Private Banking market

New venture into the UK

Private Banking market

New venture into the UK Private Banking market

Can the Spanish penetrate this sophisticated market?

The author is responsible for the content of this paper. The copyrights of this paper are founded on the author.

Author: Frederik Jaap Kalff Student number: 1081365

University: Rijks universiteit Groningen

Professors: Prof. Drs. A. te Bos, Dr. E.P. Jansen

Supervisors BANIF: Jorge Salvador, Mercedes Iglesias

Blaricum, April 20

2006

Preface

The last part of my Business and Organisation studies at the Groningen University consisted of a six-month research project. As I have always had a tendency towards foreign countries and I thoroughly enjoy speaking other languages, meeting new and interesting people, and discovering other cultures, I searched for an interesting foreign country and company to conduct my research in. After having thought it all through, I decided to apply to Banco Santander, the largest Spanish bank and ninth largest in the world. As I especially enjoy working for and with people, I submitted an application for the Private Banking subsidiary BANIF. Within this outstanding Private Bank I studied its business structure and the possibilities on implementing Private Banking in Abbey, a newly acquired bank in the UK. This thesis is the result of the six months research in Madrid.

It would not have been possible to get to this result without the immense assistance and critical feedback from numerous people. I would like to thank first of all my two professors within the University, Prof. Drs. A. te Bos and Dr. E.P. Jansen. Without their support and crucial view this research would not have had its scientific body as it has now. Furthermore I would like to thank Santander and BANIF for letting me do my research in their fantastic company. I learned a great deal on Private banking and enjoyed my stay within the bank thoroughly. The Doctor Arce office of BANIF felt like a second home due to all the efforts made by my colleagues in ensuring my steady progress during my research and their endless patience in answering all my questions.

I would also like to thank my family and friends for their support and patience during the whole process. A very special thanks to my father with whom I have had numerous highly interesting discussions on banking and my ideas of conducting the research, he provided me with very useful insight in the real world of banking, heightened my enthusiasm on banking even more and ensured my continues progress. It has been a great time.

Finally I would like to thank my team within BANIF. Mercedes Iglesias and Jorge Salvador made sure that I felt at home and provided me with endless amounts of information on any subject I was looking for. Jorge, Mercedes, Esteban, Alex, Ale, Lorena, Lola, David, Fernando y Maria, muchísimas gracias por vuestro ayudo, paciencia y amistad. Ha sido algo inolvidable para mí. Espero que nos veamos un día en cualquier lugar en el mundo! Nunca os olvidaré. Un abrazo muy fuerte a todos del Tulipán.

I really enjoyed the internship within BANIF, the research and writing the whole thesis.

It has been a perfect learning experience to find out what Private banking is about and what is expected from you on a professional level.

I hope you will enjoy reading this paper.

Frederik Kalff

Blaricum, June 8

2006

Executive summary

This thesis has been produced in order to fulfil the requirements for the Masters of Science ‘Financial Value Management’ for the Faculty of Management and Organisation at the Groningen University (the Netherlands). The research and the drawing up of this thesis took some nine months to complete. The main input of the thesis was the experience obtained in one of the offices of Banco BANIF, a private bank in Madrid and the analysis of internal documents and various theoretical articles.

In the fall of 2004 Grupo Santander, the largest banking group in Spain, acquired Abbey, a large and well-known British retail bank. Seeing major opportunities in the turn-around of the money-losing banking giant in the UK, Santander started an implementation plan to obtain synergies of scope and scale. In the past 15 months Santander has been able to indeed cut costs and changed the bank into a profit-making financial institution. Obviously some of the plans are still to be completed or to be started in whole, but the outlook is positive.

The central theme in this research project is the question whether there are possibilities for Santander to introduce private banking as a new line of business in Abbey and, if so, how. In order to obtain part of the necessary information, the research was conducted in Santander’s highly successful private banking subsidiary BANIF.

First of all it became apparent that introducing private banking in a foreign country and in a bank that has not yet any experience in this field requires a thorough analysis of multiple subjects in order to analyse the potentiality of the market. Therefore various real-life factors have to be analysed. These real-life factors are:

- Market considerations; how is the UK market, population

demographics, distribution of wealth, competition, onshore trends in wealth management and Abbey’s own network.

- Country specific obstacles; possible UK cultural, economical, legal and institutional obstacles.

- Economical and financial issues; Tax system and currency risks.

Analysing each of the real-life factors in detail shows the various opportunities and threats of the project to introduce Private banking in Abbey. The information on each of the real-life factors provides the basis on which the theoretical framework slowly evolves into a useful and practical framework.

After having studied the real-life factors and concluded that there certainly is market potential an exemplary template for private banking activities has been derived from the experience within BANIF. Using the information on their business set-up and general way of doing business has provided a useful framework on the basis of which possible business structures for Abbey can be deducted.

After studying the various external factors it is possible to come up with various

possible structure solutions for private banking activities in Abbey. These structures

take into account both internal and external factors when considering the management

of the organisation, and also deal with a third consideration, the question whether to set

up a new and completely separate, fully dedicated private banking subsidiary or to make private banking part of Abbey.

The internal and external management factors are:

- Centralisation vs. decentralisation;

- Hierarchical and/or functional lines of command;

- Closeness to the market;

- Account management intensity.

On the basis of these management factors it is possible to come up with various possible structure solutions. Each of the offered solutions has its pro’s and con’s, which each have to be weighted in order to come to an objectively correct final structure solution.

The weighing variables are potential growth of client base and revenues, costs, organisational effectiveness and achievability. After carefully weighing the impact of each variable on the structure solutions, one came out as clearly the best structure.

