Reports that it may already have expressed interest for major lender as speculation mounts over potential bidders
It was only yesterday that we reported that giant mortgage lender Santander was considering whether it wanted to stay in the UK – and whether to sell its British operation. And today news is breaking, courtesy of The Times, that Barclays may already have made overtures to the Spanish bank.
Such a move would mark a significant shift in the UK’s banking landscape and pose challenges for the Chancellor, Rachel Reeves, who is actively courting foreign investment to bolster the economy.
While Santander operates globally, with strong roots in Latin America, its UK retail division has struggled to deliver consistent returns. Recent developments, including a Financial Conduct Authority (FCA) investigation into alleged mis-selling in the motor finance sector, have added to the bank’s difficulties. Santander UK recently disclosed it had earmarked £295 million to cover potential compensation for affected car loan customers. This provision contributed to a sharp decline in its third-quarter pre-tax profits, dropping from £558 million a year earlier to £143 million.
Although Santander has yet to confirm any plans to exit the UK, it conducts annual reviews of its strategic priorities across all markets. A spokesperson stated, “The UK is a core market for Santander, and this has not changed.” However, the ongoing regulatory scrutiny and lacklustre performance have fuelled speculation about a potential departure.
If Santander opts to sell its UK business, it could reshape the domestic banking industry. The bank’s journey in Britain began in 2004 with its £9 billion acquisition of Abbey National, followed by the purchases of Alliance & Leicester and the savings arm of Bradford & Bingley during the 2007–2009 financial crisis. Ana Botín, Santander's executive chairman, previously led the UK division before ascending to her current role in 2014. Mike Regnier has served as the head of Santander UK since 2022.
The fact that potential buyers are already being discussed shows that a sale of the bank’s UK business is a real possibility. Barclays, which has been expanding its consumer and corporate banking operations in the UK, is seen as a likely contender. Reports suggest Barclays made a preliminary approach to Santander for its UK arm last year, though the bank has not commented publicly on questions. HSBC has also been named as a potential suitor, but market dominance concerns may preclude Lloyds Banking Group or NatWest from making a bid.
Barclays boss C. S. Venkatakrishnan wants to increase the size of the UK business so that the Barclays can place less reliance on its traditional, somewhat unstable, cash cows of trading and investment banking. Buying big mortgage lender Santander UK would push the group’s reliance on investment to under half, according to Reuters.
Analysts at Jefferies have noted that while Santander’s UK operations have underperformed for nearly two decades, their diversification from emerging markets has been a key reason to maintain a foothold in Britain. However, they argue that a sale is unlikely to occur until the motor finance mis-selling scandal is resolved - a process that could take months and hinges on court decisions.
The FCA’s investigation, which covers motor finance deals dating back to 2007, has drawn criticism from some financial experts, who claim it has tarnished the UK’s reputation among overseas investors. The inquiry has created prolonged uncertainty and raised fears of a potential compensation payout comparable to the £50 billion payment protection insurance (PPI) scandal.
Whether Santander decides to exit or remain in the UK, the outcome of the FCA’s inquiry and the broader regulatory environment will undoubtedly influence the bank’s future decisions and the stability of the UK banking sector. For those of us that help clients borrow, the more lenders in the market the better – so consolidation may not be the best result for our clients.
