Santander - The Expansion Continues

 As Bloomberg reported yesterday, M&T Bank Corp. is weighing giving up a majority stake to Banco Santander SA through a merger with the Spanish bank’s U.S. unit, while retaining some elements of control, said people with knowledge of the matter.
    The banks are in informal talks with the U.S. Federal Reserve to gauge how such a deal would be received, and expect to hear back within two weeks, said the people, who spoke on condition of anonymity because the talks are private. Many of the terms, including the timing of when Santander would get the majority stake, have yet to be worked out, the people said.
    An agreement would allow Santander to put its Sovereign Bank unit, which had pretax losses for the past three years, under the management of M&T Chief Executive Officer Rober Wilmers, 76, and his team, the people said.
    M&T has a market value of more than $10 billion. Together, M&T and Sovereign, which are about the same size, would become the ninth-largest U.S. savings institution by deposits.
    M&T and Santander have been in intermittent merger talks for months, with Santander seeking a takeover of M&T, and M&T aiming to combine with Sovereign without submitting to the control of the Spanish bank, the people said. The proposal being floated to federal regulators represents a compromise between those two positions, one of the people said.
    The transaction would probably be structured as a stock merger, in which Santander trades its holding of the Sovereign unit for shares in M&T, said one of the people. Santander may start with a minority holding in M&T with an option that allows it to increase ownership to more than 50 percent within a few years, the people said.
    Santander is in talks to acquire Allied Irish Banks Plc’s 22.5 percent stake in M&T, the people said. Catherine Burke, a spokeswoman for Dublin-based Allied Irish, declined to comment.
    At Sovereign, where Santander bought a minority stake in 2005, losses and customer withdrawals forced it to seek a rescue from Santander, which bought the rest of it last year.

Couple things on the post:

1. Santander has been on a tear with acquisitions, using its strong balance sheet and capital position to continue to expand in markets where it has not had the scale to compete (branches from RBS, a Polish bank stake from AIB...).  The bank has good management that has had the ability to discern value and integrate well.  Personally, I like their debt, preferreds and equity.
2. Given Santander's capital position and a decent relationship with regulatory authorities, I believe the transaction should go through if the two banks can compromise as stated.
3. With the information we have currently, I believe that minority interests will be limited under Basel 3.  It has been mentioned many times over the past nine months that Basel 3 will be a catalyst for mergers.  Banks will either need to buy the remainder of the minority positions they don't own or sell them as they will be limited to the amount that will count towards capital.