In order to determine the implications of this structure, and in order to assess whether it

provides a realistic and profitable business case, first a comprehensive overview of the

probable annual costs is provided. Subsequently it is investigated whether it is realistic

to expect a breakeven situation in a reasonable time frame. The necessary revenues to

achieve that seem feasible on the basis of the implied market share and the interesting

features of the UK private banking market. Once a breakeven situation has been

achieved, it seems likely that the business can be further developed into an attractive

profitability. The overall conclusion therefore is, that it is certainly interesting for

Santander to seriously consider the implementation of BANIF’s successful private

banking concept into the Abbey organisation.

Table of Contents

PREFACE... 3

EXECUTIVE SUMMARY ... 4

TABLE OF CONTENTS ... 6

INTRODUCTION ... 9

CHAPTER 1 THE KEY PLAYERS ...11

§1.1 HISTORY GRUPO SANTANDER ... 11

§1.2 PROFILE ... 12

§1.3 MAIN SECTORS ... 13

§1.4 BANIF BANCA PRIVADA ... 15

§1.5 ABBEY NATIONAL PLC ... 16

CHAPTER 2 THEORETICAL RESEARCH DESIGN ...17

§2.1 TYPE OF RESEARCH ... 17

§2.2 PROBLEM DEFINITION ... 17

§2.2.1 Research objective... 18

§2.2.2 Research question... 18

§2.2.3 Essential preconditions... 18

§2.2.4 Quality requirements problem definition ... 19

§2.3 CONCEPTUAL FRAMEWORK... 19

§2.3.1 Success criteria... 21

§2.4 SUB-QUESTIONS ... 22

§2.5 RESEARCH METHODOLOGY AND METHODS... 23

CHAPTER 3 ABBEY AND SANTANDER...25

§3.1 ABBEY... 25

§3.2 ABBEY’S TAKEOVER BY SANTANDER... 26

§3.2.1 Reason for acquisition ... 26

§3.2.2 Implementation plan ... 27

§3.3 ABBEY’S EXECUTIVE RESPONSIBILITY... 28

§3.3.1 Sales and Marketing ... 28

§3.3.2 Insurance and Asset Management ... 29

§3.3.3 Manufacturing... 29

§3.3.4 Finance and markets... 29

§3.3.5 Risk ... 29

§3.3.6 Human Resources ... 30

§3.3.7 Central Units ... 30

§3.4 CONCLUSION ... 30

CHAPTER 4 COUNTRY SPECIFIC OBSTACLES ...31

§4.1 UK CULTURE... 31

§4.2 ECONOMICAL, LEGAL AND INSTITUTIONAL OBSTACLES... 34

§4.2.1 Economical obstacles ... 34

§4.2.2 Legal restrictions... 35

§4.2.3 Institutional restrictions... 36

§4.3 CONCLUSIONS ... 36

CHAPTER 5 MARKET CONSIDERATIONS...38

§5.1 UK MARKET ... 38

§5.2 POPULATION DEMOGRAPHICS AND DISTRIBUTION OF WEALTH... 39

§5.3 COMPETITION... 41

§5.4 ONSHORE TRENDS IN PRIVATE BANKING IN THE UK ... 44

§5.5 ABBEY’S CUSTOMER BASE AND OFFICE NETWORK... 45

§5.6 CONCLUSIONS ... 46

CHAPTER 6 ECONOMICAL AND FINANCIAL ISSUES ...48

§6.1 TAX SYSTEM... 48

§6.2 CURRENCY RISKS ... 51

§6.3 CONCLUSIONS ... 52

CHAPTER 7 PRIVATE BANKING ACTIVITIES OF SANTANDER ...53

§7.1 SCH BANCA PRIVADA ... 54

§7.1.1 Personal Banking ... 54

§7.1.2 Private Banking ... 54

§7.2 INTERNATIONAL PRIVATE BANKING ... 55

§7.3 BANIF ... 56

§7.3.1 BANIF ... 56

§7.3.2. BANIF’s business structure... 58

§7.3.2.1 Business structure in BANIF office ... 60

§7.3.2.2 Job functions... 60

§7.3.2.3 Products... 63

§7.3.2.4 Marketing ... 66

§7.4 CONCLUSION ... 67

CHAPTER 8 STRUCTURE SOLUTIONS FOR PRIVATE BANKING ...69

§8.1 STRUCTURAL FACTORS... 69

§8.1.1 Internal management factors... 70

§8.1.2 External management factors... 70

§8.1.3 A third consideration on the organisational structure... 71

§8.2 CONCLUSIVE EXEMPLARY BUSINESS STRUCTURE ... 71

§8.3 POSSIBLE STRUCTURE SOLUTIONS... 72

§8.3.1 One private banking office ... 72

§8.3.2 Several new offices throughout the UK... 73

§8.3.3 Several offices in the existing branch network ... 73

§8.3.4 An Account manager in every Abbey office... 74

§8.4 HEAD OFFICE ... 75

§8.5 PROS AND CONS OF THE 4 SUGGESTED STRUCTURES. ... 76

§8.5.1 One private banking office ... 76

§8.5.2 Several new offices throughout the UK... 76

§8.5.3 Several offices in the existing branch network ... 77

§8.5.4 An Account manager in every Abbey office... 78

§8.5.5 Pros and cons for a separate subsidiary... 78

§8.6 CONCLUSIONS ... 79

CHAPTER 9 BEST STRUCTURE FOR PRIVATE BANKING IN ABBEY ...80

§9.1 SEPARATE SUBSIDIARY OR NOT?... 80

§9.2 CRITERIA TO WEIGH THE PROS AND CONS ... 81

§9.3 RELEVANCE OF THE VARIOUS CATEGORIES ... 82

§9.4 OVERVIEW OF THE PREFERRED STRUCTURE FOR ABBEY ... 84

§9.4.1 Offices ... 84

§9.4.2 Head office ... 84

§9.4.3 Possible office locations... 85

§9.4.4 Expected break-even point ... 86

§9.5 CONCLUSIONS ... 87

CHAPTER 10 CONCLUSIONS AND RECOMMENDATIONS ...88

§10.1 SUB-QUESTION 1 ... 88

§10.2 SUB-QUESTION 2 ... 89

§10.3 SUB-QUESTION 3 ... 89

§10.4 SUB-QUESTION 4 ... 90

§10.5 SUB-QUESTION 5 ... 90

§10.6 SUB-QUESTION 6 ... 91

§10.7 THE PROBLEM DEFINITION... 92

§10.8 RECOMMENDATIONS ... 93

§10.9 RELEVANCE, RESEARCHABILITY AND EFFICIENCY... 93

§10.10 REFLECTIONS ... 94

REFERENCES AND WEBSITES...95

ARTICLES AND BOOKS ... 95

WEBSITES... 97

INTERNAL DOCUMENTS... 98

APPENDICES ...99

“ The question is not: how to do things right, but to find the right things to do ”

(Peter F. Drucker)

Introduction

In order to graduate for the study of Business Administration and Management at the Groningen University in the Netherlands, a research had to be conducted with this thesis as result. The research started in August 2005 and lasted 6 months until January 2006 and was accomplished in Madrid (Spain) within Banco BANIF, the private banking subsidiary of Grupo Santander. The goal of the research was to study the possibilities to implement private banking in the British bank Abbey, a recently acquired subsidiary of Santander.

