Barclays Eyes Santander UK in Potential $51 Billion Banking Deal

LONDON, UK – Banco Santander is reportedly reviewing its UK operations, sparking speculation of a potential sale to Barclays, according to a Reuters report citing sources familiar with the matter. The Spanish banking giant, valued at 75 billion euros ($77 billion), has confirmed that the UK remains a core market despite the review.

Santander UK, acquired through the full takeover of Abbey National in 2004, has struggled to match the performance of larger rivals like NatWest and Lloyds Banking Group. In 2023, Santander UK posted a 14.4% return on tangible equity, lagging behind the 16.5% average of its competitors. The bank also faced challenges last year due to regulatory issues in the UK motor-finance sector.

Barclays, led by CEO C.S. Venkatakrishnan, has emerged as a potential buyer. Venkatakrishnan, known as Venkat, aims to reduce Barclays’ reliance on volatile trading and investment banking by bolstering its UK retail division. Acquiring Santander UK, which is heavily focused on mortgages, would align with this strategy. Breakingviews estimates suggest the deal could reduce Barclays’ risk-weighted assets from 57% to 48% by 2026.

Valuation remains a key hurdle. Based on Visible Alpha data, Santander UK could be worth between 9.5 billion pounds and 13.6 billion pounds, depending on the metrics used. Analysts estimate that Barclays could achieve a 12% return on investment from the acquisition, even before accounting for potential cost savings.

However, funding the deal could require Barclays to issue new shares, a move that would contradict Venkatakrishnan’s recent focus on share buybacks. Convincing investors to support such a shift in strategy will be critical. Meanwhile, Santander’s executive chair, Ana Botín, must weigh whether to sell now or wait for a potentially better price after the motor-finance regulatory issues are resolved.

Barclays has previously approached Santander about a potential deal, but disagreements over pricing stalled negotiations. The outcome of this latest review could reshape the UK banking landscape, with Barclays poised to strengthen its domestic presence while Santander re-evaluates its international strategy.