Why is Banco Santander buying GE Nordic Units? The Eurozone’s largest bank by market value says it has expanded in Europe and Latin America over the last ten years, and is now seeking out pockets of growth in new markets to offset weaker domestic business after five years of severe recession.
According to Banco Santander, Santander Consumer Finance, S.A. has reached a deal worth about €700 million ($952 million) with GE Money Nordic Holding AB to purchase GE Capital’s business in Scandinavia (Sweden, Denmark and Norway).
GE Capital is the financial services arm of the American multinational General Electric. GE Capital employs more than 60,000 people in 55+ countries. It has assets of $551 billion.
GE, based in Fairfield, Connecticut, said it wanted to reduce its exposure to the banking sector after suffering during the 2008 financial crisis. The company wants to increase its earnings mix from 55% from industrial manufacturing businesses in 2013 to 70%.
Impact on Santander’s core capital
Banco Santander will assume GE Money Bank’s intragroup funding. The transaction, which is subject to regulatory approval and is expected to be completed in the second half of this year, will “have an impact of 8 basis points in Grupo Santander’s core capital.”
“The acquisition of GE Capital’s business in the Scandinavian countries is an important step in Santander Consumer’s growth strategy. It’ll increase its geographical diversification and strengthen its position as the leading consumer finance provider in Europe”.
Banco Santander says the acquisition will complement its current presence in Scandinavia and will help Santander Consumer Finance become a major provider of consumer finance in the three countries.
A good deal, says Santander
GE Money Bank, with a loan portfolio of €2.35 billion ($3.19 billion), has attractive positions in consumer finance lines, such as credit cards and direct loans, while Santander Consumer Finance is a regional major player in auto finance, with outstanding loans totaling €8.9 billion (S12.09 billion).
GE Money Bank’s loans are distributed in the region as follows:
- Sweden: 55%,
- Norway: 26%,
- Denmark: 19%.
The Spanish multinational giant added that the deal will enable its consumer finance division to grow its geographical diversification while at the same time expanding its exposure to AAA-rated nations.
After the two businesses are integrated, Santander Consumer Finance Nordic will represents about 17% of Santander Consumer Finance’s loan portfolio. It will have 1.2 million customers in the region.
About Grupo Santander
The Santander Group, which was founded in 1857, is headquartered in Santander, Spain. It has more than 180,000 employees and is active in Europe, North and South America, Africa, and Asia. Its shares are listed on the stock exchanges of Madrid, New York, London, Milan, Lisbon, Mexico City, Buenos Aires, and São Paulo.
Santander says the deal should go through in the second half of 2014.
The American auto-finance unit of Grupo Santander, Santander Consumer USA Holding Inc., was floated in the US stock market in January. In October, 2013, the group said it would buy 51% of the consumer finance division of El Corte Inglés, Spain’s largest department store chain. It also expects to reach a deal in 2015 with PSA Peugeot Citroen, the French automaker.
The difference between the Spanish bank’s earnings from lending and deposit costs – its net interest income – increased in Q1 2014 to €6.99 billion compared to €6.93 billion in Q4 2013. Loans, driven by consumer loans, rose by 1.4%. For the first time since the 2008 financial crisis, the company reported a decline in non-performing loans. Its Tier 1 capital ratio, at 10.6%, is higher than the European Central Bank’s minimum of 8%.