Santander doubles down on UK presence amid Spain's banking M&A turmoil

In 1 move, Santander has silenced months of speculation implicit it's allegiance to the British precocious thoroughfare – and analyzable a year-long consolidation saga successful Spain's banking sector.

On Tuesday, Spain's largest lender said it agreed to bargain British precocious thoroughfare lender TSB for £2.65 cardinal ($3.6 billion) from Catalonia's Sabadell successful an all-cash woody taxable to approval. The transaction volition make a instrumentality connected invested superior of much than 20%, bringing its instrumentality connected tangible equity successful the U.K. from 11% past twelvemonth to 16% by 2028, Santander said.

Acquisitions person been astatine the bosom of Santander's British enlargement aft it entered the marketplace successful 2004 done the acquisition of Abbey National. But the profitability of the U.K. subdivision has faltered — with pre-tax nett down by an yearly 38% past year — sparking questions implicit Santander's semipermanent beingness successful Britain. A March announcement of imaginable layoffs and 95 subdivision closures did small to abate the rumors contempt CEO Ana Botin's predominant denials.

"We ne'er thought of leaving the U.K. The U.K. is precise important for us," Santander Chief Financial Officer Jose Garcia Cantera told CNBC's "Squawk Box" connected Wednesday. "It's really the largest equilibrium expanse of each the countries [where] we operate. It's a precocious quality, low-risk business, predictable returns, successful hard currency, successful sterling, and this helps to stabilize our risk-return profile." 

He added that the U.K. has "always been a precise important and halfway constituent of Santander's diversification strategy."

The TSB acquisition, meanwhile, "not lone makes consciousness strategically, arsenic I said, the U.K. helps with our risk-return profile, but it's besides financially very, precise compelling."

The woody could enactment arsenic a antiaircraft play from Sabadell, which lone took implicit TSB from Lloyds successful 2015 and seeks to halt a takeover bid from Spanish adjacent BBVA. The 2 banks person been locked astatine likelihood since Sabadell rejected BBVA's archetypal all-share merger connection successful May past year, connected grounds of it undervaluing the acquisition target.

Now entrenched successful a imaginable 14-billion-euro hostile takeover, BBVA has decided to support its bid alive contempt a caller information from the Spanish authorities that the takeover whitethorn lone proceed if the 2 banks bash not integrate their operations for astatine slightest 3 years.

Over this period, "both entities support [must] abstracted judicial individuality and assets, arsenic good arsenic autonomy successful the absorption of their activities," Spanish Economist Minister Carlos Cuerpo said during a property briefing, according to a CNBC translation.

Madrid — whose authorities nether Prime Minister Pedro Sanchez depends connected parties successful Sabadell's location basal of Catalonia — has agelong opposed the woody amid concerns implicit occupation losses, received a late-May caution from the European Commission against hindering the merger unduly.

"It is important that banking assemblage consolidation tin instrumentality spot without undue oregon inappropriate obstacles being imposed," said Olof Gill, the European Commission's spokesperson for fiscal services, according to Reuters. Spain's antitrust watchdog has already cleared the acquisition. 

It remains to beryllium seen whether the TSB merchantability volition dull BBVA Chairman Carlos Torres Vila's appetite to property up with submitting a merger connection to Sabadell shareholders erstwhile permissions travel through.

RBC analysts connected Wednesday assessed that Santander's acquisition of TSB "seems to beryllium a past large effort to person [Sabadell]'s shareholders to not judge BBVA's connection during the upcoming take-up period" and would "likely further complicate" BBVA's takeover.

"We are wholly neutral connected the Sabadell-BBVA transaction," Santander's Garcia Cantera told CNBC. "This is an plus that becomes disposable successful 1 of the countries wherever we operate, and it's our fiduciary work to look astatine each these opportunities and effort to bash our champion for our shareholders."

Yet helium recognized that contention successful Spanish banking astatine contiguous is "probably the toughest successful Europe," citing the anemic terms of home mortgages.

"I don't deliberation this is going to marque banking successful Spain much comfortable. Probably the opposite," Garcia Cantera said.