4.1.

THE SANTANDER ABBEY DEAL

A BREIF HISTORY OF BOTH THE BANKS
Abbey National
Abbey National is one of Britain’s finest retail banks and focuses on UK personal
financial services and has over 18 million customers. Abbey National provides a
variety of services to its customers like mortgages, savings, loans and credit c
ards, pension’s unit trusts and insurance. The roots of Abbey National dates back
to the year 1849 when the National Freehold Land and building society was establ
ished, in the year 1944 this building society merged with Abbey Road Building so
ciety thus giving birth to Abbey National, later on in July 1989 it became the
first building society which converted to a plc status and was then floated on t
he London Stock Exchange, following its conversion to a listed bank Abbeys pre-t
ax profit of 25% was setup by Abbey from the non core areas. During the early pa
rt of the 1990’s the economic climate was not good but still Abbey’s pretax profit i
ncreased to 942 million pounds In the year 1996, Abbey went in to a merger with
National and Provincial Building society which in result increased its branch ne
twork by 200. On the other hand Abbey’s share of mortgage market was not on the ri
se as it came down from 12.2% in the year 1998 to 10.7% in the year 1999, but de
spite the fact Abbey’s share price was on top at 1435p on April 27th 1999.
On October 2000 Abbey approached Bank of Scotland for the talks of a possible ta
keover but later on after a month on 3rd November the offer was declined by the
Bank of England. Later on 5th December Abbey rejected an offer from Lloyds TSB a
s Lloyds TSB made a bid of 17.1 billion pounds which Abbey considered as inappro
priate. Abbey’s growth started declining from the year 2001 with its share price c
oming down to an all time low at 317pence, the main cause of this decline at tha
t time was said to be Abbey National Treasury Services as a lot of people were n
ot comfortable with the wholesale bank contributing 25% of the Abbey’s profits. AN
L was in trouble as well, even though there was an increase in its profits to 28
4 million pounds but due to the incidents like the September 11 attack and the b
ubble burst there was a decline in ANL’s equity holding, things got words for Abbe
y in the year 2002 when there was a huge decline of 47% on its share price and i
n June it got a downgraded credit rating of AA- from Standard and Poor’s which fur
ther deteriorated its financial performance(Guillen and Tshoegl, 2008).
The then CEO of Abbey Ian Harley stepped down on in July 2002 and was taken over
by the board Chairman Lord Burns who was a temporary chairman. Soon after this
banks around the world started to look Abbey as a potential target for acquisiti
on. Abbey’s purchase by Santander Central Hispano was one of the biggest deals to
have taken place in the European market and it gave birth to one of the biggest
bank in Europe (Thomson and Baden-Fuller, 2010). The takeover deal was worth 8.9
billion pounds. Since that time all efforts have been done by Santander to rebr
and Abbey National.
BANCO SANTANDER CENTRAL HISPANO
The history of Banco Santander dates back to the year 1857 when Grupo Santander
was formed in order to finance the cash flows from the Spanish Port of Santande
r. Back in the year 1986 when Emilo Botin took over as the chairman Santander wa
s the seventh largest bank as far as the market capitalization is concerned in S
pain and at the end of 2003 it was the eleventh largest bank of the world in ter
ms of market capitalization (Thomson, baden-Fuler, 2010) The main business areas
of the firm includes, commercial banking, investment banking, Internet and Tele
phone banking. Its retail banking presence was formed by the combination of four
Spanish banks. Some two decades ago Santander did not even feature in the worl
d’s hundred leading world banks, but now the bank is amongst the top ten banks of
the world, whereas in terms of the capitalization it is the largest in the euro
zone, this can be due to the large market share of the banks in the markets like
Europe, America, Spain, Portugal, Brazil. The greatest leap for Banco Santander
was the acquisition of Banco Central Hispano was in the year 1999, this was the
first merger after the euro was introduced (Inciarte, 2005).
Apart from the networks of mergers and acquisitions, a minority network was also
 created by Santander in the banks across Europe. Apart from this Santander ente
red into a premeditated partnership with RBS back in the year 1988; this partner
ship provided a commercial collaboration between the two groups outside USA. Du
ring the past decade the bank rose from the position of number seven in Spain to
becoming the Spain’s number one bank. If we look at the expansion procedure of Ba
nco Santander it will come to light that its expansion of Spain’s fourth largest b
ank Banesto was a major turning point.
