Banesto to merge with Santander
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Santander plans to acquire Banesto's minority shareholders in a merger valued at approximately €2.6 billion, offering a 25% premium over Banesto's closing price, with completion expected by May 2013. The merger aims to achieve annual synergies of €520 million in three years through cost reductions and improved revenue by integrating operations and resources. The transaction is positioned as beneficial for shareholders of both banks, enhancing product offerings and market presence while addressing challenges in the Spanish financial sector.
Banesto to merge with Santander
- 1. Banesto to merge with Santander December 2012
- 2. 2 Important information Banco Santander, S.A. ("Santander") cautions that this presentation contains forward looking statements. These forward-looking statements are found in various places throughout this presentation and include, without limitation, statements concerning our future business development and economic performance and the expected synergies to arise from the proposed merger. While these forward-looking statements represent our judgment and future expectations concerning the development of our business and the Spanish financial sector, a number of risks, uncertainties and other important factors could cause actual developments and results, including the level of foreseen synergies, to differ materially from our expectations. These factors include, but are not limited to: (1) general market, macro economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties. The risk factors that we have indicated in our past and future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the “SEC”) could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information available and views taken on the date on which they are made; such knowledge, information and views may change at any time. Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its purpose and only on such information as is contained in such public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation. In making this presentation available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in shares in Santander or in any other securities or investments whatsoever. Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy any securities. No offering of securities shall be made in the United States. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services and Markets Act 2000. Additional information for US persons: the consideration paid to shareholders of Banesto for the merger will be the securities of a foreign company. The offer is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in the document, if any, have been prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies. It may be difficult to enforce rights and any claim arising under the federal securities laws, since the issuer is located in a foreign country, and some or all of its officers and directors may be residents of a foreign country. You may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a U.S. court's judgment. You should be aware that the issuer may purchase securities otherwise than pursuant to the merger, such as in open market or privately negotiated purchases. Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this presentation should be construed as a profit forecast.
- 3. 3 Summary of the transaction Rationale of the transaction: Why are we doing this now? The Spanish financial system: outlook Final remarks
- 4. 4 Summary of the transaction Santander offers to acquire Banesto’s minority shareholders at an exchange ratio of 0.633x Santander shares for each share of Banesto (EUR 3.73 per share*), paid with treasury stock (approx. 45 million Santander shares) This exchange offer values Banesto at approx. EUR 2.6bn (25% premium over closing date Dec 14, 2012 and a premium of 42% over the average price of the last 6 months) Merger expected to be completed by May 2013 Banesto S.A. will be absorbed and merged into Santander Annual synergies expected to reach pre tax EUR 520m; (EUR 420m cost synergies; EUR 100m revenue improvement), within 3 years. Personnel reduction will be performed in a progressive way via natural turnover, relocation to other units and incentivised redundancies * Based on Santander’s closing stock price of EUR 5.90 per share and Banesto’s closing stock price of EUR 2.99 (Dec.14, 2012)
- 5. 5 An attractive deal for Banesto shareholders…. Banesto shareholders receive +25 % premium over Dec 14th closing price and a +42 % premium over the 6 month average Banesto shareholders participate in a international diversified bank with 55% of its profit coming from emerging markets; with a strong balance sheet and significantly higher growth prospects. Banesto shareholders receive Santander shares which are one of the most liquid stocks in Europe, with an attractive shareholder remuneration strategy (past 12 months: 60c) On top of that, as Santander’s shareholders, Banesto shareholders will benefit from the delivery of the integration synergies
- 6. 6 ….and service improvements for Santander and Banesto´s customers • Santander’s and Banesto’s customers will have access to a broader distribution network (4,000 branches) • Banesto’s customers will have access to a broader range of products, as well as to Santander’s international network that can support the international operations of its SME and corporate customers.