In November 2004 it was publicly announced that Santander, following approval on both Extraordinary General Meetings, would acquire Abbey. This distressed British bank was bought for £8,5 billion and Santander immediately started an implementation plan to turn around Abbey. One of the facts that stands out when analysing Abbey is that they do not offer private banking services to their customers, although they have some 18 million of them. For Santander it is interesting to research the possibility to implement this in Abbey, as Santander has considerable experience in this field and because the UK is one of the wealthiest countries in the world.

This remarkable and potentially highly interesting opportunity has been the motive to conduct this research on the possibilities to implement Private banking in Abbey. Most of the necessary information for this research has not yet been gathered before, nor is it readily available within the bank. The material that is needed consists of an overview of the business set-up of BANIF and the objective explanation why that model could serve as an example for Private banking in the UK. Furthermore it is important to research the possible consequences of implementing Private banking in a different country with all its various aspects. Finally information is needed on the possible structural possibilities for a potential Private bank within Abbey and an objective overview of the financial feasibility of the implementation.

The research will be presented in 10 chapters, in order to come to a comprehensive answer on the research question. The first three chapters introduce Santander, BANIF and Abbey and provide an overview of the current situation and goals for the future of Santander and Abbey. The following five chapters (4-8) will each discuss certain subjects of critical importance to the research question. Chapter 9 will provide the results of this research and present the best possible structure on the basis of the obtained results. The last chapter will provide a conclusion and further recommendations. Hereunder I will briefly present the content of each chapter.

- Chapter 1:

This chapter will briefly discuss the main players in this thesis, being Santander, BANIF and Abbey. A short history of all three will be presented necessary to understand the various companies and their specific features.

- Chapter 2:

This chapter will outline the structure and methodology of the research and mention the research objective and formulate the research question.

The theoretical framework is structured as a policy supporting research [de Leeuw; 1997]. Furthermore a conceptual framework will be provided from which several sub-questions will be derived for the remainder of the research.

- Chapter 3:

This chapter contains an overview of Abbey and its business. Moreover the intentions of Santander with Abbey will be discussed, as well as the possibilities for Santander to turn Abbey around. It is of importance to know the changes that have been made and those that are still to be made.

- Chapter 4-6:

Now the external factors will be introduced in the research. The chapters 4 to 6 will discuss the various real-life factors which can be of influence on the decision whether or not to implement private banking in Abbey.

After the explanation of all the factors a complete picture of the necessary information will be given.

- Chapter 7:

Chapter 7 discusses the current structure and business set-up of Banco BANIF. Furthermore it will provide an insight in the financial products it offers its clients and the way it markets itself. The obtained information will be used to draw a best-in-class example in abstracto of how private banking can be conducted. Possible real-life factors will not yet be taken into account. As BANIF is performing excellently in Spain, the bank has been chosen to serve as a model for this research.

- Chapter 8:

This chapter will provide several structure solutions based on what I have found in chapters 1 to 7. The possible structures are briefly presented and the pros and cons of each of them will be outlined. This chapter will however not yet put any weight on the various pros and cons.

- Chapter 9:

After having presented all the possible structure solutions, it will be possible to use the information obtained in the research to weigh the various possible structure solutions. The weighting will result in the best structure solution for Abbey and this structure will be discussed in more detail.

- Chapter 10:

When all the previous steps have been taken, it will be possible to answer

the central research question. This last chapter therefore will present the

overall conclusion of this thesis.

Chapter 1 The key players

To start this research, it is important to generally understand the key players for this study. Chapter 1 will provide a broad overview of the three main companies, presenting some important information on their respective history, lines of business and expertise.

