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...deal was even less popular when Abbey's new CEO António Horta-Osório slammed the brakes on new mortgage lending in 2006, right in the middle of a housing boom. But Horta-Osório looked prescient when U.K. banks such as Alliance & Leicester and Bradford & Bingley kept on lending and then found themselves in crisis when the market crashed. Santander bought them both - in B&B's case, it was only the deposits and branches - for about one-fifth of what it had paid for Abbey. (Read: "U.K. Acts to Stem Bank Panic...
Santander's Other Secret The Abbey turnaround came straight from the Santander playbook - and highlights the second key to the company's incredible success: software. First step, in goes Santander's proprietary Parthenon software, which organizes a bank's business by customer instead of by product line, as had been the case at Abbey. "This is the kind of sophisticated information JPMorgan still didn't have, and I saw it at a Santander branch in Chile," says Davide Serra, head of the U.K.'s Algebris hedge fund. The system facilitates cross-selling to existing customers while allowing Santander...
...profits for the first half of 2009 were up 33% from the year before, if you don't count acquisitions, and almost 63% if you do. It remains to be seen if Santander can work similar magic at Sovereign. Inciarte says cost-to-income at the U.S. bank has already fallen from 65% to 57%, but that getting down to 40% "will take us quite a while." (See pictures of the Federal Reserve...
Santander's only stumble has been steering some of its private-banking clients into Bernard Madoff's Ponzi machine through its Geneva-based Optimal hedge funds. It moved fast to make good, offering to repay 100% of the sums invested. Santander says 94% of its Madoff victims have accepted, costing the bank $648 million at current exchange rates. It also returned $235 million to the Madoff estate in a settlement of claw-back claims with U.S. trustee Irving Picard...
Still, for a bank that can get a bit smug about its meticulousness, the Madoff stain, albeit minor, will be hard to rub out. It's also one of the reasons why Santander's private-banking business is in the red. "We were caught in a fraud, but it was still a mistake," concedes chief financial officer Juan Antonio Alvarez. (See pictures of the demise of Bernie Madoff...