It may be that the London headquarters of Banco Santander Central Hispano, where constant exposure to the single word Santander in the stonework has made it homely and familiar to me, is opposite my office on Ludgate Hill. Or it may be because the press photos for Santander’s proposed &£8.2bn bid for Abbey were shot on the top floor of the nearby offices of Goldman Sachs on Fleet Street, with the quintessentially old-newspaper view of St Bride’s spire as a backdrop. But I find myself far more sympathetic to Santander’s proposal than most City pundits.
Since the takeover bid emerged last week, Abbey chief executive Luqman Arnold has made a good job of arguing the pragmatic good sense that the deal would offer to his shareholders. He must have had a struggle not to sound patronising as he outlined the blindingly obvious attractions of selling out to Santander. Abbey’s share price was around the 400p mark before the Spanish bank’s approach. It closed last week at 567p, a shade above Santander’s bid price of 553p. Arnold wants us to tell him how long it would take Abbey to reach this kind of valuation through careful organic growth. The answer is a long time, possibly years and maybe never. So Arnold has recommended this offer to shareholders. Which part of that exactly, he seems to be asking us, don’t we understand?
Well, it seems pretty easy to understand to me. It represents a quantum step in Abbey’s valuation that its management, however gifted, will find it impossible to match in the near term. In his act of gentle persuasion, Arnold goes a little further, likening this proposal to Wal-Mart’s acquisition of Asda some five years ago. Chief executive Allan Leighton and his management team had turned the superstore chain around, but it needed the global and capital-markets muscle of Wal-Mart to make the next leap.
This is where the City’s wiseacres spot a chink in Arnold’s armoury and chime in with the old saw that cash is king. Wal-Mart paid &£6bn in cash for Asda. Santander is, by contrast, offering only a sliver of cash for Abbey – amounting to just 31p per Abbey share – and the balance must be taken in Santander’s shares. And this is where the City starts to become very sniffy. They wonder who would want to be a shareholder in a Spanish bank, albeit that country’s largest one. They wonder whether a more attractive, cash-rich bid might emerge from outside the Big Four retail banks in the UK, which are constrained from bidding for competition reasons.
The City is entirely entitled to this latter speculation. The world’s largest bank, Citigroup, is said to have made friendly overtures to Abbey. Also in the bidding frame is HBOS, as it is now universally but cumbersomely known, presumably in a botched imitation of the mighty HSBC (think Halifax Bank of Scotland and you get a clearer image of the brand). If HBOS were to bid, then its domestic rivals, Barclays et al, would be likely to counter-bid, triggering the protracted impasse of a competition investigation.
For some, this is a more attractive scenario than Abbey’s ownership being bound for Madrid. I have heard of one banker claiming that it’s better for Abbey to be bogged down in a competition inquiry than to go into foreign ownership. This is the attitude that really worries me. It’s as though there is something essentially unworthy about exchanging shares in a British bank for a Spanish one. They may not be valued in pesetas any more on the Madrid borsa, but we know where their filthy euros come from – exploitative and unreliable investment in Latin America and some other hot-headed “Spanish practices”. They’ve only been a democracy for 30 years, for goodness’ sake.
It’s dangerous to speculate whence this attitude stems from. One dramatic thought is that strong neo-conservative Republican elements within the American investment banking community (though presumably not within Goldman Sachs) are inflamed by resentment of the new, socialist, Spanish government’s opposition to war in Iraq.
But it’s difficult to see that American financiers are interested in anything other than making money. So why the anti-Spanish sentiment? There seems to be no pragmatic reason for it. The Spanish economy grew 2.4 per cent last year and the banking system and financial markets are broadly efficient and increasingly well regulated. After wholesale privatisation, there is the kind of potential upside to Spanish shares that the UK enjoyed in the Nineties – the Spanish banking sector had its best-ever year in 2003 (and Santander’s profits rose by 16.2 per cent).
Spain’s is a growth economy. Its equity markets should be attractive to us. I fear the problem is simply that, in the UK, we continue to consider ourselves closer to the capital markets of America than the eurozone. Shame.
George Pitcher is a partner at communications management consultancy Luther Pendragon