Will Abbey insanity takedown Santander?

September 23rd, 2007
All eyes at the bourses in Europe will be on Santander on Monday morning. With confidence in the banking sector at all time low it seems that the Spanish bank has slipped up badly by allowing its British owned Abbey to offer an insane portfolio of mortgage offerings.
Sometimes you just know that there’s going to be trouble, sometimes you wake up, read the papers and think ‘are they serious?’. Sunday morning, the British public woke up to headlines with lunacy, unbelievable and crazy in them. Yes, despite images of middle class brits lining up to withdraw their savings from Northern Rock, despite the melt down in sub-prime lending in the USA - Abbey has announced that it will start to offer 125% loans to mortgage borrowers.
There - we thought we’d mis-read, we thought it was a typo - but no - in these times of concern worry and crisis - Santander actually believes that offering 125% mortgage loans is a good idea.
The Abbey was one of the UK’s original big four building societies, until it demutualised and was eventually snapped up by Santander in 2004. Since the original fuss about Abbey going to a Spanish company and being quoted on the Spanish exchange, not the British there has been some, though not too much, disquiet about what protection the Spanish would offer British savers.
Well - it seems that the time has come - on Monday morning we expect a trickle of withdrawals from the bank as people start to worry that Abbey has lost it sense of reality. By Tuesday the papers will have picked up on the story and by Wednesday Abbey will start seeing the same lines outside its branches as Northern Rock, all at the time that the Spanish government is drawn into assuring savers that their money is safe.
Our advise to to Santander shareholders (and many are British pensioners) is to very carefully consider your positions with Santander and be very aware of what happened to Northern Rocks share price.

And statements by Deputy Governor Paul Tucker that deposits with foreign banks, such as Abbey (now owned by a Spanish bank) might not be protected are unlikely to reassure depositors.