As this is a research on possible structural changes in a business, it is prudent to clearly understand the identity of the various key players in order to grasp the business logics of Santander and Abbey. Without this information it would be unclear why this research is so interesting and relevant, what the intentions of Santander are with Abbey and how such a major operation could be successful. First Grupo Santander will be discussed, as an introduction to the company and a way to introduce Banco BANIF, which is a wholly owned subsidiary of the Spanish retail bank. After discussing the private bank BANIF, the former British building society will be presented. In chapter 3 the acquisition of Abbey will be discussed.

§1.1 History Grupo Santander From local bank to global group

Banco Santander was founded almost 150 years ago in the city of Santander, which is situated in the northern part of Spain. On May 15

of 1857 seventy-two Cantabrian retailers assembled an amount of 5 million Reales de Vellón (former Spanish currency) and started the first and, up until now, only bank in the city of Santander in Basque Country. Queen Isabel II granted the bank the privilege of emitting money, which already 17 years later was monopolized by the Bank of Spain.

By that time Banco Santander could have integrated in the Bank of Spain, but rejected the offer and continued as an independent and strictly local bank, enjoying the flourishing port trade with the overseas colonies. Until 1925, in fact, Banco Santander would not open its first office out of the province. From that moment on Banco Santander opened its doors throughout Spain.

Especially when Emilio Botín-Sanz de Sautuola y Lopéz (father of the current President and CEO) joined Banco Santander as General Director in 1934. He would stimulate a determined expansion of the company. First in Spain, by ways of opening offices throughout the country (the first one in Madrid was opened in 1942) and the absorption of small local banks. Later, when Botín-Sanz de Sautuola y Lopéz became President (1950), the bank opened abroad in Latin America and the principal financial centres in the world, such as London (1956), New York (1968), Paris (1972) and Frankfurt (1975).

After fifty-two years with the bank, Botín-Sanz de Sautuola y Lopéz retired and his son, Emilio Botín-Sanz de Sautuola y García de los Ríos, took his place. He continued the domestic and international expansion his father started.

Grupo Santander, as it is known now, is the result of the combination of four Spanish banks which played a key role in the country's financial and economic history: Banco Santander, Banco Central, Banco Español de Crédito (Banesto) and Banco Hispano Americano. At the end of 2004

, Grupo Santander was the ninth largest bank in the world, the fourth in Europe and the first in the Euro zone by market capitalisation,

1

Internet: http://www.gruposantander.com/pagina/indice/0,,412_3_2,00.html , 2005

which stood at EUR 57.102 million

. Today Santander has more than 126.500 employees, 63,5 million customers, 10.000 branches and 2,6 million shareholders. In 2005 Santander Central Hispano received the Euromoney and Global Finance’s price for “Best Bank of the Year”.

Grupo Santander is also committed to social development in all the countries where it is a key player. It has developed a unique alliance with universities through Santander Universities and the Universia portal, in the belief that education is the best way to foster progress. In 2004 it invested almost 3% of its net benefits in Corporate Social Responsibility projects

.

§1.2 Profile

Grupo Santander is the parent company of Banco Santander Central Hispano. The statutory seat of the bank is Madrid, Spain. In the remainder of this thesis Grupo Santander will be called “Santander”. With a net profit of EUR 3.136 million in 2004, it ranks Santander among the biggest banks in the world. For 2005 it has set its goals on reaching a net profit of EUR 5.000 million. Santander is quoted on the NYSE, London, Frankfurt, Madrid and several others (symbol: SAN). The Group's principal activity is to operate as a bank, whose branch network covers the whole of Spain and it's main areas of concentration being Europe and Latin America. Grupo Santander’s main business areas are commercial banking, investment and pension funds, corporate banking, investment banking, Internet and telephone banking and treasury and capital markets. The companies´ activities are grouped in six main sectors.

Figure 1 Organisation chart Grupo Santander

2

Recently Grupo Santander overtook Telefónica in market capitalisation (EUR 67,000 million) making it the largest Spanish company

3

Annual report Grupo Santander 2004, Memoria de Responsabilidad Social Corporativa 2004

The fact that Santander operates in two continents, Europe and (South-) America, provides it with geographic, currency (Euro, Dollar and Sterling) and risk diversification, which is the result of a well-balanced presence in developed and emerging countries.

As retail banking is its main business focus, it generates 82% of the Groups' profit.

Retail banking generally comprises of the provision of banking and financial products and services to consumers and businesses by commercial banks and other financial institutions [Gardener, Howcroft and Williams; 1999]

. It provides the most recurrent revenues and its relative share is much higher than that of Santander’s main international competitors. The remaining 18% of the Group's net attributable income comes from Asset Management, Private Banking and Global Wholesale Banking.

Santander has its own business model, which rests on five basic pillars: customer- focused management, efficiency, credit risk quality, capital discipline and "multi-local"

management with a global vision.

§1.3 Main sectors

Global Wholesale Banking

Santander’s Global Wholesale Banking sector manages the large clients of Grupo Santander. These clients are mostly big corporations, institutional investors and international financial institutions. They are offered sophisticated and innovating financial solutions to cover all its business necessities, providing products and services of the highest quality not only in Spain but also in specialised representative offices throughout the world. Global Wholesale Banking covers Corporate Banking, with a Global Relationship Model that provides integrated management of corporate clients and financial institutions, Treasury and Investment Banking. In 2004 they obtained a net profit of EUR 331 million, an increase of 47% compared to the year before ( ± 10% of the Groups´ total net profit).

Commercial Banking

Santander divides its commercial banking sector geographically in Latin America and Europe. Grupo Santander's main presence in Continental Europe is in Spain and Portugal, principally through retail banking, and in consumer finance in 11 countries, including Spain, Portugal, Germany, Italy and Norway.

