There's a piece in the FT covering a statement issued by Santander UK reiterating that the UK operation is separate from the Spanish operation, and has its own higher (than Santander Spain) S&P credit rating. It also describes the "subsidiary model" used by Santander which ringfences capital in each subsidiary.

This public reassurance has apparently been prompted by the actions of some Local Authorities which stopped using the bank for deposits.

I hold SAN.

Kent County Council has raised concerns about the safety of its money in Spanish-owned bank Santander.

The authority has suspended its use of the bank for overnight deposits during the eurozone crisis.

It is looking for assurances from the bank's UK arm that its money is ring-fenced from its Spanish parent company.

Santander UK said it was a "stand-alone subsidiary" and by definition "ring-fenced".

http://www.bbc.co.uk/news/uk-england-kent-18075387

When I took some money out last week, they asked me to reconsider!

cheers MrB

From the Telegraph:

The rating agency also downgraded Santander UK, although, at "A2," it is still rated one notch above its parent bank Banco Santander. Moody's highlighted that Santander UK has "no direct exposure to the Spanish government (or regional governments)".

http://www.telegraph.co.uk/finance/economics/9273435/Euro-cr...

Selling NWBD to buy SAN picking up 1.7% in yield looks sensible, both being must pays. Anyone see any obvious floor to this argument?

NWBD I thought are cumulative (@ higher rate if suspended), whereas SAN are not cumulative?

I believe SAN pay missed dividends in shares but only 1 for 1 unlike NWBD who pay 4/3

Surerera

Switching from NWBD to SAN is becoming quite tempting, particularly as I am very overweight NWBD. However, I am trying to understand Moody’s downgrade first. Surely even if Santander went bust, Santander UK would still be fine, unless they are somehow factoring in some kind of fraudulent activity? Has anyone seen any explanation of the downgrade? I am concerned that I may have missed something here.

I'm think it is a stretch to think if Santander went bust Santander UK would be fine! They might have some sort of corporate structure that protects the capital in Santander UK but if Santander goes bust then Spain is probably in serious trouble and the Eurozone will be falling apart. In that situation I doubt that any of the UK banks will be doing very well.

Hi Log, yes "Fine" was not the right word. If Santander went bust the world would be in a bigger mess than it was after Lehman's collapse. I would expect Santander had a good chance of survival even if the Euro did fall apart.

What I meant was is there any liability to the parent that I have missed that Moody's are concerned about? e.g. Does Santander UK hold it's parent's paper or Spanish sovereigns?

SAN looks very tempting, but the price will go lower if for some reason Santander UK is downgraded again. Hence my desire to understand the logic. e.g. why not downgrade Barclays? I would have thought they had a bigger exposure to Spain than Santander UK.

hiriskpaul

Yes this is the crux really isn't it. Is Santander UK totally ring fenced in its capital structure in such a way that capital can't be sucked out to the group level and then back down to other subsidiaries or is there more to it?

To be honest though if things got to real crisis levels I'm not sure how well you could rely on this corporate structure protecting holders. Taking legal action might also be difficult/expensive.

If anyone has done the work to show exactly how San UK (other than Moodys) is isolated I'm sure we'd all love to see it.

Log

Hiriskpaul - I've switched some NWBD into SAN, I'm confused by the downgrade too, but from what I can make out SAN UK is ring fenced from the parent so assuming the UK housing market doesn't completely collapse (in which case all Bank Prefs are toast) then SAN should be ok. Fingers crossed anyway.

Surerera

SAN looks very tempting, but the price will go lower if for some reason Santander UK is downgraded again. Hence my desire to understand the logic. e.g. why not downgrade Barclays? I would have thought they had a bigger exposure to Spain than Santander UK.

This bit I can at least help with I think. Even if Moody's is not concerned that capital can go upwards, part of their rating will be based on the fact that if there is a UK specific problem the parent may be able to step in to help solve things. Hence it is quite normal for subsidiaries to get downgraded with their parents even if the subsidiary is seen as independent (which it more or less has to be to have a higher rating than its parent).

wysi

Thanks wysi, that makes perfect sense.

Does anyone have a link to the SAN prospectus ?

Does anyone have a link to the SAN prospectus ?

Google docs link here:

http://boards.fool.co.uk/unwise-could-you-pls-forward-the-pr...

Unwize

"but from what I can make out SAN UK is ring fenced from the parent"

Whilst they may not be able to remove capital from Santander UK, there's presumably little to stop Santander UK's Treasury borrowing money overnight and then lending it on to their Spanish parent to provide liquidity. This wouldn't affect the capital of either bank, but would put Santander UK in a terrible spot if the Spanish parent then goes bust.

Is there anything stopping Santander's Spanish parent doing this to get additional liquidity?

The directors of Santander UK would have a conflict of interest (however the directors of BWSA have agreed to it lending money to BOI). Also, I think the B of E might well object.

I'm looking at my prefs carefully - we have a significant exposure which has built up steadily since 2008.

We hold LLPD/C & NWBD in volume, less of SAN and small quantities of ELLA & GACB.

As a subsidiary, they should be reasonably insulated from the parent - but remember that the UK MD is the daughter of the Group Chairman.

One would like to think that the FSA have them under strict scrutiny - and as the UK end is pretty profitable, what could go wrong?

I think my concern would centre on what the reaction of the UK public would be to TV reports of the parent in trouble. Logically, v little (FSCS £85k limit), but in reality, what risk of a run on the bank? Knowledge of local authority concerns ain't going to help

What thoughts on likelihood? Govt reaction? Outcome for SAN?

InTheHighlands

E666,

AIUI the FSA must approve transfers of capital from UK SAN to Spain SAN. An unlikely situation in my view.

