion

Botin earned 3.08 million euros in fixed and variable pay in 2009, and Santander kept her base salary unchanged at 1.29 million euros for 2010, according to the bank’s appointment and compensation committee report. She has accrued a pension of 23.8 million euros, compared with 24.6 million euros for her father and 85.7 million euros for Santander CEO Alfredo Saenz.

By comparison, Lloyds’s former CEO, Eric Daniels, is entitled to receive a pension valued at 3.8 million pounds, or 192,000 pounds a year, according to the bank’s 2009 annual report. He was paid a salary of 1 million pounds last year and awarded a 1.5 million-pound bonus.

Botin was educated by nuns at Slaves of the Sacred Heart, a school close to her family home in the Spanish port city of Santander, and also in Switzerland and the U.K. She excelled at golf, becoming Spanish junior champion in 1973 and 1974 with a handicap of six. A 1981 economics graduate of Bryn Mawr College in Pennsylvania, she speaks five languages.

‘Results Oriented’

Her banking career began immediately after college. She worked at J.P. Morgan, now part of JPMorgan Chase & Co. (JPM), first in Madrid and then in New York, becoming a vice president at 24. She left J.P. Morgan after eight years for Santander at the invitation of Carlos Garcia, then general director of Santander’s international division. She became a director of the bank the same year, at the age of 28.

Through the 1990s, Botin took on greater responsibilities, becoming head of investment banking in 1991. In 1994, she was chosen to run corporate banking for Latin America and southern Europe and led the bank’s international growth with acquisitions from Argentina to Colombia and Mexico.

By 1997, Santander Investment had 1,980 employees and accounted for 9 percent of the company’s personnel costs, according to the bank’s annual report for that year. As head of the bank’s business in the Americas, she was in charge of 50,000 people. She was 37 at the time.

“I remember her style as being very results oriented and very determined in very long negotiations with sellers,” said de Ochoa, who worked on her buyout team as she studied potential deals and is now senior director in Spain of New York-based financial-industry consulting firm Alvarez & Marsal Inc.

Expansion Interrupted

Botin’s expansion drive was interrupted by a 1998 market slump caused by Russia’s debt default and economic crisis in Asia. Within months of hiring a regional equities team from Hong Kong’s Peregrine Investment Holdings, she was forced to cut 300 jobs in Santander’s worldwide equities and fixed-income businesses, including most of the Peregrine staff.

The bank later wound down the Santander Investment brand and focused on the retail business.

Botin gave up her executive roles at the bank in 1999, after the acquisition of Banco Central Hispano SA, then Spain’s third-largest lender, and amid speculation about her future role and that of Angel Corcostegui, the CEO of BCH. Her father brought her back when Corcostegui stepped down in 2002, tapping her to run Banesto.

‘Detonator’ Contract

She quickly made her mark at the retail bank when it won a contract to manage Spanish justice-system accounts in 2002, beating out Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second- largest bank, which had done the work for 18 years.

“She involved herself directly” in the planning of Banesto’s bid, which produced spinoff benefits for the lender, including the bank accounts of 60,000 legal professionals, said Gregorio Garcia Torres, director of professional collectives and judicial business at Banesto. Botin herself called winning the contract a “detonator” that showed Banesto could compete with Spain’s best banks.

Botin isn’t a sure thing to succeed her father, said Guillen, who co-wrote the Santander history, “Building a Global Bank” (Princeton University Press).

Saenz, 68, second in command at Santander, is awaiting a Supreme Court ruling in a case that could bar him from banking. He was found guilty in a 2009 lower-court ruling in a case in which he and other executives were accused of making a false accusation in 1994 when he was chairman of Banesto. He has denied wrongdoing.

‘Boss’s Daughter’

Francisco Luzon, 63, head of Santander’s Latin American business, may be a contender because he has experience leading a bank as a former chairman of Argentaria SA, which became part of BBVA, Guillen said. Matias Rodriguez Inciarte, 62, a vice chairman who oversees the risk committee and has been on the board since 1988, is a close Botin lieutenant, though his lack of executive experience may count against him, Guillen said. The naming of a chairman from outside the bank is unlikely, he said.

A Santander spokesman declined to comment on the bank’s succession plans. Emilio Botin declined to discuss the issue at his Feb. 3 news conference.

“I think it would be pretty hard to get to be CEO just because you’re the boss’s daughter,” said Ann Cairns, head of the financial-industry advisory group in Europe at Alvarez & Marsal and a former CEO of transaction banking at ABN Amro Holding NV. “Actually, it’s more pressure to some extent.”

To contact the reporters responsible for this story: Charles Penty at cpenty@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net

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