Retail Banking in Spain is represented by Santander Central Hispano and Banesto, which between them have more than 4.200 branches and 15 million customers. The Groups' market share in Spain is 17,7%. Santander Consumer, meanwhile, coordinates the Groups' consumer finance activities in Continental Europe. In the United Kingdom Santander is represented by Abbey, the sixth largest UK bank, which became part of Grupo Santander in November 2004. Abbey has 730 branches, 18 million customers and a market share in mortgages of almost 10%, the fourth largest in the UK, and 7% in deposits. Later on in this chapter the takeover of Abbey by Santander, as well as Abbey itself, will be further discussed in detail.

In Latin America Santander is the leader in retail banking. It operates in 10 countries with over 18 million customers and 8 million participants in pension plans served

4 Gardener, E., Howcroft, B., Williams, J. (1999) ‘The new retail banking revolution’, The Service

5 Annual report Grupo Santander 2004

through 4.000 branches. The Group's banks are among the leaders in Brazil, Mexico and Chile. It also operates, among other countries, in Argentina, Colombia, Puerto Rico and Venezuela. European and American Commercial Banking provided respectively 55%

and 27% of Santander’s total net profit in 2004.

Asset Management

This includes pension and mutual funds and bancassurance. The amount of assets under management in Spain totalled EUR 78.000 million in 2004, an increase of 14%.

Santander Asset Management focussed on growth and maintaining leadership in mutual funds, both in terms of volume as well as innovation, backed by the launch of new value-added products adjusted to customer’s needs. The design of ‘ad-hoc’ products for the different customer segments generated a significant rise in the demand for funds.

Another reason for the rise was the good reception for the ‘concept’ equity funds, based on very specialised management that provides diversification and attractive returns, the continued demand for new guaranteed products and the increase in alternative management funds. Latin America also showed an increase in assets under management of 18%.

Financial Management and Equity Stakes

This area is responsible for the centralised activities relating to strategic or temporary equity stakes in industrial and financial companies, financial management related to the structural exchange rate position, the Group’s asset and liability portfolio, and management of liquidity and shareholders’ equity through issues and securitisations. As the Group’s holding entity, it manages all capital and reserves and allocations of capital and liquidity. It also incorporates the accelerated amortisation of goodwill and country risk but not the costs related to the Group’s central services.

The purpose of financial management is to make net interest revenue from commercial activities and Santander’s economic value more stable and recurrent, maintaining adequate levels of liquidity and solvency.

Private Banking

As shown in the organisation chart, Grupo Santander has three separate Private Banking branches. First of all they are divided geographically into Domestic Private Banking and International Private Banking. Apart from that, there is the difference between Santander Central Hispano Private Banking and Santander’s specialised Spanish subsidiary BANIF. International Private Banking is focused on active management of its customers. Their clients are non-residents of Spain. This department is relatively small but has offices in a couple cities through the world, such as Miami, the Bahamas and Geneva.

SCH Private Banking offers Private Banking services to the bigger clients of Santander

Central Hispano. Apart from that they actively look for new clients within Spain. One

of their main competitors therefore is BANIF, which also operates domestically and

actively search for potential clients. It is specialised in Wealth Management of High Net

Worth Individuals. BANIF received in 2005 for the third consecutive year the

Euromoney prize for ‘Best Spanish Private Bank’. In 2004 it attained 22% growth in its

target customers and a 25% in net operating income, with EUR 22.000 million of

managed customer funds. In the next paragraph BANIF will be further discussed.

§1.4 BANIF Banca Privada History

In 1962 a group of three businessman create “Banif de Inversiones y Finanzas”, as an investment consultants office. It did not have the legal structure of a bank. Banif de Inversiones y Finanzas had Asset Management, Real Estate Investment, Corporate Finance, Capital Markets and a legal department. In 1974 Banif de Inversiones y Finanzas was acquired by Banco Hispano Americano. In the following years they expanded their working area with internationally issued funds in Spain. It was not until 1989 that Banif became Banco Banif de Gestión Privada assuming a bank legal structure. Two years later it becomes part of BCH Group after the merger between Banco Central and Banco Hispano Americano. In 1999, after the merger of Banco Santander and Banco Central Hispano Americano, the new Group decided to join the Private Banking units, Banco Santander de Negocios (BSN) and Banco Banif, and thus created Banco BSN Banif. BSN was created in 1985 to provide Investment Advice, Corporate Banking, Private banking and Stock Trading for Banco Santander. In 2002 the brand BANIF was chosen as the unified brand name as it is known now. The following three years BANIF has been classified as “the Best Private Banking in Spain”

by the independent and specialised finance magazine Euromoney.

Profile

BANIF is Grupo Santander’s Private Banking unit and is specialised in Wealth Management of High Net Worth Individuals. BANIF requires a minimal account size of

€150.000. Compared to BANIF’s competition in Spain this amount is relatively low.

Banco Madrid demands a minimal of €60.000 opposed to among others Banco Sabadell Banca Privada that requires at least €500.000.

At the end of March 2006 BANIF had €27.100 million in Assets under Management, divided among thousands of family units. A family unit consists of everyone within a family that contributes in the account. As BANIF wants to offer a wide range of services to its clients, they offer the possibility of all family members being included into the account. This results in the fact that someone with an amount of less than

€150.000 can still be a client of BANIF, for example the children of a client or the members of the same company, and that way be able to obtain certain financial benefits.

