A quick scroll down the page and she was able to see the products that customer had bought, the credit rating and how profitable she was to the bank. Welcome to the high-tech age of banking. Pozuelo, an employee of Banco Santander Central Hispano — the Spanish bank that has made a recommended £8.5 billion bid for Britain’s Abbey National — is at the cutting edge.
Pozuelo runs a branch under the Banesto banner — 89% owned by Santander — off one of Madrid’s most fashionable shopping streets. The technology shows exactly the last time the customer came in and it measures his or her loyalty. It identifies new services that can be sold from a basket of 17 products, as well as detecting early signs that he or she may be taking business elsewhere. The manager is also given the discretion to be flexible on product charges for each client.
Just a few kilometres away Margarita Martinez is doing the same job at a Santander Central Hispano branch. Her office is slightly bigger, she manages 20 staff and, as in Pozuelo’s branch, each of her staff has a defined job — from managing small firms to private banking for big- hitting clients with more than €600,000 (£407,000) of liquid assets.
When she was just 23 Martinez became Santander’s youngest branch manager and she has since managed a series of outlets. She said her current branch produced a ¤6m annual income for the bank.
If the Spaniards have their way, this aggressive sales approach could soon be adopted in Britain. That prospect became more real last week when HBOS said it would not make a rival bid for Abbey. The announcement led to a 6% fall in Abbey’s share price, which closed the week at 571p. Unless another bidder emerges — and most analysts now believe this to be highly unlikely — Abbey will fall into Spanish hands before Christmas and mark Europe’s biggest cross-border banking deal.
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While a lot of the technology used by Santander has also been embraced by Britain’s top retail banks, there are many, including Abbey, that are still encumbered with legacy systems and as a result have become uncompetitive.
Emilio Botin, Santander’s 69-year-old chairman, believes when his IT infrastructure is installed it will give Abbey the edge to take on the Big Four and justify his acquisition of Britain’s sixth-biggest bank. There are virtually no back- office functions at Santander’s Spanish branches and all the data are fed back into a processing centre. The bank works out how many employees should be in the bank according to the volume of business. If performance targets are not hit, questions are quickly asked by regional managers.
Abbey customers may not know it yet, but Santander is determined to make an impression on retail banking in Britain. Botin has a history of challenging the status quo, but some analysts believe he may find the competitive UK market tough to crack. One said: “This is not the case of a first-world bank taking over a third-world one. Santander has been spinning a bit of a story about its technology, and in my view it does not have a magic bullet. It’s going to be a long grind.”
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ON Tuesday morning Luqman Arnold, Abbey’s chief executive, was having breakfast in London’s Savoy hotel. At that stage, he remained confident HBOS would make an approach and the bid would be referred to the Competition Commission. The company was even in the process of working on bonus payments to encourage staff to stay throughout a competition inquiry.
But instead of the prospect of an auction, Abbey’s 25,000 staff and its thousands of investors who will own Santander shares are now starting to examine what the Spanish can do to rescue a tired and under- invested brand.
Abbey is a significant deal for Santander. When Abbey is folded into the enlarged company it will account for 24% of its €17.3 billion income and 21% of operating profits of €7.2 billion. It will also push it into the bottom rung of the league of the top 10 global banks.
At a presentation last Wednesday Botin set an ambitious target of achieving cost savings of €450m within three years. To hit this it will have to set aside €680m as a one-off restructuring charge.
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The Spanish have identified 28 specific cost-saving initiatives, the biggest of which will be job losses of 3,000. But a large number revolve around the introduction of Santander’s technology platform, which is known internally as Partenon. This platform, or versions of it, is also being rolled out in its other international operations in Latin America and Portugal.
This has already enabled Santander to reduce its cost base in its domestic market. It has meant that the bank has been able to focus its branch network on servicing the customer and this will be the big transformation that will be seen at Abbey.
One of the most visible changes will be the opening of more smaller branches, which will help to reduce Abbey’s historical dependence on independent financial advisers.
Alberto Vilalta, Santander’s deputy general manager of retail, said: “By Spanish standards, the Abbey network is small. In Spain we have more than 4,000 branches, but an analysis of the British market will have to be done before we decide how many will be opened.”
He added: “Branches bring you a lot of barriers to entry and build the customer relationship strongly. Our branches are quite small; our average branch has five or six staff, and we do have branches with just two people”. The average number of people in an Abbey branch is 16, with a higher percentage in back office.
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Other banks, such as HBOS, have already made substantial cuts in branch back-office functions but Vilalta believes Santander has the advantage of international scale. He said: “At the end, it’s a factory approach.”
Santander will invest a lot of capital in refurbishing Abbey’s branches. In Spain it has a formulaic layout that is replicated throughout its network. In most cases each staff member is given the same workload. In Madrid, Martinez is responsible for 100 customers; the assistant manager has 40 customers but has a broader management role as well. Customer advisers each look after 200 individuals and company advisers look after 100 companies. Each person knows what profits they are producing for the company.
Analysts say the biggest benefit that Santander can bring to Abbey is its balance sheet. This will help the British bank to launch a number of competitive products designed to grow its customer base.
In Spain, Santander is currently promoting a mortgage deal which, if taken up by clients, offers them a cheap loan for a large television.