Regards
SG

The shares have been quite stable over the past 2 weeks ("the crisis"), as I suppose all the bad news must have been in the price, and the downgrades were no surprise to the market.

I had no problems taking a fair amount of money out of Santander UK this week.

http://www.santander.com/csgs/Satellite?appID=santander.wc.C...

Never say never, but I didn't see any of this news in the media :-)

One thing I have learnt out of this crisis in the last few years is never assume anything will work as it should when it comes to banks and contracts/agreements they have signed.
I withdrew a very large chunk of my company money out of my Santander Businesss account yesterday to bring it well below the FSA limit. I don't expect Santander to go bust however I am not assuming anything anymore when it comes to my cash.

Santander may be regretting its re-branding exercise in the UK. If the bank was still called 'Abbey' there may be less anxiety.

When the Icelandic Landesbanki was placed in receivership in late 2008; its wholly owned UK subsidiary Heritable Bank was a viable FSA regulated Bank.

In late Oct 2008 Alastair Darling froze the assets of Landsbanki in the UK. Under the order the UK Treasury introduced provisions to prevent the sale or movement of Landsbanki assets within the UK. The freezing order took advantage of the Anti-terrorism, Crime and Security Act 2001.

Whatever the viability of Heritable Bank the freezing order caused considerable distress; Winchester City Council (among many others) had £1million on deposit with Heritable at the time and are still waiting to get all their money back 3 and a half years later (80% pay out so far from memory).

While I don't know whether parallels can be drawn and am unfamiliar with Santander, the Heritable situation begs the question how safe is a wholly owned subsidiary of a distressed parent?

Also look at MF Global UK versus MF Global US parent company

Can someone just clarify for me please. I have been totally focussed on the prefs especially SAN which is clearly the old Abbey National pref.

My query is with the ordinary shares i.e. Banco Santander SA listed in London. Are these the shares of the UK operation, or are they shares of the group?

Apologies if this is an obvious one for many here.

Pretty sure they are for the Spanish parent - issued in exchange for Abbey National shares when Santander bought Abbey.
InTheHighlands

<Pretty sure they are for the Spanish parent - issued in exchange for Abbey National shares when Santander bought Abbey.

Thanks, that makes sense, but it also seems incongruous that the the ords are shares in an international group whereas the prefs are shares in a UK operation only.

Pretty sure they are for the Spanish parent - issued in exchange for Abbey National shares when Santander bought Abbey.

That's right. There are multiple codes for the Santander group (as a whole) depending on the exchange: BNC is UK quote for the group and STD is the US quote. On Google Finance many of the announcements/news are made on the STD page and it's here where you can find financial details of the business (in dollars).

In many respects the Spanish bank situation is not that different from the UK one. BNC and BBVA are large international banks, which while having to make provisions for the poor situation in Spain, have extensive international operations to support the losses there. There is some affinity here with BARC and HSBC in the way they dealt with their losses in UK/US; indeed BNC is Europe's 2nd largest bank (after HSBC). Some of the other banks particularly the domestic-oriented savings ones are basket cases, resembling HBOS and RBS in their reckless and naive lending policies at the height of the boom. These are the ones causing grave concern at the moment. There have been worries that the Spanish government would try to coerce BNC and BBVA into mergers with the very weak banks (like the LLOY/HBOS merger) but these seem to be reducing now.

What is very different from the UK is the lateness with which Spain is now recognising the losses and dealing with the situation. The current action should have been done by the last government 3-4 years ago as part of the international clean-up.

Given the current anxieties, BNC is presumably very grateful that it's HSBC's network that is giving problems today and not their own.

Nick

Sunday thoughts from a SAN neophyte:

Buying SAN implies taking both UK banks + Santander risks.

Shouldnt one get the sum of both spreads? (Maybe one does, what is the CY at present?)

Otherwise, why not just stay with Lloyds and RBS, which might survive a Spanish storm better than Santander.

AIUI the FSA must approve transfers of capital from UK SAN to Spain SAN. An unlikely situation in my view.

On one view one would assume BoE/FSA will be poring over any Abbey/SAN activity after previous debacles re Iceland and others - stable doors and all that.

Alternatively how easy is it to cover all cross contamination angles ? eg
-credit support offered or implicit re derivatives
-possible other support mechanisims
-loss of parent support
-the panic angle if the parent is in trouble

Not sure these things are capable of a black and white answer.

glic

Anyone got the prospectus for SANB pref shares, which I think were issued to fund the Aliiance & Leicester takeover?

jimmyriddler - is this the one you are looking for?

http://www.rns-pdf.londonstockexchange.com/rns/5372I_-2010-3...

Anyone got the prospectus for SANB pref shares, which I think were issued to fund the Aliiance & Leicester takeover?

OBRs link is to the Series A prefs, not SANB. I don't jave a link to SANB, but would be interested if anyone does.

Interesting special resolutions in the recent AGM notice. Santander UK are clearly trying to sweep up more of the prefs, which should help the price.

http://www.aboutsantander.co.uk/investors/stock-exchange-ann...

p.s. SANB were not issued to fund the A&L takeover. The Series A are the replacements for the old A&L prefs.

Why are there no queues outside Santander UK branches?

cheers MrB

Why are there no queues outside Santander UK branches?

I think most depositors are now well aware how the FSCS scheme works, and won't have gone above the £85,000 ceiling.

Many thanks for replying to my query, OBR, but I think hiriskpaul is right. The propectus you provided is for the Santander 6.222 per cent pref shares to replace an issue from A&L. This pref share resets to LIBOR plus 1.13 per cent if not called in May 2019. SANB pays 8.825 per cent. It's widely traded but the prospectus seems a bit elusive!