For Spain's Botín Family, "Banking Is Everything"

The little-known clan looks set to become a force across Europe

In the hushed hallways and ornate management suites at Banco Santander in Spain, power remained firmly in the hands of the founding Botín family for 142 years. But in 1999, while negotiating a deal with Banco Central Hispano, family scion Emilio Botín did the unthinkable: He wooed the bank's key executives with an offer to share power. They agreed to the $9.6 billion merger, but inevitably frictions flared. On Feb. 13, Botín ousted the remaining top brass from Central Hispano, brought back his exiled daughter, and consolidated dynastic control over one of Europe's largest banks, now called Santander Central Hispano.

What's next for the banking Botíns? Not widely known outside Spain and Latin America, the Botíns figure to become a powerful force in Europe as the Continent's financial markets consolidate. Since he took control of Banco Santander in 1986, the third-generation Basque banker has driven growth at a breakneck pace, buying more than 30 banks from Bilbao to Brazil. SCH now boasts some $311 billion in assets--putting it among the top 30 banks in the world--and a market capitalization of $36 billion. At the same time, Botín has polished the bank's performance, doubling profits over the last four years, and driving return on equity to 17.6%. SCH did take a $1.3 billion hit from the turmoil in Argentina, writing down assets to zero, but it offset that by selling some of its shares in Vodafone Group, reaping a $1.65 billion gain.

Now, Botín, 67, wants to move up yet another rung in the global banking league. He declined to be interviewed, but executives close to Botín say he is determined to wring growth and profits out of his $16 billion Latin American empire and to be among the first to complete a cross-border purchase in Europe as a single financial market starts to take shape. Although political resistance to cross-border acquisitions remains strong, Botín is interested in scouting for a joint deal in Europe with longtime partner Royal Bank of Scotland Group, executives close to the bank say. Italy, France, and the Benelux countries are key targets. On the Continent, SCH already has cross-shareholding alliances with Société Générale in France, Commerzbank in Germany, and Sanpaolo IMI in Italy. Those close to Botín say he may sell some of those stakes at the right moment to redeploy his assets for a takeover. "Italy is a great market and has not been a leader in banking services," says David Allen, chairman of the strategic-management department at Madrid management school Instituto de Empresa. "They've been dreaming about [an acquisition] in Italy for some time."

When it comes to deciding his next big strategic move, Botín will be flanked by a daughter, Ana Patricia Botín, 41, and his brother, Jaime Botín, 65. A Harvard University graduate who did a seven-year-stint at J.P. Morgan in New York and Madrid and later ran Santander's investment-banking business, Ana Patricia was forced out in 1999 after the merger partners complained about an article in the Spanish daily El País that dubbed her the heir apparent to her father. Former SCH Chief Executive Ángel Corcóstegui and Co-Chairman Jose Maria Amusategui, fearing that the Botíns would monopolize control of the merged bank, insisted a few days after the merger announcement that Ana Patricia resign or the merger would not go through. The move pained Botín, but he went ahead and asked his daughter to step down. "She's the eldest child and seems to be the most like him. She's difficult but brilliant. She eats, breathes, and sleeps finance," says one banker close to Botín.

Rewarded for her patience, Ana Patricia now returns as chief executive of Banesto, the failed Spanish bank that Santander acquired in 1995, and which now boasts $38.5 billion in assets. The new position will test her skills at the retail level and is widely expected to prepare her to succeed her father when he steps down at age 72 in 2008. "Her experience is in investment banking. It has nothing to do with traditional retail and commercial banking," says one Madrid bank analyst. "It's a learning phase." During her three years on the outside, Ana Patricia helped manage a profitable Internet company incubator and consultancy, and launched a private equity firm that was starting to invest in Latin America and Spain. Jaime Botín, long an adviser to Emilio and chairman of Internet-savvy Bankinter, now becomes first vice-chairman of SCH.

The family rules as much by sheer force of personality as by investor clout. Together, Botín and his family own only 3% of SCH and control four of 25 board seats. While some analysts were dismayed by the departure of the highly regarded Corcóstegui, others believe that cost-cutting and the integration of the two banks will be accelerated under a more unified management. Indeed, insiders say Botín was upset by the pace of restructuring following the merger and worried that the bank was undervalued. Under the new structure, Latin American and other managers report directly to Botín instead of Chief Executive Alfredo Saenz. In February, Emilio told SCH executives that the bank's market capitalization should be $55 billion, 53% greater than now. "Botín is the bank's largest individual shareholder--that reinforces his interests in boosting shareholder value," says Evangelos Kavouriadis, bank analyst with Sanford C. Bernstein & Co. in New York.

Over the past year, SCH's shares have tracked Europe's banking-sector average, falling some 17% in 2001 and an additional 8% since January. But analysts note that SCH is one of the few European banks to have shown earnings growth last year. SCH posted a net profit of $2.16 billion last year, up 10% over 2000. Kavouriadis believes that SCH's share price will bounce back when jitters over Latin America subside because the bank's key markets there--Brazil, Mexico, and Chile--have been performing well. And Botín aims to slash costs by $435 million this year. "Their earnings are great. You have to struggle to find banks in Europe with a cost-cutting story like SCH who deliver," Kavouriadis says.

Botín's father, also Emilio, who remained at the helm until age 84, often reminded his son that "banking is everything." A strong-willed Emilio, who joined his father's bank at age 24, lives by the same maxim, routinely heading to the office on Sundays and holidays, either in Santander or the headquarters in Madrid. He rewards top performers and cuts laggards little slack--testing management loyalty by calling snap meetings on Christmas Eve. The elegant Spaniard travels regularly to Latin America and mingles eagerly with workers in the branches to keep tabs on operations, fingering layout flaws such as inadequate space and ventilation for a cashier's desk. "Botín likes to be in the trenches all day long," says Guillermo de la Dehesa, a vice-president of Goldman Sachs & Co. in Madrid.

Botín hardly fits the mold of a traditional European banker. On a visit to New York as a young manager, he was deeply impressed by the marketing sophistication of Citibank. "Every place you looked, they were selling to you," he told BusinessWeek last year. If the family tradition continues, the Botíns may well inspire similar admiration among European rivals.

Corrections and Clarifications In "For Spain's Botín family, `banking is everything'" (Finance, March 4), Emilio Botín was incorrectly identified as Basque. He is Cantabrian. Also, Santander Central Hispano's sum of $1.1 billion in Argentina was not a writedown of assets but a provision against losses.

By Gail Edmondson in Rome, with David Fairlamb in London and Philip Schmidt in Madrid

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