Santander consists of a global model in terms of staff and human resources, but
that model was adapted to local markets. As a part of its strategic policy Santa
nder strive to be a leader in terms of mobility and training throughout the orga
nization, it believes in the balance between the work and the personal life of i
ts employers. In the year 2004Santander acquired Abbey National of UK which many
people termed as a strategy of Santander to gain entry in to the UK market as
the UK market is the third most profitable market in Europe, the first two being
Switzerland and Ireland. To manage its acquisitions Santander has got an effici
ent team of workers who are always in the hunt of opportunities and have maintai
ned good contacts with various investment banks around the globe. Santander alwa
ys focused on selective acquisitions and that is one of the reasons behind its s
uccess story. Moreover it can be said that it always remained opportunistic and
waited for the right target.
4.2. BACKGROUND TO THE DEAL
Back in the year 2000 Abbey’s profits began to decline. In May 2000, the share pri
ce of Abbey began to show a declining trend and reached to 371p in the year 2001
, much of the cause of this decline was attributed to Abbey National Treasury Se
rvices as a majority of people were not very impressed and a satisfied with the
idea of a wholesale bank which contributes to 25% of the Abbey’s profit. In the ye
ar 2002 Abbey’s share price showed a huge decline of 467 pence to reach 518 pence.
To add more their worries Standard and Poor’s downgraded their credit rating from
AA TO AA- which had a bad effect on their financial strength. The very next mon
th the CEO of Abbey National Ian Harley stepped down and he was replaced by Lor
d Burns who was a temporary CEO , all this gave birth to rumours and speculatio
ns that Abbey has now become a suitable target for acquisitions. During that t
ime National Bank of Australia and Bank of Ireland were said to be interested in
acquiring Abbey, but after ‘Luqman Arnold’ was appointed as the new CEO all these s
peculations came to an end (Thomson and Fuller, 2010).
The situation went out of hand when in the year 2003 when the losses became ten
times as they were expected, Abbey’s share price declined by a further 12%, rumour
s started to spread that Abbey might be an acquisitive target for Banco Santande
r, the Abbey CEO when asked about this also said that they are open to suggestio
n but mentioned that “there are not many buyers for the business as of now”. The buy
ers were said to be staying away from Abbey because ANL was still facing problem
s and it required a 373 million pounds of injection in the year 2003 (Thomas and
Fuller, 2010).
On July 23rd 2004 the news that Santander is bidding to acquire Abbey was confir
med and on 26th July 2004 Abbey made the announcement that it recommended shares
from Grupo Santander which valued Abbey at 8.5 billion pounds. During the pre m
erger process the chairman of Santander conducted a daily conference which was a
ttended by almost 15-20 people (Huws and O’Keefe, 2008). The main purpose of the c
onference was to discuss about the acquisitions and to fully understand the proc
ess. Santander also needed to hand in some documents to the European authority a
nd it had also had to sketch out the procedure for integrating the operations in
to Abbey and Santander developed its plan for the next three months and then fin
ally in November the deal was approved by the UK Courts and the Bank of Spain. I
t took almost 110 days to complete the final agreement .Finally the deal was wor
th 13.5 billion pounds. Thus the researcher would agree with what (Focarelli and
Pozollo, 2006) that mostly the banks tend to move in those countries where ther
e is a strong banking sector, and according to the researcher this is what Santa
nder did, the bank knew that the UK market is quiet profitable and saw Abbey as
a route to gain entry in to the market.
4.3THE TERMS AND CONDITIONS OF THE DEAL
The Acquisition of Abbey National by Banco Santander was carried out by a method
of UK law and was supervised by a judge in which the Board of Abbey showed up a
nd presented the projected contract of approval from the shareholders of Abbey.
At the time of the deal it was decided that the holders of the securities of Abb
ey would be receiving the new securities of Banco Santander in the ratio of 1:1.
The shareholders of Abbey National would also be receiving 31 pence of special
cash dividend on every Abbey share which they would be holding. The financing o
f the acquisition by an increase in the capital was to be confirmed by the share
holders in a special shareholders meeting which was conducted by Santander. Unde
r the stipulations of the acquisition the shareholders of Abbey National would r
eceive one new Banco Santander share for every Abbey share. It was decided that
after the acquisition Santander’s shareholders will own 76.4% of the shares and th
e remaining 23.6% will be kept by the shareholders of Abbey.
