Santander announces €7.2bn rights issue

Spanish bank, Santander, has raised eyebrows today by announcing a €7.2 billion (£5.9 billion) rights issue.

The bank, which recently acquired Alliance & Leicester, said the heavily discounted rights issue will allow it to strengthen its capital and provide an investment opportunity for its shareholders.

However, just last week the bank insisted it had no need to raise capital and the u-turn has, therefore, raised concerns among investors.

The bank saw its shares fall 5% following the announcement.

The bank’s aggressive growth strategy has meant that its balance sheet has been stretched of late. The Spanish group has spent billions of pounds since its acquisition of Abbey National in November 2004.

Other purchases include Bradford & Bingley’s £20 billion savings business and the South American assets of Dutch bank, ABN Amro.

The credit crisis has created opportunities for cheap deals for the Spanish bank and it is currently in the process of buying 100% of Sovereign Bancorp, the American bank in which it holds a major stake.

Santander funds its lending through retail deposits and has therefore not been as exposed as some of its rivals to the turmoil in the financial markets, which have rocked financial institutions throughout the world.

The rights issue will take the bank’s Tier one ratio up to a satisfactory 7%.

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