Mark Kleinman: Kicking the Abbey habit may be harder than it looks for Botin
Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his weekly City PM column. This week, he looks at Santander shifts, a tale of two cities in banking and a canary in the Poundland coalmine
Kicking the Abbey habit may be harder than it looks for Botin
Is this the end for Ana Botin’s Abbey habit? Rumours of the Santander chief’s disgruntlement with the UK banking environment have abounded for years: two decades after introducing its brand to an unfamiliar British public, though, the scion of one of Europe’s most prominent banking dynasties may be close to pulling the plug on her version of a British empire.
A well-sourced report in the Financial Times said at the weekend that Santander UK’s persistently high cost base, regulatory landmines and anaemic return on equity had conspired to make a sale of the business a possibility.
But it’s one thing to contemplate a sale and another to execute it. Last autumn, when the rumour-mill about an exit was in overdrive, industry executives said Botin’s asking price was simply too high.
At book value, a deal would cost a buyer roughly €15bn, while at 0.7x book – the valuation that Nationwide paid for Virgin Money in the most recent comparable deal – Santander UK would still be worth north of €10.5bn.
The field of potential buyers is, in any case, limited. Barclays is reported to have had a look at the business last year, Lloyds Banking Group would be prohibited from buying the Spanish-owned lender on competition grounds, and HSBC’s desire to increase its exposure to the UK retail banking sector – possibly via an asset swap – is lukewarm.
That leaves NatWest Group, which is shortly to return to full private ownership, and would probably enjoy shareholders’ backing for a sensibly priced deal.
Institutional memories of its previous excursions into large-scale M&A remain fresh, however, meaning any tilt at Santander UK would need to be crafted with surgical precision.
“Whilst it is not a secret that Santander’s ROI in the UK has been below expectations for almost two decades, diversification from its large EM exposure has always been an argument for staying put, not to mention an exit would require both a buyer and the regulatory visibility for further intra-market consolidation in the UK,” Inigo Vega, an analyst at Jefferies wrote this week.
For its part, Santander UK has been maintaining the line that the UK remains a core market. Should that change, kicking the Abbey habit may prove harder than it looks.
A tale of two Cities for London banking jobs
Call it a tale of two Cities: the one occupied by the behemoths of investment banking, with surging earnings driven by higher trading revenues and buoyant dealmaking; and the one in which smaller, principally domestic brokers have been left treading water by the dearth of stock exchange listings and other capital markets activity.
In the latter pool, virtually everyone is hurting, and the evidence is beginning to trickle through. I understand that Investec has kicked off a consultation with employees about a small number of job losses in its investment banking operations in London.
A spokesperson for the firm insisted that it “continues to invest in and grow its business”, but acknowledged that this “includes introducing measures to simplify and streamline certain areas of our business”.
“There are a small number of people in our investment banking business who are potentially impacted by redundancy proposals and as such we have commenced consultation with them,” the bank added.
Investec will not be the only firm to turn to cost-cutting amid a glaring absence of deal and IPO activity. I understand some of its peers are also working on similar plans, some of which are said to be on a larger scale.
Typically, this would be the kind of corporate environment in which mid-cap brokers would then explore opportunities to merge with one another. It may be too early in the cycle for serious talks about such combinations, particularly given how difficult – culturally and financially – deals of this kind have proven to be during previous downturns.
Investec’s redundancy round, though, is likely to be the canary in the coalmine. Expect more bloodletting, and talks about cost-driven mergers, to punctuate the 2025 calendar.
Poundland’s woes give clue to the UK high street’s pain
Crying wolf? Hardly. So many retailers have now gone public with their complaints about the impact of Rachel Reeves’s Budget on their financial outlook for 2025 and beyond that it’s hard to conclude that the chancellor and her officials accurately calculated the torrent of disastrous headlines that would still be cascading in the Treasury’s direction more than two months later.
Poundland’s owner has been among the industry’s more discreet employers of scale. As I reported on Sky News at the weekend, though, its decision to retain restructuring consultants is a sign of genuine alarm for a government which insisted that October’s fiscal statement was a ‘growth’ Budget.
Sources tell me that the AlixPartners team hired by Warsaw-listed Pepco Group includes at least one seasoned insolvency practitioner. If true, that would imply a company voluntary arrangement or restructuring plan will be under consideration.
Pepco has already closed 13 Poundland shops and said it will not sanction any net new openings this year. Given the strong performance of its Pepco and Dealz chains in Europe, though, the British operation increasingly resembles a millstone around the group’s neck.
Poundland trades from more than 800 stores across the UK, employing about 18,000 people. Its parent’s decision about the chain’s future may well be a harbinger for others on the high street.