Moreover it was decide that Banco Santander will be the controller of the manage
ment of the bank and will be carrying out all the operations of the bank and all
the major decisions will be taken by Banco Santander and it will integrate its
activities and impose it’s working culture into Abbey and will make every effort t
o unify it’s management and to control costs, the only thing which was to remain t
here was the Abbey brand. At the time of the acquisition, the then Santander vic
e president Alferdo Saenz was of the point of view that Abbey is a target whose
potential has been under utilized and it is a very important brand for Santander
.
4.4. REACTIONS TO THE DEAL
Back in 2004 the Abbey Santander merger deal was one of the biggest deals in the
European market in terms of cross border mergers and acquisitions. Before the a
cquisition took place Abbey was a perfect target for acquisition and it was appr
oached by a number of banks, in the year 2002 Bank of Ireland wanted to enter in
to the deal with Abbey but the offer was rejected by Abbey in the year 2003. The
n there were rumours that Royal Bank of Scotland and BNP Paribas were also inter
ested in Abbey but either they were rejected by Abbey or they were blocked by th
e authorities (Thomson and Fuller, 2010). When it came to notice that Santander
has announced a friendly bid on Abbey then at time, there were talks that there
would be a counter bid by HBOS plc which was later withdrawn by HBOS due to the
fear that it may be downturned by the UK competitive authorities (www.rinconcast
ellano.com).
4.5. OBJECTIVES BEHIND THE DEAL
At the time when Abbey National was suffering from losses and it was a potential
target for acquisition, Santander offered a friendly bid which was later accept
ed by Abbey and the deal was worth 8.5 billion pounds. Now there can be various
reasons for Santander’s acquisition of Abbey. Before the acquisition of Abbey Sant
ander was a major player when it came to acquisitions all around the world , it
had previously done acquisitions in Latin America , Germany and Spain and had a
n alliance with RBS of the UK through which it gained insight into the UK marke
t. The UK market was the third most money-spinning market in the European Union
and Santander wanted to gain entry in to the UK market.
Another reason that could have prompted Santander to acquire Abbey was that Sant
ander wanted to diversify its operations from Latin America and wanted to enter
into the greener UK market and it was previously known that the market would alw
ays be giving a profitable return and that Santander would be enable its operati
ons to customers in other countries as well. When Santander was about to acquire
Abbey a team of around 30 people was formed by Santander and their work was to
look into various departments of Abbey and the main objective of the team was to
find out that whether Abbey is a potential target for Santander or not and what
value would Santander offer Abbey (Huws and O’Keefe, 2008).
Moreover it was known before the deal that after the acquisition of Abbey Santan
der would become one of the topmost bank of the Euro zone , moreover the deal wo
uld make Santander the fourth largest in the European market and eighth largest
in the world, thereby increasing and boosting its market share in the world, the
refore it can be rightly said that the main objective behind the acquisition of
Abbey National by Banco Santander was to gain entry into the profitable UK mark
et and therefore the researcher would completely agree with (Brouthres, 1998) on
the point that banks expand their operations to other countries to satisfy thei
r strategic and personal motives, the same thing was done by Banco Santander and
it can be rightly said that Santander was smart acquirer. The researcher also a
grees with (Ingham et al, 1992) on the point that banks tend to move their opera
tions abroad as to want to vary their operations and desire to enter into a new
product market. While the researcher does not agrees with (Focarelli and Pozollo
, 2008) when they state that countries sharing the same legal system are more li
kely to enter into a cross border deal as both Spain and the United Kingdom.
Another motive for the acquisition can be said to be the creation of value with
the help of cost and revenue strategies, as Abbey had low levels of efficiency
and that gave Santander an opportunity for creating cost synergies by integratin
g its operations into Abbey and by strengthening the IT platform of Abbey and bl
ending it’s retail banking model into Abbey and thereby creating revenue. Therefor
e the researcher would completely agree with (Pike and Neale, 2006) which stated
that cross border bank mergers and acquisitions take place because the banks wa
nt to gain synergies which can only be achieved by combining two different resou
rces and the style of working of one bank can successfully be integrated into th
e operations of the others.

