Santander Buys Alliance and Leicester
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Monday, 20 Oct 2008
 Santander's empire keeps growing. Last week another half a million UK shareholders were swallowed up by this Spanish banking conquistador as its takeover of Alliance & Leicester was completed.
The question for those A&L investors is whether to hold on to their shares or sell.
Santander's investor relations department will be in touch with former A&L shareholders within the next couple of weeks and they will be able to offer an easy service for trading in those Santander shares, whose main listing is in Madrid and are quoted in euros.
Alliance and Leicester Shareholders
These investors have one Santander share for every three A&L shares previously owned. At the very least they should wait until they are contacted or early November when Santander will pay a 13.5 cents (10½p) a share dividend.
But what about the longer term?
First, let us study the fundamentals on Santander. Midas last looked at the banking giant in August, soon after the A&L takeover was announced. Even by then there were some 1.2million UK shareholders with a stake in Santander following its takeover of Abbey in 2004.
At that time we recommended investors to sell. Since then, Santander shares have fallen 24 per cent. So that looks like being sound advice.
But now that fall has taken place and the world has undergone an unprecedented banking crisis, things are slightly different.
Santander, run by chairman Emilio Botin, has outperformed every UK bank during the past year. It avoided any exposure to the US sub-prime crisis, partly because of Spanish regulators' tough stance on exotic investment.
But while it has avoided those risks, it cannot avoid the secondary effects of the credit squeeze - the global recession. That will see rising defaults, more business customer failures and growing mortgages arrears at all banks.
Even Santander will not be immune and that realisation is what lies behind its share price fall over the past three months. In London they closed on Friday at 725p.
The looming recession means the shares are likely to remain weak, though Santander's diversification into emerging markets such as Latin America might give it some immunity and its sound management in recent years means it should do no worse than any other bank of its scale.
Analysts are still forecasting 2008 profits of about 12.75billion euros (£10 billion), up 15 per cent on 2007 and higher still in 2009.
The other issue to consider is the exchange rate. If the euro falls it will knock the value of British shareholders' stakes in Santander.
It has become ever more clear that Europe is not immune to financial crisis and is rapidly catching up with the US and the UK in their slide into difficulty. Opinion is divided, but on balance the risks are that the euro could fall against the pound over the coming year.
But the fact that Santander shares are lower than they were in August means the opportunity to sell has passed.
If you find yourself aboard the Santander bandwagon it is probably best to stick with it, there are far worse places to be and in the long run this could still be a bank going places.
Source: http://www.dailymail.co.uk/money/
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