- 7. 7 7 EXPECTED TIMETABLE Dec 17, 2012 Santander’s Board approves the transaction Jan 9, 2013 Santander’s Board approves merger project Jan 10, 2013 Merger project communicated to the market / CNMV Santander’s General Shareholders’ Meeting. Mar 22, 2013 April 26, 2013 Regulatory and administrative approvals (approx.) Legal merger completed and Santander‘s shares will be May, 2013 delivered to Banesto’s shareholders
- 8. 8 Summary of the transaction Rationale of the transaction: Why are we doing this now? The Spanish financial system: outlook Final remarks
- 9. Rationale of the merger 9 The profitability of the banking sector in Spain A is under pressure B Why now? C Cost synergies D Revenue improvement: new structure in Spain E Financial impacts
- 10. 10 The profitability of the banking sector in Spain is under A pressure… The Spanish financial system has lost profitability over the past 5 years What does the sector need to do? Lower spreads 1. Recover lost SPREADS and FEE income… …leads to a deteriorating efficiency despite cost improvement 2. …NORMALISATION OF PROVISIONS Cyclically higher provision 3. … and IMPROVE = Low profitability EFFICIENCY
- 11. 11 Santander is working to recover profit levels in Spain lost in the last few years… 1. Credit front book at good margins… new Recover lost SPREADS deposit origination margins still need to and FEE income improve; improved fee generation through enhanced quality of service We are accelerating the provisioning of the 2. NORMALISATION Spanish balance sheet (400 bp, inc. Royal Decrees) OF PROVISIONS We expect provision normalisation to start by the H2 2013 3. … and We have been delivering flat costs, but this is not enough… IMPROVE now we need to focus on structural EFFICIENCY efficiency improvement
- 12. 12 B Why now? 1. A “single brand” strategy is most suitable for a low growth market Focus on combining EFFICIENCY GAINS with selective market share gains = best achieved with a SINGLE BRAND Higher economies of scale 2. 3. Flight to quality to the top are necessary in a more brands is accelerating concentrated market Average market share of the “top 5” branch networks: 2007: ca. 8% +1.9pp since Dec-11 2015 (exp.): ca. 12-13%
- 13. 13 A single brand = stronger position Ranking: number of Ranking: deposits (EUR bn) branches
- 14. 14 A balanced nationwide network… Combined branch market share by region 12% 29% 11% 13% 9% 8% 11% 10% 9% 17% 12% 9% 12% 10% 9% 11% 16%
- 15. … with one of the strongest brands in the 15 international financial system Top Banking Brands 2012 1 2 The 4th 3 international Zara and Santander, the only two financial 4 brand… Spanish brands in the global “Top 100” 5 Interbrand 2012 … and the 1st in 6 the Eurozone 7 8 9 10 Brand Finance Global 500 February 2012
- 16. Cost synergies: Brand consolidation and structural 16 C efficiency improvement Integration of central structures Branch optimisation: • There is already some degree of integration between Santander and • We expect to close approx. 700 Banesto (e.g., IT platform, factories) branches, without impact on our • However, significant efficiencies can business generation, over the still be achieved through the next 3 years integration of both structures • One corporate center / one management structure • Optimal size of the new network: ca. 4,000 branches (vs 4,664 • Integration of intermediate currently) structures • Full integration of back offices / IT/ops • Resource re-allocation: strengthen our corporate, SME Estimated timeline for operating and affluent segments / networks integration: 1 YEAR
- 17. 17 Cost synergies: EUR 420m (pretax) within three years % of Total Total 2012 costs Synergies (before taxes) Pre-tax savings (SPAIN) Year 1 Year 2 Year 3 IT 30 Premises / real estate 69 420 Ops 32 326 Advertising / brand 8 Other expenses 27 206 Depreciation 16 Total G&A 183 11% Total combined headcount to be Personnel expenses 237 10% reduced progressively over 3 years: • Natural turnover Total costs 420 10% • Relocation to other units within the Restructuring cost after taxes: Group that require headcount growth EUR 400m • Incentivised redundancies (Platform migration, IT, rebranding, • In addition, Banesto´s employees will headcount reduction, etc.) have access to an international career
- 18. 18 Revenue enhancement: Re-allocate resources to the most D attractive / higher ROE segments: Corporates / SMEs / affluent, through specialised networks Currently: Target: 4,664 branches Approx 4,000 A single brand branches New business structure Leverage on Banesto’s 2,914 branches traditional strengths in (of which 149 Business SME and business banking Branches) Reinforce specialised Universal Branches networks: Optimised Network SME/Corporate 1,698 branches Affluent Private banking Business banking centres (of which 79 Business Branches) Enhanced service quality Reinforced Network Premium Branches Target revenue improvement in 3 years: Reinforced Network 52 Premium Branches EUR 100 m
