Santander in Talks to Buy Rest of Sovereign Bancorp

Banco Santander SA is in talks to buy Sovereign Bancorp Inc., the largest remaining U.S. savings and loan, in what would be the third acquisition of a troubled lender in three months by Spain's biggest bank.

Santander ``confirms that it's in talks over the said acquisition,'' the Santander, Spain-based bank said today in a regulatory filing. Sovereign was in ``advanced discussions'' with Santander, the Philadelphia-based company said in a statement.

Santander Chairman Emilio Botin has since July agreed to buy Alliance & Leicester Plc and branches and deposits of Bradford & Bingley Plc in the U.K., taking advantage of the global credit crisis to acquire struggling lenders at a discount. The Spanish bank bought 24.9 percent of Sovereign in 2005 and 2006 for $2.9 billion, 14 percent more than its current total market value.

``Santander is in a position of strength but in this case it looks like Sovereign was in trouble and they asked for help,'' said Andrea Williams, a fund manager at Royal London Asset Management, which has 1.5 billion pounds ($2.6 billion) of European stocks under management. It makes ``sense for them to go for full control.''

Santander gained 12 percent to 10.19 euros in Madrid, valuing the company at 63.7 billion euros ($86 billion). The stock has dropped 31 percent this year, less than the 48 percent decline in the 69-member Bloomberg Europe Banks and Financial Services Index.

CDO Sale

Sovereign curtailed lending and is shrinking its balance sheet as defaults increase after posting a $1.3 billion loss in 2007. Last month, the lender said it was selling its portfolio of collateralized debt obligations after revealing it may take ``significant'' charges on its holdings of Fannie Mae and Freddie Mac, the nationalized mortgage-finance companies.

Sovereign operates mostly in the U.S. with 750 community offices and about 12,000 employees, according to a Sept. 30 statement.

At the time, Sovereign said it was well-capitalized and ``fundamentally sound by all financial and operational measures.'' The Spanish bank wrote down the value of its Sovereign holding by 737 million euros in its 2007 fourth-quarter earnings.

Sovereign shares have fallen 67 percent this year and are trading 85 percent below the average $24.83 that Santander paid to acquire its stake. Santander is considering a bid near the closing price of $3.81 a share on Oct. 10, The New York Times and the Wall Street Journal reported, citing unidentified people familiar with the matter.

Largest Thrift

The company became the largest public savings and loan or ``thrift'' in the U.S. last month when Seattle-based Washington Mutual collapsed and was absorbed by JPMorgan Chase & Co. Fifteen U.S. banks failed this year, the most since 1993.

``It looks effectively like a forced sale because this bank has been in a never-ending restructuring,'' said Alejandro Ruyra, an analyst at Landsbanki Kepler in Madrid. ``They may have to make a further writedown and only time will tell if it's a good acquisition.''

Buying the rest of Sovereign would be in line with goals outlined by Santander Chief Financial Officer Jose Antonio Alvarez, who said earlier this month that his company can ``add value by rescuing failing banks at attractive prices.''

Santander's agreed acquisitions in the U.K. will make it the country's third-largest lender by deposits. Botin has made more than $60 billion of acquisitions, helping Santander become Europe's second-biggest bank by market value.

Adding a U.S. bank will further diversify income for Santander, which last year agreed to buy ABN Amro Holding NV's retail unit in Brazil for about 11 billion euros. The lender's Spanish retail and Latin American business currently accounts for about two-thirds of profit, with the U.K. contributing 14 percent.