Santander's surprise €7.2 billion rights issue announcement yesterday saw its shares fall in by more than 5 per cent.
The Spanish company, which owns Abbey
and Alliance & Leicester
, had previously said that it had no need for fresh capital, and looked as though it has managed to weather the credit crunch.Santander
did not take part in Britain's £500 billion bank bail out plan, despite owning UK banks Abbey and Alliance and Leicester. Instead, it moved £1billion within the group to help bolster Abbey.
But yesterday, in a surprising u-turn, the firm said it needed to raise €7.2 billion (£5.8billion) in fresh capital, and this news sent its shares plunging 42 cents to close at €7.92.
Shareholders will be offered 1.5billion new ordinary shares at €4.50 a share (which is a 46 per cent discount on the closing price on Friday) for a total capital increase of approximately €7.2 billion.
The new shares will be available to investors who are not Santander shareholders but they will have to purchase four subscription rights for each share they wish to acquire.
It is expected that these subscription rights will be traded on the Spanish electronic trading system (SIBE or Sistema de Interconexión Bursátil Español).
"Banco Santander has always had a very clear approach to capital strength. That is why, although we are starting from a very strong position – our core capital ratio at September 30 was 6.31 per cent - the Group has raised its goal to 7 per cent, in response to our higher expectations in the current economic environment,” said Emilio Botin, chief executive of Santander.
Mr Botin continued by saying that with this rights issue “Banco Santander will further strengthen its capital through a superb investment opportunity for its shareholders."
Santander has confirmed that the transaction will be fully underwritten.
"Merrill Lynch International, Bank of America Securities Limited and Santander Investment are Joint Global Co-ordinators and Joint Bookrunners, and Credit Suisse is Joint Bookrunner. Calyon and Fox- Pitt Kelton are acting as Joint-Lead Manager and Co-Lead Manager, respectively," it said in a statement.
© Fair Investment