4.6. THE PROBLEMS FACED

The Santander Abbey deal was never so smooth and it had its own obstacles and di
fficulties and problems which both banks had to face. In the process of taking o
ver Abbey Santander also had to face certain difficulties, first of being the ma
tters related to the approval of the shareholders. In the deal it was agreed tha
t the payment has to be made in shares and not in cash wholly therefore the impl
ications of taxation and the matters related to liquidity. First of all there wa
s an issue that if in case Santander’s share are exchanged with the Abbey’s shares t
hen in that case the shareholders of Abbey would be paying the tax twice, once i
n Spain and then again in Britain as the tax treaty between the two countries ha
d no proper mention about the policy of double taxation, however this problem wa
s solved by the British Inland Revenue before the final deal was finalized (Maur
o.F. Guillen and Adrian E. Tschoegl, 2008)
The shares of Santander did not trade in London at the time of the deal, therefo
re in order to enable the shareholders carrying less than 2000 shares to cash ou
t without the payment of any foreign exchange charges if they desired to sell th
eir shares after the deal has been finalized (Mauro.F. Guillen and Adrian E. Tsc
hoegl, 2008)
Another problem that arose was to maintain healthy relations with the staff an
d the employees in order to bring about the planned changes in Abbey, department
s of the bank like those dealing with insurance were sold off and thus it result
ed in more and more job cuts but later on Santander was successful in creating a
solid banking structure of Abbey (www.rinconcastellano.com).
Moreover there were some outside interferences as well, when Santander was about
to acquire Abbey, the deal was not welcomed by the UK press and it was unrecept
ive towards the deal, moreover Abbey’s shareholders were also warned regarding the
ownership of shares of a Spanish bank as the payment of the deal was agreed in
shares. Apart from that the cultural differences could also be said to be one of
the problems which was faced by both the banks as both the banks had different
working cultures and different ways of carrying out the operations as one was Sp
anish and the other one was a British bank apart from this there were various ot
her factors like language that were a matter of concern for the deal in order to
get successful.
4.7. DISCUSSING THE POST MERGER EFFECTS OF THE ACQUISITION
Once the Santander Abbey merger deal got approved, the press reports informed th
at this acquisition this deal would create value and would be very beneficial to
the customers of Abbey and to the shareholders of both the banks would gain bec
ause of the improved technology based operations of Abbey. It was decided that a
fter the acquisition Santander‘s focus will be on retail banking and to generate r
evenues from it and they were quite satisfied that by focusing on retail banking
alongside with geographical diversity profitable returns could be achieved. Whe
n Santander took over Abbey Gomez Roldan who was earlier the CEO of Santander be
came the CEO of Abbey, in the very beginning he made it very clear about what he
wanted from the deal. The four topmost priorities in Roldan’s list were
• To solidify the changeover plan in Abbey
• To boost up revenue with the help of the effectiveness of the sales channel
• The development of a market which promotes small and medium sized market
• The reduction in the cost( Thomson and Fuller ,2010)
Apart from the above mentioned four objectives Roldan also wanted to strike coor
dination between reward and performance and within ten days of the deal he made
it quite clear that needs to be a proper restricting of the Abbey’s managerial str
ucture. The changes which were planned the first one was the setting up of a man
ufacturing sector which should be integrated with the operations of IT and Oper
ations and apart from this a new division of Insurance and Asset Management need
ed to be setup(Thomson and Fuller, 2010).
I. THE EFFECT ON JOBS
Santander’s goal to achieve cost synergies for the investors resulted in the reduc
tion in jobs of Abbey employees. There was a massive job cut of around 4000 jobs
after the deal had been done, in October 2005 Santander announced that further
job cuts are on the way but they did not mention the exact number of job cuts. H
owever at that time the analysts and experts estimated that the job cuts would a
ffect around 6500 employees of Abbey which meant that more than a quarter of Abb
ey’s staff would be affected. The areas mostly affected by job cuts were those whi
ch were no longer in operation and where Santander had a strong hold, thus enabl
ing Abbey to gain economies of scale, most of the areas which were affected by j
ob cuts were related to either sales or marketing or information technology and
the senior executives of Abbey had the right to choose the employees for job cut
s. So therefore it can be said that the first effect on Abbey post merger was th
at there were job cuts and the Abbey staff (Computer Weekly, 2005).