Throughout Spain BANIF has 45 offices of which 9 are situated in Madrid and 2 in Barcelona, but for 2006 another 11 offices are to be opened in Madrid (5) and Barcelona (6). Within these offices there are 620 specialized employees working, offering the widest range in Spain of products and services for Private Banking clients. Apart from that BANIF is the only Private Bank in Spain that obligates European Financial Advisor (EFA) qualification of all of its Financial Advisors. This certificate, which is recognized by a large number of prestigious financial institutions in Spain as well as in the rest of Europe, guarantees a certain high level of financial advise in the areas of Investment Banking and Private Banking and is issued by the European Financial Planning Association (EFPA)

. This organisation, which was founded in Rotterdam in 2000, has as objective to be the standard for financial planners and advisors in Europe.

Comparable certificates exist in the United Kingdom (Securities and Futures Authority) and the United States (Series 7).

6

BANIF’s Media Presentation, BANIF’s brand history, September 2004

7

Internet: http://www.uned.es/experto-gest-carteras/aulavir/default.htm, Aula Virtual de Experto en

BANIF adopts the Open Architecture Philosophy when selling products, meaning that it distributes its own services and products as well as those from third party houses. This way the client is offered the widest range of products and services that are most adequate to its profile and needs. The bank currently offers more than 6.000, own and third party, mutual funds. Apart from mutual funds, it also sells credit cards, insurance and pension plans with the same philosophy. In chapter 7 BANIF’s way of business and more detailed information will be presented.

§1.5 Abbey National plc History

Abbey's roots date back to 1849, with the establishment of the National Freehold Land and Building Society. Building societies, in the classic form, were mutual organisations, jointly owned by those saving and borrowing. In the 1980s British Banking Laws were changed to allow building societies to offer banking services equivalent to normal banks

. In 1944 it was named the Abbey National Building Society, which came from the merger of the Abbey Road Building Society and the National Building Society.

Abbey National was in 1989 the first building society to change its legal structure from a mutual to a public limited company (plc) status. In that same year on 12 July it floated on the London Stock Exchange at a share price of £1,30. In the following 12 years it developed from being primarily a mortgage and savings account provider into a full- service retail and wholesale bank. In August 1996, Abbey National merged with the National and Provincial Building Society increasing the branch network by almost two hundred branches and bringing in three million more customers. In November 2000 it became known that Abbey National was in merger talks with Bank of Scotland, one of its main competitors. Soon afterwards Lloyds TSB, a third competitor of Abbey National and Bank of Scotland, approached Abbey National proposing a friendly takeover for £18 billion. Abbey National rejected this approach but in January 2001 Lloyds TSB set out the terms of a conditional offer, which they again rejected. On 23 February 2001 the Secretary of State directed the proposed merger to the Competition Commission that declined the proposal. Abbey National then stopped its merger negotiations with Bank of Scotland, saying the uncertainty created by Lloyds TSB was the reason. Subsequently Bank of Scotland and Halifax Group plc announced the terms of a recommended merger between them.

The name Abbey National was changed in September 2003 into Abbey along with a new look and the "turning banking on its head" initiative. On July 26 of 2004 Abbey and Banco Santander announced that they had reached agreement on the terms of a recommended acquisition by Banco Santander of Abbey. Following shareholders' approval at Abbey's and Santander's EGMs, the courts formally approved the acquisition and Abbey became part of the Grupo Santander Group on November 12 of 2004. Abbey had quickly fallen from being one of the most profitable companies in the United Kingdom to a target for acquisition. The bank lost almost EUR 2,5 billion

in 2002 and 2003 and returned being profitable in 2004 after drastic restructuring. Grupo Santander was able to buy Abbey for only £8,5 billion, which was still a high amount looking at the low profitability of Abbey. Further details on Abbey, the acquisition and Grupo Santander’s plans will be discussed in chapter 3.

8

Internet: http://en.wikipedia.org/wiki/Building_societies, 2005

9

A billion is 1.000 million (=1.000.000.000)

Chapter 2 Theoretical research design

In this chapter the process and structure of the thesis will be outlined and discussed. In a methodological sound way a red line will be given along which this thesis will be written. This guideline will be composed of the type of research, the problem definition, a conceptual framework and sub questions.

§2.1 Type of research

According to de Leeuw (1997: p. 374)

there are five types of research depending on the type of knowledge pursued. De Leeuw differentiates between the following types of research:

1. Theory forming research;

2. Socially relevant research;

3. Policy relevant research;

4. Policy supporting research;

5. Problem solving research.

After carefully having studied the five types of research, I came to the conclusion that the research in this thesis can be categorised as policy supporting research. This type of research is focused on providing usable information for the policy creating management. In this context policy is used to describe a set of measures and objectives on behalf of management. The main goal of policy supporting research is to increase the rationality of the management’s policy and its decisions. The results have to be useful in a specific situation and fulfil at least part of the knowledge requested. In this case it will be aimed to provide useful information for the Board of Directors of Grupo Santander and Abbey. The specific situation is the possible implementation of Private Banking into Abbey and the result of the thesis should provide a foundation for the final decision whether implementation would prove profitable.

§2.2 Problem definition

A good problem definition should consist of three components (Leeuw de, 2001:

p.81)

:

- Research objective - Research question - Essential preconditions

Apart from the mentioned components, the problem definition should meet the quality requirements of relevance, researchability and efficiency (Leeuw de, 2001: p.82). These will be discussed in paragraph 2.2.4.

10

Leeuw de, A.C.J. (1997) Organisaties: Management, analyse, ontwerp en verandering., 5

edition, Assen, Van Gorcum.

11

Leeuw de, A.C.J. (2001) Bedrijfskundige methodologie. Management van onderzoek, 4

edition,

Assen, Van Gorcum.

