Family-owned Banco Santander has decided to increase its capital by €7.2 billion through a deeply discounted rights issue of 1.599 billion new ordinary shares at a ratio of four to one.
Priced at €4.5 a share, which is 46% below last Friday's closing price, the transaction is fully underwritten by investment banks including Merrill Lynch and Bank of America.
It had been thought that Santander was in a position to weather the world's financial problems given its strong balance sheet. However, it appears that the bank, which has bought Alliance & Leicester and Bradford & Bingley in the UK and Sovereign Bankcorp in the US in the last few months, has been the victim of its own success.
The expenditure it has put into these deals allied to the governments of various countries coming to the rescue of many of Santander's rivals means that its capital ratios were lower than expected.
"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 30 September was 6.31% – the group has raised its goal to 7%, in response to our higher expectations in the current economic environment," said chairman Emilio Botín (pictured).
He also said that "in view of market conditions" the bank had decided to postpone the divestments it has planned to make until prices have recovered to acceptable levels.
The chairman attempted to put a gloss on the announcement by saying that the transaction provided "a superb investment opportunity" for Santander shareholders.
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