II. Rebranding Abbey
The logo of Santander consists of a flame with a red background and the name Sa
ntander written over it. “The value of ideas” was the slogan of Santander and a set
of policies were also made by the Board of Directors of Santander regarding the
similar corporate identity which the bank should have in all its branches all ar
ound the world, in other words it can be said that the board wanted a common cod
e for all the Santander branches as it gives rise to reliability and there is al
so a sense of belonging involved.
Santander adopted the same approach in Abbey and in the year 2005 a refurbishmen
t program worth 8 billion pounds was started to change the Abbey logo. The logo
had a flame symbol with Santander written on a red background. The flame logo re
presents that” Abbey is now a part of a powerful group” (The Sunday Times, 2005) and
moreover it also represented Santander’s leadership and the stability. There were
other things as well apart from the change of logo in the refurbishing process
like for example fascias were replaced, a number of customer letters were redraf
ted in English as well as the product catalogue came into use (The Sunday Times,
2005).
III. Improving the Customer Service at Abbey
At the time of the acquisition of Abbey the back office staff of Abbey was highe
r than the average back office staff in other banks in UK as well as the groups
which worked under Santander, so therefore Santander wanted to cut off the all t
he back office jobs in Abbey and shifting the back office workers to the front o
ffice and indulging them in the front office activities as customer service was
one of the main objective which Santander wanted to achieve with the acquisitio
n of Abbey so it had to do something to improve the quality of customer service
s at Abbey.
As reported by Santander the percentage of back office staff in Abbey was around
25% and if we look at the UK banking sector it was around 33% and the subsidi
aries of Santander had 12%, so it is quite clear that Abbey consisted of a large
number of back office staff which needed to be cut down. In order to serve the
 customers better a special training program was started by Santander in order
to train and prepare the employees so that they can deal with the customers whil
e working at the front office thereby authorizing 30% more of Abbey’s staff to sel
l financial products, another advantage of the training program was that it gave
birth to revenue generating synergies by offering those products which offer gr
eat value to the customers, so in this way the researcher completely agrees with
(Micco, 2007) on the point that in case of cross border bank mergers on an aver
age the target banks have a lower return on their assets but after the deal had
been done there is a reduction in their costs.
IV. THE INTEGRATION OF THE PARTHENON IT SOFTWARE INTO THE OPERATIONS OF ABBE
Y
When Santander acquired Abbey back in the year 2004 reducing costs was one of th
e main objectives of Santander. Its plan was to reduce the cost by 300 million p
ounds in a period of three years and in the year 2007 it was reported that Santa
nder was successful in integrating 70% of the operations (Computer Weekly, 2005)
. The IT software was one of the key strategies of Santander at the time of acqu
isitions as it would generate savings on cost and would be very beneficial in th
e success of the deal. The software was built on IBM database, the in house midd
leware which was used in the software was known as Banksphere, all the details o
f Abbey’s customers have been configured in the software and whenever the bank nee
ds to access the information of any customer it is not necessary that the custom
er needs to be at the counter, or over the phone. The customer details are all s
tored at one place so the customers need not repeat the information while signin
g up for new services, this in turn has ended duplicity and the number of custom
er records were reduced from 52 million to 20 million (Computer Weekly, 2007). A
bbey itself was very particular about the quality of services provided to the co
nsumers and as per (Computer Weekly, 2007) Abbey said that “As we progress with th
ese changes, customers will benefit from a higher level of information, more fle
xibility and easier and more secure ways of dealing with us”. Earlier the Abbey IT
department worked on the silo based systems where it was not possible to get al
l the information regarding a customer.
A total of ten million savings account, four million current accounts and eight
million card accounts were added to the software. Before the implementation of P
arthenon in Abbey proper staff training was required and with regard to this mor
e than 25000 staff of Abbey was provided in order to make them aware about the f
unctioning of the software, and Abbey made it sure that each and every staff mem
ber gets use to the new IT software as it believed that employees take time to a
dapt to a new thing. As a part of the training process, some senior Abbey staff
was sent to Santander to understand the functioning and the operation of Parthen
on. Parthenon will enable Abbey to share the IT costs with other groups which we
re working under Santander. The product could be sold among different markets wi
th the implementation of Parthenon (Parada, Alemany and Planellas, 2009)
Thus it can be rightly said that Parthenon helped Santander to generate savings
from its acquisition of Abbey and Santander was quite successful in overhauling
the overall IT structure of Abbey by replacing the silo based system with the n
ew and advanced Parthenon software and thus was successful in reducing costs whi
ch was its key objective, so therefore the researcher has come to the conclusion
that restructuring the IT structure of the acquired bank helps promote savings
thereby leading to reduction in costs. Thus the researcher would completely agre
e with (Micco, 2007) that in case of cross border bank mergers and an acquisitio
n there is a reduction in costs of the acquired banks in case of developed count
ries.
