By Simon Kennedy, MarketWatch
LONDON (MarketWatch) -- Santander said Monday that it will buy a 173-branch German retail banking network from Sweden's Skandinaviska Enskilda Banken for 555 million euros ($699 million) as the banking giant continues its global acquisition spree.
Santander /zigman2/quotes/205677933/delayed ES:SAN -2.03% said the deal will nearly double the number of branches it operates in the country and will add around 1 million customers, including 10,000 small and medium-sized businesses.
"Germany is a core market for Santander. This acquisition is a significant step toward achieving our goal of being a full-service retail bank in Europe's largest market," said Chairman Emilio Botin.
SEB /zigman2/quotes/201173722/delayed SE:SEB.A +0.05% said the deal will boost its core capital ratio by half a percentage point and allow it to focus on its more profitable merchant-banking and asset-management operations in Germany.
Shares in both banks were relatively subdued, with Santander slipping 0.3% and SEB edging 0.2% higher.
The deal is the latest in a string of acquisitions for Santander as it seeks to both reduce its reliance on the weak Spanish market and take advantage of opportunities in Europe and the Americas.
In June, the Spanish group paid $2.5 billion to buy back the 24.9% stake in its Mexican business held by Bank of America /zigman2/quotes/200894270/composite BAC -1.42% . See archived story on the Bank of America deal.
Santander also bought Brazil's Banco Real as part of the breakup of ABN Amro in 2007 and acquired Alliance & Leicester and parts of Bradford & Bingley in 2008 as the credit crunch hit both U.K. lenders.
It is also reportedly the sole bidder for around 300 branches that Royal Bank of Scotland is being forced to sell in exchange for the European Commission's approval of its state aid.
Deal to hit SEB earnings
SEB said the sale price represents a premium to the €420 million of equity allocated to the business, but that transaction costs, including related funding and accounting effects, will be around €375 million.
That means the deal will hit pretax earnings by around €240 million, with further restructuring costs and funding impacts likely for the remaining German business.
"I am pleased that in the present economic climate we together with Banco Santander have concluded a mutually beneficial deal," said SEB CEO Annika Falkengren.
For 2009 the division generated 6% of the group's net income, but also accounted for 11% of its costs.
SEB reported an 89% drop in net profit for 2009 as loan losses soared, largely due to its exposure to the Baltic countries.
Javier Bernat, an analyst at Caja Madrid, said that initially the acquisition "does not seem an attractive deal for Santander" because of the high operating costs of the business.
Deutsche Bank's Jan Wolter said the price equates to around 1.3 times the unit's book value, compared with his expectation of a deal around 0.8 times book value.
Wolter added, however, that in exchange for the higher price, SEB appears to be assuming most of the transaction costs.