Will Trump scramble Santander's plan to buy Webster?

• Key insight: Banco Santander, the first European bank in years to try to strike a deal for a U.S. bank, finds itself on the defensive after President Trump threatened to end trade with Spain.
  
• What's at stake: Santander could face a delay in approval, or worse, if the U.S. follows through on Trump's threat, one analyst said.
  
• Forward look: Santander's executive group chair, Ana Botín, said she's optimistic that the "strong" relationship between the U.S. and Spain will endure any current friction.

Banco Santander's pending acquisition of U.S. regional bank Webster Financial may face unexpected challenges following President Trump's threat Tuesday to halt trade with Spain.

Potential setbacks could include a longer approval timeline for the proposed $12.3 billion transaction or, in a worst-case scenario, the deal could fall apart entirely, according to one analyst.

When the tie-up was announced a month ago, the two banks said they expected the transaction to close during the second half of this year. Last week, Santander's executive group chair, Ana Botín, narrowed the window by estimating a third-quarter closing date.

But potential headwinds arose when Trump told reporters that he had instructed Treasury Secretary Scott Bessent to "cut off all dealings with Spain," after the country refused to allow the U.S. military to use its bases to launch attacks against Iran. "We're going to cut off all trade with Spain," Trump said.

Mike Mayo, an analyst at Wells Fargo Securities, told American Banker that Trump's comments pose challenges for the Santander-Webster deal. He downgraded his rating on Webster's stock to "underweight" due to what he describes as additional risk.

"I see higher risk in the Webster deal closing as soon as expected, and a not insignificant risk in the deal closing at all," Mayo said.

Shortly after Trump's comments on Tuesday, Santander's Botín tried to temper any concerns about fraying ties between the U.S. and Spain, saying the two countries' long-term relationship is "strong."

"Spain and the United States have had an amazing relationship forever, [for] centuries, and I'm sure that's going to happen again very soon," Botín told Bloomberg TV. "We're a big investor in the United States. We see ourselves as a bridge between the United States and Latin America, and Europe and the United States. … This is a great country, and we're investing more."

When asked for comment on the potential impact of Trump's remarks, a Webster spokesperson referred the request to Santander. A Santander spokesperson pointed to Botín's comments on Tuesday.

Shares of both banks declined for a period of time on Tuesday before partially recovering. Between Monday's close and midday Wednesday, shares in Santander were down by about 4%, and shares in Webster were down 1.6%.

Madrid-based Santander's proposed acquisition of Webster, an $84 billion-asset bank based in Stamford, Connecticut, is the largest bank merger or acquisition announced so far this year.

The deal requires approval from not only both banks' shareholders, but also from regulators in both countries. The combined entity would have roughly $327 billion of assets, making it one of the largest regional banks in the country, trailing competitors such as Truist Financial and PNC Financial Services Group, but exceeding the likes of M&T Bank and Fifth Third Bancorp.

Currently, Santander's combined U.S. operations have $243 billion of assets. Those operations include the auto loan originator Santander Consumer; retail-focused Santander Bank, which houses the company's nationwide digital bank; and Santander Capital Markets.

If approved and finalized, Santander will gain access to Webster's diversified, low-cost deposit base, as well as its commercial banking operations and a meaningful Northeast branch footprint. Right now, Webster has about 370 branches across eight states in the Northeast, including 120 in Massachusetts, plus two in Florida, according to data from the Federal Deposit Insurance Corp.

Because the deal sets up a foreign bank to buy a U.S. bank, it will face a great deal of scrutiny by U.S. regulators, Mayo said. If trade with Spain stops, it's bound to affect the acquisition, he said.

"What I hear the U.S. president saying is that Spain is the odd man out when it comes to the ability to, if not help [the U.S.], but get out of the way," Mayo said. "At the same time, [Santander] wants to expand in the U.S. How could that not involve some extra review?"

The U.S. and Israel began a series of strikes against Iran on Saturday, starting a war that has now widened to involve several other countries.

Spanish Prime Minister Pedro Sánchez has reportedly been sharply critical of the U.S. and Israel, warning that the war risks "playing Russian roulette" with millions of lives.

On Wednesday, White House spokesperson Karoline Leavitt said that Spain had changed its position and "agreed to cooperate with the U.S. military," the Associated Press reported. But Spanish Foreign Minister José Manuel Albares quickly refuted that claim, saying "the position of the Spanish government regarding the war in the Middle East, the bombing of Iran and the use of our bases has not changed one iota."

If Santander's deal falls apart, other banks would likely be interested in scooping up Webster, Mayo said.

"To us, the only question is, do they get sold to Santander, or does this give an opportunity for someone else to move in at a potentially lower price?" Mayo said.