Spanish bank Santander is mulling the sale of a minority stake in its British arm through a London listing, industry sources said, in a move that could help shield it from rising loan losses at home. Analysts and industry observers have been speculating about a potential public share offering for Santander's fast-growing British unit since the euro zone's largest bank struck gold with the market debut of its Brazilian subsidiary in October last year. The bank's expressed interest in some of the assets being sold by bailed-out British banks has further fuelled talk of an IPO, possibly alongside a British acquisition. But a British spin-off was not seen as imminent as Britain limps out of recession and bank sector valuations remain depressed. The sources said several investment banks pitched the London IPO idea to Santander executives as part of broader fundraising strategies and the idea was being considered by the bank. Proposals remain sketchy and no dates or details have been set. The plan could depend on planned regulatory changes, as well as on pressures at home, after Greek troubles have spread and hit markets and stocks including Santander. Santander declined to comment. Santander's British arm, which makes up around 16 percent of group profits and could be worth over 10 billion pounds ($15.6 billion), has been built up through the acquisition of high street names Abbey, Alliance & Leicester and Bradford & Bingley. Chairman Emilio Botin, who has steered Santander through the crisis thanks to a risk-averse model, a focus on retail banking and lucrative deals in Brazil and elsewhere, has said the bank aims to grow organically in Britain, and it would look at deal options. It is looking at more than 300 branches being sold by Royal Bank of Scotland, which would boost Santander's presence in British commercial banking, one source said. Asked about an IPO of the British business last week Botin said “nothing is foreseen at present”. As with Brazil, Santander will likely retain a majority stake in the British arm, and it is also expected to woo investors with a generous dividend yield and a lucrative payout ratio. Less clear is whether the bank will move ahead with an IPO without increased certainty on the regulatory and macro outlook. “The timing doesn't necessarily make sense when the rest of the sector is trading at book, and -- if you adjust for losses -- they paid a premum for book for these (British) businesses,” analyst Joseph Dickerson at Execution in London said. “I think they are talking about it now because Santander need to build their loan loss provisions.” Proceeds from the bumper Brazilian IPO -- widely recognised to have hit a timing sweet spot of improved credit growth forecasts and a broader markets boost fuelled by commodity prices -- were used to expand the arm's branch network, automatic tellers and improve capital ratios. Results last week showed it also contributed a capital gain of 1.5 billion euros ($2.05 billion), helping replenish provisions for loan losses. With capital not a concern for the British unit -- particularly after a 2008 injection of 1 billion pounds -- analysts say a deal could be a primary motivation. “I think the UK IPO is very much in line with Santander's style,” said fund manager Alejandro Varela at Renta 4, who manages 140 million euros in assets including Santander shares.