§2.2.1 Research objective

The research objective reveals for whom the research is conducted, what it will result into for them (knowledge) and why it is important for them. It is therefore primarily concerned with the relevance of the research (Leeuw de, 2001: p.85). Together with part of the essential preconditions, the research objective forms the outer shell of the research. The final answer to the research question should meet the stated criterion of the information needed by Santander to come to an objective conclusion. The research objective is the following:

§2.2.2 Research question

The research question formulates the main question or questions that are based on the research objective (Leeuw de, 2001: p.85). Therefore the following research question can be formulated:

§2.2.3 Essential preconditions

The essential preconditions mark the restrictions to which the results of the research and the applied methods are liable. They are divided into product and procedural essential preconditions.

Product essential preconditions:

- No attention will be paid to the processes and working methods within Grupo Santander in this paper. Only Banco BANIF’s as such.

- BANIF stipulates which information can be used in the publicly available report.

Procedural essential preconditions:

- This research is carried out for the Board of Directors of Grupo Santander and Abbey to advise them and therefore meeting their requirements.

- This research is also conducted to be the researcher’s final assignment in order to meet the requirements for the Master of Science ‘Financial Value Management’ at the Faculty of Management and Organization at Groningen University, The Netherlands. It should therefore also meet their methodological and scientifical demands.

- The research takes place at one of the Madrid offices of BANIF Banca Privada, Spain.

- The field research will take six months, beginning the first of August until the first of February 2006.

‘To provide the Board of Directors of Grupo Santander and Abbey with an advise on the possibilities to implement Santander’s successful Spanish Private Banking products in Abbey’s customer base.’

‘To what extent and how can Grupo Santander implement their current Spanish

Private Banking products in Abbey, and how should this be organized whilst

considering the issues of a different economy and culture, different fiscal policies

and an unknown market and customer base?’

§2.2.4 Quality requirements problem definition

In order to meet the quality requirements, de Leeuw (2001) states that a good problem definition should be relevant, researchable and efficient. With relevance is meant the goal of the research. This should consist of two things. First of all is should be connected with the management question. This should result in an understandable result of the research for all parties that will have to work with it. This does not only mean the people for whom the research is conducted, but as well anyone participating in the research process. Secondly relevance consists of robustness. That means the sensibility of the research question for changes in the environment. A good research question should be both to the point and not too sensible for changes.

The second quality requirement is that of researchability. This has a practical and a principle side. The practical side is about the feasibility of the research in ways of manpower, accessibility to available information and available time. The principle side is about the soundness of the research.

The third and last requirement is the efficiency of the research. De Leeuw describes efficiency as having a problem definition that exactly covers the needed information. It is therefore closely linked to the relevance of the research. The research should be conducted in a way that the results are obtained in a competent manner.

§2.3 Conceptual framework

A conceptual framework is a graphical overview of various theoretical notions that have a certain relevance and are of influence on the research, in order to understand the line of reasoning behind the research. The objective of this research is to find out whether there is sufficient potential for private banking in Abbey and if so, what would be the best structure solution for the implementation thereof. The conceptual framework for such a study should therefore reflect all theoretical notions and relevant aspects, necessary to arrive at a well-founded conclusion. When one studies the possibilities of a new business activity for an existing organisation, one has first to study the potential of the particular product-market combination. In evaluating new products and markets, companies from the start lack clear insight in the potential of those markets and what competencies the company has to eventually exploit those markets [Jenkins & Meer, 2005]. Subsequently the various possible obstacles to enter a new market and several kinds of relevant issues have to be analysed in order to establish the economic potential in a particular case. Horn, Lovallo and Viguerie state that a company should improve the knowledge on its capabilities, the market’s size, potential market share, revenues and costs in order to get a clear understanding of the company’s possibilities in a new market

. These factors will be investigated and analysed in this research. If the outcome is indeed positive, a further study is necessary on the existing organisation in order to find the most appropriate way to structure the new venture into that organisation with as little disruption as possible. For that reason and in order to avoid further extension of the subject of this study, the current organisation of Abbey has been taken as a given.

When one analyses the possibilities to implement Private banking in a different country, various subjects of importance arise. These subjects all influence the main theme of the research and are consequently placed in the conceptual framework. First of all the fact that the new business activity is to be set-up in a different country strikes the eye.

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Horn, J, Lovallo, D., Viguerie, P. (2005) ‘Beating the odds in market entry’ McKinsey Quarterly, Issue

4, p34-45

Significant questions that arise from that observation are those referring to the different cultures of both countries and the different cultures within two organisations. Many studies have concluded that culture is one of the key variables that have to be investigated and understood when considering the entry into a new country and/or trying to understand an existing organisation [Wood and Robertson, 1999; Hofstede, 1990, 1993, 1994]. It goes without saying that the fact that the research relates to two different countries, also means that other factors than just culture are of influence when looking at a specific new country i.e. the United Kingdom. Subjects like regulations, possible legal obstacles and institutional restrictions come to mind, because almost any business has to deal with these matters. The just-mentioned variables can be summarised as ‘Country specific obstacles’.

When further considering the implications of the objectives of the research, another fact arises. Private banking consists of products and services offered by banking officers to private clients, making it a people-to-people business. These private clients constitute the potential market for a Private bank. In order to be able to conclude whether or not there is potential for this line of business, it is necessary to obtain adequate and reliable knowledge of the UK market. Abbey in fact has to consider two parts of the market:

firstly their existing client base and secondly the potential market of non-customers.

Information and research on the market and the existing customer base should provide the basis of the answer to the primary research question, are there sufficient possible clients, and are therefore an indispensable part of the conceptual framework, summarised as the ‘Market considerations’.

