The Spanish armada has arrived on Britain’s high street, and this time we’re cheering.
In a deft £1.26bn deal, Spain’s largest bank has bagged Alliance & Leicester, a deal likely to be cheered not only by most shareholders in the UK’s sixth-largest bank, but by embattled investors right across the banking sector.
With British house prices falling, and no let-up in the subprime mortgage crisis eroding the value of assets, there was a feeling that many of Britain’s banks still did not have enough capital to see them through the crisis. But by putting a concrete value on one of the sector’s more vulnerable lenders, albeit a low one, Santander is stamping ‘value to be had’ on Britain’s high street lenders.

Santander, with interests across Europe and in South America, is the world’s sixth largest bank. It already owns Abbey, which it bought for £9.5 billion in 2004. Putting the two groups together, probably under the Abbey brand, will give Santander 959 branches, 7.6% of the UK banking market, and closer to 8% for savings and unsecured loans.

Alliance & Leicester, with 60% of its funds coming from expensive wholesale funding, and a fairly large exposure to the weakening mortgage market, was expected by analysts to lose money this year, a fact obliquely acknowledged today.

“The board is acutely aware of the significant external risks presented by the deterioration in economic conditions and the continuing turbulence in the financial markets,” Alliance & Leicester acting Chairman Roy Brown said. “The proposal from Santander represents value for shareholders, and the combination of Alliance & Leicester with Santander’s UK operations is an excellent fit.”

The only thing that seems to be puzzling though is the way Spanish newsreaders pronounce Alliance & Leicester – sort of “a li ance and les se ter”. I think if they’ve got enough money to buy the bank at least they should learn how to pronounce its name. Really!