Analysts at Credit Suisse have just issued a note pooh-poohing the idea of a bid by Banco Santander for Alliance & Leicester. So far to little effect, since A&L's shares are now up more than 17% on the story.
Nevertheless it is worth reporting Credit Suisse's views, since they seem to make sense.
It says: " We may be mistaken, but we believe that Santander is not interested in A&L. Given that many banks' share prices have corrected significantly in the past months, it is easy to speculate that the weaker (or cheaper) institutions could be taken over. Active buyers, like Santander, are always on the shortlist as potential bidders, because the company is one of the largest banks in the world by market cap and has acquired many companies over the years. Not that long ago, Citigroup was always rumored to be the main buyer of any bank in the world."
Here comes the "but..."
"Santander needs less exposure to the UK mortgage market not more. Some market participants tend to forget, but, as of today, Santander's UK mortgage book is 1.6 times larger than its Spanish mortgage book. UK mortgages represent 60% of Santander's total mortgages and 34% of its total loan book. Adding A&L to the picture would mean that the UK (mainly mortgages) would represent 42% of total loans.
"We do not believe Santander would be willing to increase significantly more their exposure to a single product in a single market at this stage of the cycle. In our opinion, going forward, exposure to the UK mortgage market would be gradually reduced, not increased. UK growth should come in the form of cross-selling, and we would expect selective acquisitions in the SME/small corporate world markets where Santander/Abbey have no significant presence."
And although Credit Suisse has an outperform rating on Santander, it is by no means convinced of the value of the Abbey deal: "Our valuation of Abbey, more than three years after Santander acquired the company, is still 13% below what Santander paid
for it. Abbey is a much better franchise now than when Santander took over, but, so far, we believe the deal has destroyed shareholders' value."
To rub the point home, it concludes: "Anything is possible and it is very easy to spread the word that Santander is interested in buying anything but, in this particular
case, we believe the company's priorities might be elsewhere."
Something to bear in mind, as the A&L price soars ever higher.