4.8. DISCUSSING THE EFFECTS ON THE FINANCIAL PERFORMANCE OF BOTH THE BANKS POST
MERGER
In this section the researcher is going to throw some light on the financial per
formance of both the acquired and the acquiring bank that is Abbey and Santander
. The key facts about the financial performance of both the banks post the merge
r will be discussed. Firstly the researcher will be mentioning about the financi
al performance of Abbey National over the years and then some light will be thro
wn on the performance of Banco Santander and how it fared in terms of the financ
ial performance.
Abbey got acquired by Santander on 26th November 2004 and on 31st December 2004
the operations of Abbey were amalgamated into Banco Santander and if we take int
o account the financial performance of Abbey National it will come in notice tha
t Abbey National made a significant progress in terms of financial performance i
n the year 2005 with its trading profit before tax rising by 34% to reach 775 mi
llion pounds as compared to 2004 where it was 579 million pounds, the main reas
on for this increase can be attributed to the increase in the revenues due to th
e implementation of the cost reduction programme. There was a reduction in tradi
ng income as compared to the year 2004 in which Abbey was acquired but still it
was 100 million pounds ahead of the target, however there was a reduction in the
cost to income ratio which was 69.6% in the year 2004.However there was an incr
ease in the customer loans which went up by 4% in the subsequent year of the acq
uisition to 99.3 billion pounds whereas there was a 14.2% return on Equity. The
Chief Executive of Abbey Francisco Gomez Rolden was quite satisfied with the res
ult and was happy with the reduction in the costs and he was quite happy that Ab
bey has met the targets which were set in the previous year. He also said that t
here has a been a significant improvement as far as the market share of mortgag
e business is concerned and he was quite optimistic that in the future there wil
l be more efficient customer services.
By the end of the year 2008 Abbey National had almost reached the target of its
three year turnaround programme, there was an increase of 3.8% in the profit of
the group as compared to the year 2007; the actual profit was 1247 million pound
s. There was a combined increase in loans and advances as well as the customer f
unds under management of 9.9% and 4.9% respectively; there was a slight increase
of3.7% in Return on Equity as compared to the year 2007. Similarly there was an
increase in impaired loans and the coverage ratio which increased by 3% to reac
h 69% in the year 2008. Thus it can be said that there has been a significant im
provement in the financial performance of Abbey post merger.
Abbey continued its impressive performance in the year 2009 as well where there
was an increase of 30% in the statutory profit before tax, as well as a strong r
evenue growth of above 20%. There was a significant improvement in the bank’s cost
to income ratio which reached c.41% which was the best among other banks in UK.
In 2009 the Abbey Chief Executive Antonio Horta-Osorio was quite satisfied by o
ffering more value for money products as compared to the other groups and the r
eduction in the cost to income ratio and was sure that Abbey will achieve the ta
rget of 180 million cost savings by the year 2011( www.santander.com).
After discussing the financial performance of Abbey, the acquired bank, now the
researcher will be throwing some light on the financial performance of Banco San
tander post merger. The year post acquiring Abbey National was one of the most f
ruitful years for Banco Santander. The attributable income was 20% higher as com
pared to 2004. It was the same year when Santander’s share began trading on the Lo
ndon Stock Exchange. In the very same year there was a significant change in the
share price and the dividend of Santander which increases to 22.12% and 25% res
pectively. When Santander acquired Abbey in the year 2004 its objective was to r
educe costs by 300 million pounds over a period of three years but in the year 2
005 itself there was a reduction of 224 million pounds. There was an increase in
revenues by 4% and the revenues were stabilized
The returns on assets were 1.01 in the year 2004 whereas in 2005 they were 0.78.
