Banco Santander and the Acquisition of Abn Amro and Abbey National

Introduction and facts

1. Banco Santander

Banco Santander was founded in Santander and is the largest bank of Spain. Grupo Santander, which is the �umbrella’ above the different activities and bancs in different countries, has almost 130.000 employees and 69 million customers. It is the twelfth largest financial group of the world by market value.

2. Abbey National

Abbey is the sixth largest bank of the United Kingdom, with a leading position in the United Kingdom mortgage market, a well-built distribution network, an established brand and a wide portfolio of clients. In 2004, the bank was acquired by Banco Santander for EUR 15,6 billion and became a wholly-owned subsidiary of Grupo Santander.

The two main business divisions are �Personal Financial Services’ and the �Portfolio Business Unit’. The �Personal Financial Services’ consists of three components: the �UK Retail Banking’ which provides residential mortgages, savings products, personal banking services, travellers' cheques, foreign currency and general insurance. The �wholesale banking’ which is in charge of the liquidity and capital management activities of the bank and also incorporates Abbey’s financial products and short term markets businesses. The last element of this division is �Business to Business’ which develops the business relationships of Abbey with intermediaries and generates further opportunities with small and medium sized enterprises and in workplace marketing. The second division, the �Portfolio Business Unit’, deals with businesses that are not consistent with Abbey’s �Personal Financial Services’ strategy. The intention of the organization is to reduce these businesses while making sure that returns for shareholders are maximized and risk is reduced in a timely manner.

3. ABN Amro

ABN AMRO was, in the period of 1991 to 2007, one of the largest banks in Europe and had operations in more than 60 countries around the world. ABN AMRO was the result of a merger in 1990-91, of two banks, AMRO and ABN.

In October 2007, after seven months of fierce battling against Barclays Banc, the Royal Bank of Scotland-led consortium (which included Banco Santander and Fortis), finally won the bid for ABN Amro for $99,1 billion in the largest financial-services takeover ever.

Why was there an acquisition?

1. Abbey National

Banco Santander wanted to acquire Abbey National because of three reasons. First of all Banco Santander perceived the acquisition of Abbey as an opportunity to diversify and expand their business portfolio and as a means to reduce their activities in Latin America. Secondly, Santander saw the existing presence and position of Abbey as an opportunity to enter the UK banking market, Europe’s largest and most profitable market, and as an occasion to increase their market share. The last reason was that Santander wanted to create value through cost and revenue synergies. The low efficiency levels of Abbey provided a high potential for cost synergies by adopting the best practices of Santander, following an increase in efficiency in IT spending and customer service levels. Banco Santander aimed at building on the current expertise and capabilities of Abbey National while also contributing its own strengths in technology, retail banking and its unique business model to the mix.

2. ABN Amro

ABN AMRO came to a crossroad in the beginning of 2007. The bank had still not come close to its own target, of having a Return on Equity that would put them among the top 5 of its peer group. Because of the financial results of 2006 they became more and more worried about the bank's future. There had been some calls over the last couple of years for ABN AMRO to break up, to merge or to be acquired. In February 2007, these became very real, when the TCI hedge fund asked the Chairman of the Supervisory Board to actively investigate a merger, acquisition or break up of ABN AMRO. Events accelerated when in March, Barclays and ABN AMRO both confirmed they were in exclusive talks about a possible merger. On March 28, 2007, ABN AMRO published the agenda for the shareholding meeting of 2007 but with the recommendation not to follow the request for a break up of the company.

However, in April, the Royal Bank of Scotland got in touch with ABN AMRO to propose a deal in which a group of banks including RBS, Fortis and Banco Santander Central Hispano would jointly bid for ABN AMRO and thereafter, break up the different divisions of the company. According to the proposed deal, the RBS would takeover ABN's Chicago operations, LaSalle,