At Banesto, the bank is about to launch an offer to encourage customers to place their payroll with them. The last campaign gave new clients a DVD player plus 50 films.
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JUST a 20-minute drive north from the centre of Madrid, a huge sprawling complex is being built on 150 hectares. The imposing entrance looks like a gateway to a giant film studio, but this is no tourist destination — this is Santander Group City, its global headquarters. It is here that Botin, who has a circular top-floor office, intends to oversee his empire. It leaves the visitor with the impression that buying Abbey, however big it may be, is just another deal on Botin’s path to global domination.
Botin is a man who is comfortable juggling numbers. The fees associated with buying Abbey come to €75m (Abbey’s costs are €90m). These sums exclude the pay-offs to directors. Arnold, who will stay at Abbey until June, is in line for £1.6m (excluding share options).
Since Botin took over from his father as chairman of Banco Santander in 1986, he has driven its expansion. His two key domestic deals were the acquisition of Banesto in 1995 and a merger of equals with Banco Central Hispano in 1999.
But his autocratic style has landed him in trouble with shareholders. Two years ago a criminal complaint was filed by two investors against Botin and two former Santander directors. This related to two pay-offs totalling €151m. This case is ongoing and despite Santander’s confidence that it can be “successfully resisted”, the publicity is highly embarrassing.
Neatly built into the complex is a manicured golf course and a clubhouse that is under construction. The course has been built under the close watch of Botin, a keen golfer whose son-in-law is Seve Ballesteros.
When the complex is completed, some 8,000 staff will be able to work there. It is equipped with Europe’s largest company-funded nursery school and staff have a choice of five restaurants. Directors have their own dining room. A sports complex with indoor pool and tennis courts will be the last block to be finished.
Santander says that despite the €450m cost, it is cheaper than running the 23 office buildings it previously occupied in Madrid.
This oasis is a world away from the battle that Santander is about to fight in Britain. However important he is in his homeland, Botin is a new boy here. He can expect a lot of attention for the dominating influence — despite its relatively small shareholding — that his family exerts on the group. There will also be enormous pressure on the British management team — which has yet to be announced — to deliver the returns that Santander is looking for.
A BID TOO FAR: WHY HBOS DECIDED TO WALK AWAY
IT TOOK several days for senior managers at HBOS to realise that a bid for Abbey National was going to be impossible, writes Louise Armitstead.
The bank’s army of advisers spent nearly six weeks designing and running a mass of complicated models to see if the acquisition could be justified.
Ignoring mounting pressure from the market and the media, HBOS advisers worked through last weekend. But on Tuesday evening, the management called their labours to a halt. James Crosby, chief executive, telephoned Luqman Arnold, his counterpart at Abbey. ‘I had to tell Luqman first,’ said Crosby. ‘It was very hard to walk away. But in the end the numbers did not add up.’
On Wednesday morning HBOS’s decision was made public in a short statement that stunned the market.
The initial reaction was that HBOS realised it would never be able to persuade the Competition Commission to approve the deal — which strongly suggested that no other British bank would bother bidding. The road for Banco Santander to buy Abbey was wide open. Abbey’s share price fell by more than 5% when trading started.
One senior banker said: ‘The regulators blocked the Lloyds and Abbey link-up just three years ago, I don’t know why HBOS thought it would be treated any different.’
From the moment it emerged that HBOS was looking seriously at Abbey, the bank insisted it had every confidence of winning approval from the competition authorities. Even after pulling out, HBOS denied the regulators warned it off.
Coincidentally, Wednesday night was the date set for HBOS’s annual drinks party at the Saatchi Gallery beneath County Hall where questions were fielded by Crosby and Lord Stevenson, the bank’s chairman.
Stevenson tried to be matter-of-fact. ‘Our decision had nothing to do with the regulators,’ he said. ‘It’s very uninteresting really. We looked at the deal and it wasn’t going to work so we walked away.’
Crosby added: ‘There’s no point denying there was a competition risk. But we still don’t believe our bid would have been blocked.’
So why did they not go for it? The outcome is even more puzzling as Crosby said that the synergies they found between the banks were even bigger than they had thought. At the start of the process HBOS guessed that a link-up with Abbey would generate about £700m of cost savings. After a few weeks of access to Abbey’s books, Crosby suggested the figure could be almost £1 billion.
Some close to the deal suggested that Abbey was not as attractive a proposition as it looks from the outside. The bank already has one of the lowest profit margins in the sector and sales volumes are continuing to fall.
One insider said: ‘From what HBOS saw of the books, it seems that the challenge for Banco Santander is starker than people think.’
In recent weeks, HBOS’s institutional shareholders had been warning the bank not to overpay for Abbey. Crosby, who was once a fund manager, said: ‘It became clear that the deal, although great for Abbey shareholders, might have diluted the value of our own investors’ holdings.’
Shane O’Riordain, head of the group’s communications, said: ‘HBOS has produced profit growth of more than 20% a year for years. We have a strategy of delivering that we did not want to surrender in order to buy Abbey.’
Despite walking away, the matter is far from over for HBOS. The bank will be under pressure to deliver the organic growth it promises will generate more shareholder value than the Abbey deal — or find another acquisition target.