There was a reduction of 2.90% in return on equity which was 19.74% in the year
2004 and 16.64 in the year 2005. In the year 2007 there was a rise in the gross
operating income by 21.3% and in the same year there was an increase of 10.5% i
n the operating expenses of the bank, so it can be said that the bank has been q
uite successful in taking out its operations and at the same time rebranding and
successfully implementing the IT software into Abbey thereby promoting savings
by reducing costs. In the year 2008 Santander had a cost to income ratio of just
41.9% which as compared to the other international banks was most efficient. Si
x years post merger Santander has been delivering good financial results, there
was a 10% increase in the profit before tax and there was an improvement in the
cost to income ratio by 2% as compared to the first half results of 2009. There
was a significant improvement in the mortgage lending thereby increasing the net
interest income as compared to 2009. There was an increase of 1% in the secured
coverage between June 2009 and June 2010, there were capital payments of 9.0 mi
llion pounds.
For three consecutive years Santander has been awarded as the Best bank in the U
K byEuromoney (Parada , Alemany and Planellas, 2009) this itself shows that the
bank has made significant progress made by the bank in the UK market which in tu
rn shows that Santander was successful in acquiring and transforming Abbey, and
with its acquisition of Bradford &Bingley and Alliance & Leicester Santander
is working hard to achieve their goal of becoming the best commercial bank in th
e UK ( www.santander.com).
4.9. What can be the requisites of a successful cross border acquisition?
• Whenever an acquisition takes place , be it domestic or a cross border one ,it i
s one of the most challenging task for any chief executive officer to ensure tha
t the acquisition works and generates revenues but the banks on the other hand c
oncentrate on achieving synergies, which according to the researcher should be t
he second most important priority after deriving revenues from the acquisition,
now if we take the example of the acquisition of Abbey National by Banco Santan
der we will find out that Banco Santander focused on customer retention, imple
menting new business models, rebranding and reviving the 30 years old IT Platfor
m of Abbey by bringing in Parthenon thereby generating cost revenues and at the
same time reducing costs some steps that an acquiring and the acquired bank
should take into consideration in order to make the acquisition successful have
been discussed.
• The first and the foremost thing in order to achieve revenues and gaining synerg
ies is consumer retention, like for example Santander moved back office staff to
front office activities so that the customers can be provided with an efficient
service. The staff was provided with a special training so that they could han
dle the front office activities with ease, this can be done when the target bank
is performing poorly in terms of service to the customers
• The acquiring bank should always adopt a strategy in which they should try to i
mplement the best of what they have got into the target bank whereas on the othe
r hand they should always try to retain the experienced workers of the target co
mpany as their experience could be beneficial in the later stages
• In case of cross border bank acquisitions the acquiring bank or the bank which m
oving its operations abroad should first discuss with its board members about th
e minutest detail of the deal as was done by Santander and then put the right st
ep forward so that it can know beforehand about the areas in which the target ba
nk is facing problem and what are the areas in which it needs to work upon. A te
am of around 30 members was setup by Santander to look closely into the operatio
ns of Abbey before the deal (Hopkins, 2008).
• In the same way both the acquiring and acquired bank should consolidate some of
their operations as it would make it easier for both the forms to prosper in a d
eregulated world and thereby generating new income. Operations related to Financ
e and IT are some of the areas which should be shared between the acquiring and
the target bank (Pitman and Hammond, 2007).
• The development of an IT platform is very necessary for an acquisition to reduce
costs, once again if the case of the acquisition of Abbey by Santander is taken
into consideration, Santander implemented Parthenon IT software replacing it wi
th the age old Abbey IT system. It was a built on an IBM database and stored tal
l the information about the customers at one place. Thereby Parthenon helped in
generating savings as well as reducing costs.
• Another very important factor for an acquisition to be successful is good govern
ance. If there is good leadership involved implementation of strategies and the
integration process becomes easier , in the case of Santander Abbey deal Francis
co Gomez Rolden was appointed the CEO of Abbey after the acquisition, and he was
a suitable candidate for the integration strategy in Abbey as he had previously
been in the same shoes at the Spanish banks Argentina and Banesto so he already
had previous experience of how to implement Santander’s business model into Abbey
and his appointment perfectly fitted into Santander’s integration strategy to res
trict Abbey (Pitman and Hammond, 2007)