Santander to boost equity reserves despite PRA clean bill

Santander’s UK arm has revealed that it is intending to launch a cash tender offer of up to £800m in order to boost equity reserves on its balance sheet, in the first stage of a plan designed to “optimise” its capital position.

Ana Botín, chief executive officer of Santander UK, said the bank intended to launch the cash tender despite the Prudential Regulation Authority giving the bank a clean bill of health earlier this year.

The PRA announced the results of its UK bank capital requirements exercise in June and found Santander UK to be the “strongest and best capitalised bank” in the country.

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The exercise will see the bank offer to buy back up to £800m worth of US dollar and sterling tier one and tier two capital securities, which it said would “generate core tier one capital” but initially result in a “modest reduction in total capital levels”.

The bank said this would be evened up following further “tier two and alternative tier one issuance in due course”.

The plan is revealed in Santander UK’s results for the first half of 2013, in which the bank posted profit after tax of £440m, up 25 per cent versus the start of 2012.

In the first six months, Santander’s results revealed customer loans decreased, due to ongoing management actions to tighten the lending criteria associated with higher loan-to-value and interest-only mortgages.

Residential mortgage gross lending was £2bn more than in the second half of 2012, but with overall balances decreasing due to a managed reduction in selected higher risk segments of the mortgage portfolio.

Total operating provisions dropped significantly from more than £1bn to £299m, though the figure for the second half of 2012 was affected by a number of significant items including a £335m credit provision for non-core corporate and legacy portfolios, £232m conduct remediation provision and a £55m provision for costs arising from the termination of the RBS transaction.

Royal Bank of Scotland’s proposed sale of 316 branches and other interests to Santander collapsed at the end of last year.

The Spanish bank pulled the plug on the sale, stating the already-delayed deal could not be completed by the revised deadline.

Provisions for other liabilities and charges included costs of £98m for certain regulatory costs relating to the Financial Services Compensation Scheme and the Bank levy.