Banco Santander SA, Spain’s biggest lender, will offer 263 million euros ($345 million) in stock to buy out minority investors in its Banco Espanol de Credito SA retail unit and close 700 local branches to cut costs.
Santander, which already owns almost 90 percent of Banesto, will offer investors the equivalent of 3.73 euros a share, 25 percent above its Dec. 14 closing price, the Santander, Spain-based lender said in a filing to regulators today. The transaction will shutter 700 branches as Santander limits its combined Spanish network to 4,000, it said.
Spanish banks are striving to rein in costs as the state forces them to book losses linked to real estate and lending contracts. Santander said its absorption of the Banesto network will yield 520 million of annual savings by the third year of the plan, with the Spanish banking industry seen shrinking to 35,000 branches by the end of 2015, a 35 percent drop from 2008.
“The rationale for doing this is clear,” Carlos Joaquim Peixoto, an analyst at Banco BPI SA in Porto, Portugal who recommends buying the shares, said in a phone interview. “There’s no real scope for top-line growth in revenues in Spain, so you have to focus on reducing your operations.”
Banesto jumped as much as 23 percent and closed up 18 percent at 3.54 euros in Madrid. Santander fell 1.2 percent to 5.83 euros. The offer is valued at 0.633 Santander share per Banesto share, Santander said.
Santander has a flat costs structure in Spain “but that is not enough,” the bank said in a presentation for analysts, adding it had to focus on becoming more efficient. Profit at Santander’s Spanish business fell 5.9 percent in the first nine months of the year from the same period of 2011 to 1.05 billion euros as profit from Banesto plunged 39 percent.
The branch closures won’t involve “traumatic” job cuts, with reductions in staff being covered by natural turnover and relocation of workers where possible, Santander Chief Financial Officer Jose Antonio Alvarez said on a conference call. The Banesto brand will disappear, he said.
“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,” Santander said. Banif, Banesto’s private banking arm, will also operate under the Santander brand, the lender said.
Banesto, a 110-year-old consumer bank, had 1,698 branches and 8,303 staff at the end of September, according to its third-quarter earnings report. It had 100 billion euros of assets, 67 billion euros of loans and 50 billion euros of deposits. Santander bought Banesto in 1994 after Spain’s deposit-guarantee fund put it up for sale following a financial collapse.
Alfredo Saenz, named as chairman of Banesto when it was under state administration, stayed in the role after it was acquired by Santander and remained until 2002, when he became chief executive officer of Santander. Ana Patricia Botin, daughter of Santander Chairman Emilio Botin, was chairman of Banesto from 2002 to 2010, when she took over from Antonio Horta-Osorio as head of Santander’s U.K. unit.