Banco Santander SA of Spain is squeezing some much-needed capital out of its U.S. operations with a deal to sell a minority stake in its Dallas auto lender to a private-equity consortium.
The Madrid banking giant, under pressure to bolster its balance sheet amid Europe's debt woes, will book a capital gain of $1 billion from the sale of 35% of Santander Consumer USA Inc. Three well-known buyout shops — Warburg Pincus, Kohlberg Kravis & Roberts, and Centerbridge Partners — and the lending unit's chief executive, Thomas Dundon, agreed to acquire it.
The four parties are investing $1.15 billion, which will help the fast-growing Santander Consumer make more loans through the 13,000 auto dealers it works with around the country.
The investment creates an accounting gain for Banco Santander because the deal values Santander Consumer at around $4 billion, which is much more than the $650 million Banco Santander purchased the company for in 2006.
European leaders are weighing measures to force the region's biggest banks to raise capital. High unemployment and a dismal real estate market in Spain has weighed heavily on the domestic operations of Santander, which expanded heavily in the U.S. during the downturn through its 2008 purchase of Philadelphia's Sovereign Bank.
This deal — which does not involve the 700-branch Sovereign — is the latest indication that Santander's growth ambitions in the states have not wavered despite its troubles in Europe. It reportedly sought to merge Sovereign with Buffalo's M&T Bank Corp. last year, but the talks fizzled over control issues. Sovereign bought a $200 million credit card portfolio from FIA Card Services NA in August.
The rebound in car sales has been a boon for Santander Consumer, a profitable, high-return businesses. Santander wants to keep growing the business — which purchased $3.2 billion of auto loans from Citigroup Inc. last year. But capital is precious at the moment. It began looking for minority investors over the summer. Warburg, KKR and Centerbridge are active in financial services.
The rocky economy has been good for private equity shops interested in banking assets.
Other European banks such as Royal Bank of Scotland and BNP Paribas — two other conglomerates with large U.S. retail banks — have been exploring sales of non-core assets in areas like aircraft leasing. Like Banco Santander, they are wary of putting their core U.S. franchises up for sale because they want to stay in the states. They also do not want to book a loss selling them in a down market.
Deutsche Bank and Barclays Capital advised the investment consortium in the deal with Santander.