Sovereign Bancorp Inc. agreed to sell itself to Banco Santander SA for $1.9 billion in stock, making it the latest distressed bank to run into the arms of a suitor.
Earlier Monday, Sovereign had acknowledged that it was in "advanced discussions" regarding a potential business combination with Santander. Santander has been considered a prime candidate to take over Sovereign since taking a stake of nearly a quarter in the bank holding company three years ago.
"Given the unprecedented uncertainty in the current market environment and the challenges facing Sovereign, we believe this is the right transaction at the right time for Sovereign," said Ralph Whitworth, chairman of the Sovereign board's Capital and Finance Committee.
Highlighting the difficulties Sovereign faces, the company preannounced third-quarter results, saying it swung to a loss of $982 million, or $1.48 a share, from year-earlier earnings of $58.2 million, or 11 cents a share. Excluding a $575 million impairment of Fannie Mae and Freddie Mac preferred stock and a loss of $602 million on the sale of the company's entire portfolio of collateralized debt obligations, the company earned $41.3 million. Sovereign's provision for credit losses nearly doubled to $304 million. The company did say it remains well-capitalized.
A Thomson Reuters analyst survey projected a loss of $1.48 a share.
Under the terms of the sale to Santander, Sovereign shareholders will get 0.2924 Santander American depositary share for each share. Based on closing prices Friday, the deal values Sovereign at $3.81 a share.
Santander said the deal will expand its geographical reach and boost profits in the future, with a projected net profit of $750 million for Sovereign in 2011.
As banks around the world suffer, Santander has held up well, partly because of its minimal exposure to U.S. mortgages and trading businesses. Given its resilience, Santander is interested in turning the industry's woes to its advantage, having also taken a look at Washington Mutual Inc. and Wachovia Corp. in recent weeks.
In after-hours trading, Sovereign shares were up 3.3% to $3.80, while Santander ADSs were down 0.1% to $14.48.