MercoPress. South Atlantic News Agency

Santander bank announces 7.2 billion Euro rights issue

Spain's banking giant Santander - which owns UK's Abbey, Alliance & Leicester and Bradford & Bingley's savings business - has announced a 7.2 billion Euro rights issue to raise new capital and shore up its capital ratio.

Santander said Monday it will issue 1,599 million new ordinary shares at a price of €4.5 per share, a 46% discount to Friday's close. The aim of the move is to improve the core capital ratio to 7% from 6%. Santander's chief financial officer confirmed the decision was influenced by the challenging environment, government recapitalisation plans and market demand for higher capital needs. The group's management said the move had nothing to do with write downs or acquisition plans and said there has not been any pressure from the rating agencies or the regulators. The company argued that it has additional capacity to strengthen core capital through profit retention, selective de-leverage and asset disposals but said it would only sell non-core assets if the price is right. The move means Santander can continue to pay a dividend, at 2008 levels, in 2009. Santander, which recently bought the UK's Alliance & Leicester and some assets of Bradford & Bingley in the UK, is trying to take over Sovereign Bancorp in the US. Santander is the Euro zone's largest bank by market capitalisation and second-biggest in the world after HSBC. Santander said it was seeing "lower business volume than what we envisaged at the beginning of the year, but higher spreads, and better cost control". In October Santander reported a 4.3% rise in its third-quarter net profit to 2.2 billion Euros due to cost cuts and said it was on track for record annual profit.