- 19. Financial impacts 19 E Total synergies (revenue + cost) expected to reach EUR 520m (pre-tax) (*) Impact on capital: approx. neutral (*) Based on consensus estimates
- 20. 20 Summary of the transaction Rationale of the transaction: Why are we doing this now? The Spanish financial system: outlook Final remarks
- 21. 21 Features of the Spanish financial system in 2015+ I A more concentrated market II … on track to deliver a ROTE normalisation III … but with clear winners and losers
- 22. 22 I A more concentrated market… Deposit market share (3Q12) Top 5 banks will control ca. 65% of the Ca. 16% in market (in line with 2015 other European economies) … = improved pricing rationality and economies of scale
- 23. 23 II … on track to a ROTE normalisation in the sector 1. The sector will move towards a IMPROVE SPREADS more normalised ROTE over the next 3-4 years ROTE: Spanish financial sector 2. NORMALISATION OF PROVISIONS 3. IMPROVE EFFICIENCY 2006-07 2011-12 2015-16
- 24. 24 IMPROVE SPREADS: Customer spread improvement is 1. already under way Back book interest rates- Spain SPREADS EXPECTED TO CONTINUE TO IMPROVE OVER THE NEXT 18 MONTHS: • Lending spreads: favorable back book / front book dynamics to continue +40-50 bp • Deposit spreads to over 2-3 improve following years deleveraging / creation of SAREB • 40-50 bp margin improvement expected in 2-3 years • ..plus (not included in numbers) additional M-T upside from progressive Jul-13e Dec-13e Jun-14e Dec-14e Jun-15e Dec-15e Jun -16e Dec-16e normalization of ECB rates
- 25. 25 PROVISIONS: Peak in 2012 / 2013; normalisation 2. expected over the next 3 years Evolution cost of risk (Provisions / loans)% (*) Normalisation of provisions will start in 2013 … moving towards a normalised level through The financial system expects to the cycle fully comply with the provisioning level of 60bp requirements for Spanish real estate by 2013 (*) Provisions in 2012 are higher due to the effect of the RDs on real estate provisions
- 26. 26 3. IMPROVE EFFICIENCY: Reduction in the number of branches in the system via plain closures or mergers / integrations Evolution of branches (banks+saving banks) Trend for the Pre-crisis Current period next 3-4 years 2004-2008 2009-2012 2013e-2016e # branches opened/closed +5,462 -7,065 -9,000 Total branches 46,065 39,000 30,000 SAN market share 11% 12% 13% Financial system expected to close 9,000 branches over the next 3 years
- 27. 27 III … but with clear winners and losers… Deposit evolution by groups The BIG 3 have increased their market share mainly through capturing deposits from the WEAKER Santander Spain COMPETITORS has shown the best individual performance in the system
- 28. Santander is a CLEAR WINNER in the new environment, 28 leading to the NORMALISATION OF THE CONTRIBUTION OF OUR SPANISH BUSINESS Improve margins and gain profitable market Improve Normalise share with enhanced efficiency provisions service quality 2012: Cost of risk 2012: • Loans: EUR 210bn (MS 11%) 150bp ex RDs • Deposits: EUR 185bn (MS 14%) Announced cost (ca. EUR 3bn) • NIM: 3% (NII / loans) synergies (merger of the (400bp with RDs) networks; new 3 YEAR VIEW: structure): Loans: EUR 220bn (MS 13%) + EUR 0.42bn Cost of risk 2015: Deposits: EUR 210bn (MS 16%) 70bp NIM: 3.3% (NII / loans) (EUR 1.4bn) Improved revenue generation: Lower costs: Lower provisions EUR +0.6bn EUR 0.42bn Ca. EUR 1.5bn
- 29. 29 Santander will be a CLEAR WINNER in the new environment, leading to the NORMALISATION OF THE CONTRIBUTION OF OUR SPANISH BUSINESS The new structure is designed to take full Our target is to advantage of the deliver a growth 12-15% ROTE opportunities, in our Spanish business within mainly through three years organic growth
- 30. 30 Summary of the transaction Rationale of the transaction: Why are we doing this now? The Spanish financial system: outlook Final remarks
- 31. 31 Final remarks An attractive transaction for Santander shareholders: − Low execution risk − Significant integration synergies (+EUR 520m) − EPS accretive: +3% in Year 3 − The single brand and the new structure will allow Santander to best capture the market share gain opportunities in the Spanish market, which will contribute to the normalisation of its profitability in Spain An attractive transaction for Banesto shareholders: − Attractive premium (+25% over Dec 14th closing price; +42% over the 6 month average) − Become shareholders of Santander: a diversified international group, with presence in high growth markets and a liquid stock, with an attractive remuneration strategy An attractive transaction for all stakeholders of both banks: a stronger network able to provide a wider range of products and better quality of service