Santander's €1.5b writedown is a sign of the malaise enveloping the sector. Photo / 123RF
Lex COMMENT
Ignore the whingeing. That was the trenchant advice of a lead architect of Britain's post-crisis financial regulation four years ago. Complaints over ringfencing of UK retail banks were predictable. Brexit, ultra-low interest rates and cut-throat competition were harder to foresee. Santander has decided to take a €1.5 billion
($2.6b) writedown on its UK operations. It is a sign of the malaise enveloping the sector.
Ringfencing was meant to make banking safer. Critics say it has increased cost, complexity and competition. It has sparked a price war in the mortgage market. Barred from using retail deposits to fund investment banking, banks have lent more to UK house owners. HSBC, which has tens of billions of pounds in surplus liquidity in the UK, has made a splash. Santander UK, which has a 11.2 per cent share of the mortgage market —more than HSBC — has hit back with the lowest five-year fixed-rate remortgage deal on the market.
The return on tangible equity was just 7.9 per cent in the first half, down from 9 per cent in 2018. The medium-term target return is 9-11 per cent, compared with 13-15 per cent for Santander as a whole. Even achieving that will be a struggle. The UK bank has already pruned its branch network but accounts for 40 per cent of a €1b Europe-wide cost reduction target. Santander's executive chairman Ana Botín describes the UK as "critically important".
But a focus on more profitable areas such as Latin America is justified. It is Santander's fortress in the Spanish and Portuguese-speaking world that is its unique selling point, even if its hub-and-spoke corporate structure irks some investors.
