With the eurozone turmoil spreading to banks in Spain, we look at what the effect could be on Santander customers
Santander is the British high street giant with a Spanish parent group. Will the pain in Spain spread to Britain? Already Twitter is alive with speculation, with customers of the bank wondering what it means for them. We answer the common questions.
Should I be worried about Santander?
The bank is keen to underline just how much it is ring-fenced from its Spanish operations. Santander’s UK operation is wholly-owned by, but autonomous from, Banco Santander. It is authorised and regulated by the UK’s Financial Services Authority (FSA) and a spokesman says it has its own balance sheet, separate from its parent company.
He also says 90% of the UK bank’s balance sheet is UK-related money. “Sovereign exposures to Europe [excluding the UK] at 31 March 2012 were not significant, at less than 1% of total assets, and primarily related to Swiss government securities,” he says. “Total exposure to eurozone periphery countries was less than 0.3% of total assets.”
If the parent company wanted to extract money from the UK bank it would have to sell it or pay itself a dividend, but that would only be approved by the FSA if it met strict UK capital requirements. In short, this means if the Spanish part of the bank was in trouble it could not prop itself up with money extracted from the UK bank.
The spokesman says: “Both Santander and Santander UK are strong businesses focused on retail banking with no exposure to toxic financial products. Santander’s UK business is strong and has a standalone credit rating which is one of the highest credit ratings of any UK bank.”
Ray Boulger of mortgage brokers John Charcol says Santander is “probably the safest bank in the UK” because nearly all its savings and lending is in the UK. “If it gets very messy in Europe the knock-on effect is likely to hit other banks such as Barclays and Lloyds more than it would hit Santander,” Boulger adds.
So are my savings safe?
UK consumers with money in Santander are protected by the Financial Services Compensation Scheme. This covers deposits of up to £85,000 held in the bank, or £170,000 for couples, and includes money previously held in Alliance & Leicester or Abbey accounts. If the worst did happen you would get that much money back, although it could take up to six months for your claim to be processed. The standard consumer advice is not to hold more than £85,000 in the account of any UK bank, Santander included.
What if I have my mortgage with them?
There’s bad news for anyone secretly hoping something will go wrong so they can escape repaying their mortgage or other debts: if a bank or building society fails you will still be liable to pay off your debt. David Hollingworth of mortgage broker London & Country says: “When banks have got into difficulty before, the bank has either been sold on or the mortgage book has been sold … your liability remains the same and the terms and conditions on your mortgage would continue to be the same.”
Will I still be able to get a mortgage from Santander?
It’s going to get tougher than it already is. Mortgage brokers report that in recent months Santander, which along with HSBC has been one of the few “volume” lenders during the financial crisis, has begun withdrawing from the market.
Mark Harris, chief executive of broker SPF Private Clients, says: “Santander has pulled back significantly in terms of lending volumes this year. It is demonstrating much less of an appetite to lend, which is having a knock-on effect on other lenders and their service levels, because in recent years Santander has done significant volumes of lending. Other lenders are having to pick up the slack, and more applicants inevitably mean longer processing times.”
Ben Thompson of L&G Mortgage Club, which sources nearly one in 10 mortgages in the UK, says: “The fact Santander has been lending less to the market since the beginning of the year has meant that much of this demand has now permeated to some of the other lenders. Consequently, many of those lenders have been faced with increased demand that they are struggling to meet.”
The cut in Santander’s credit rating is likely to increase the cost of the bank’s funding, making it more difficult to offer best-buy mortgages. The bank has already slashed its interest-only offering, demanding borrowers put down at least a 50% deposit. If the crisis deepens all banks, not just Santander, are likely to tighten already tight lending criteria.
Is this a great time to buy shares in Santander?
The bank’s shares, quoted on the Madrid stock exchange, are still held by hundreds of thousands of UK small investors from the days when Abbey demutualised, only to be bought later by Santander.
In March 2009 after the collapse of Lehman they plummeted to just €4.14, then within eight months bounced back to €11.96. This week they were back at 2009 levels, hitting €4.37, but today are trading slightly up at €4.59. According to stockbrokers Hargreaves Lansdown banks were the most heavily traded shares among small investors this week, although he noted they have turned from net buyers to sellers.
Big investors warn that now is not the time to jump in. Tom Dobell, who runs the £8bn M&G Recovery fund which specialises in buying shares of distressed companies it thinks will bounce back, is hugely negative on the banks. “[They] have been run for the benefit of themselves, not shareholders. The only one I’d cross the road for is HSBC. The others can wait outside the back door,” he says.