The last subject of interest is more specifically tailored to the Private banking business.

In Private banking the offering of tax-efficient financial products is necessary, as the client demands high after-tax returns on investments [Peterson, Pietranico, Riepe and Xu, 2002; PriceWaterhouseCoopers, 2003]. Therefore these products are immensely popular and numerous. This means that the tax system of the ‘to-enter country’ is of interest also. Apart from the different tax system, the currency issue has to be addressed.

The United Kingdom, although part of the European Union, has decided to keep its own currency. To what extent this creates a problem for a bank that keeps its books in Euro’s is another financial issue that has to be taken into account. These issues can be combined in the conceptual framework as ‘Economical and Financial Issues’.

After having established these critical theoretical notions from the research question, the first part of the conceptual framework has been determined. In case the first part of the research question, on the market potential, has been answered positively, the possible structure solutions need to be researched. The second part of the conceptual framework is therefore focussing on these solutions and the necessary success criteria to objectively determine the best structure. Success of a business is measured by its profitability, which in this case of a new venture also has to do with low implementation costs.

Lower implementation costs also mean lower execution risks

, making an investment more interesting. Future profitability is built up from annual costs and revenues, so all together there are three factors that support the success criteria. The complete conceptual framework is shown below.

13

Execution risk is the risk associated with the implementation of a reorganisation

Figure 2 Conceptual framework

The research will be built up firstly by describing the current structure of Abbey and Santander’s intentions with the newly acquired bank. Santander acquired Abbey in November 2004 and has had its special reasons and ideas to how to change the then used structure in order to turn the bank from an under-performing and money losing entity into the profitable bank it used to be. In this part the intentions and ideas will be presented and an implementation plan of these intentions and ideas will be discussed.

By describing Abbey and the acquisition by Santander in 2004, a clear picture will be given of Abbey’s structure, as this is essential in order to understand the current situation and possibilities of the bank.

Subsequently the three important considerations mentioned above, as part of the conceptual framework (country specific obstacles, market considerations and economical and financial issues), will be extensively discussed in three separate chapters.

The results of the above mentioned issues will lead to the answer whether there is sufficient potential for Private banking in Abbey. If the answer is positive, further research will provide an overview of a particularly successful Private Bank, on the basis of which several possible structure solutions will be derived, which will then be analysed against well established the success criteria.

§2.3.1 Success criteria

Taking the subjects discussed above into account, the design should meet certain

success criteria. Success criteria are used to measure success; they do not facilitate the

achievement of success. According to various studies, the most important criteria are meeting time, cost and quality objectives and meeting the goal and the purpose of the project [Collins, Baccarini, 2004; Baccarini, 1999]

. For this specific research the following criteria have been developed:

• Provide best structure

The criteria of providing the best structure for a possible implementation of private banking into Abbey are the most important. After having analysed the possible restrictions and problems that could occur, a best structure can be presented that meets the following three requirements.

- Provide fastest client base growth

By providing the best possible structure for Abbey, one of the success criteria that should follow is fast growth of the private banking client base.

This would make it certain that Abbey captures market share and is of high importance in order to make the implementation a success.

- Provide fastest revenue growth

As the client base grows, it should also result in revenue growth. This is an important criterion because to sustain the new business Abbey will need revenues.

- Lowest implementation costs

This last objective is also subtracted from the best structure criteria. One of the reasons for choosing an appropriate structure is the fact that it should not be joined with high costs. By keeping the cost of implementation low, the obtainable results will be more profitable and execution risk will be lower.

§2.4 Sub-questions

The following sub-questions can be drawn from the conceptual framework. By answering the following sub-questions, it should be possible to answer the research question stated in paragraph 2.2.2.

1. What are the possible influences of country specific obstacles on implementing Private Banking in Abbey?

2. What are the possible influences of the market sector on implementing Private Banking in Abbey?

3. What are the possible influences of several economical and financial issues on implementing Private Banking in Abbey?

4. What can be an exemplary business model for implementing Private Banking in Abbey, without taking into account the country specific obstacles, market sector and economical and financial issues?

5. Which different structure solutions can be derived from studying the obtained results in order to assess them on the basis of the stated success criteria?

14

Collins A., Baccarini, D. (2004). ‘Project success? A survey’ Journal of Construction Research, Vol. 5 Issue 2, p211-231

15

Baccarini, D. (1999) ‘The Logical Framework Method for Defining Project Success’ Project

6. Which of the solutions is the best for Grupo Santander and Abbey to implement Private Banking in Abbey, taking the success criteria into account?

As it does not make sense to discuss the best possible structure to implement private banking into Abbey without first researching the different real-life factors, I have chosen to conduct the research via this order of sub-questions. First of all the possible real-life factors will be analysed in order to get a clear picture of the difficulties that could arise without knowing these factors and in order to answer the question on market potential. After that by describing the successful BANIF structure, a useful business model can be derived out of which possible structure solutions will be established. With all the sub-questions answered, the total amount of information needed to be able to answer the research question, will be available.

§2.5 Research methodology and methods

In any research the used methodology is essential and critical. A research has to be of a certain standard of quality. Only reliable and relevant knowledge can be used to produce research of high quality [Leeuw de, 2001]. Therefore scientific research needs to be methodologically sound, hence reliable. Even though the following research is of a practical nature, the accountability of how the research is conducted and thought- through is essential. In the next section the research methods will be presented. In order to be able to answer the research question and the sub questions, information will be needed. This information has to be verifiable and reliable; another researcher should obtain the same results when conducting the same research. Research methodology in business requires the right combination of qualitative and quantitative research methods

. To obtain this information both qualitative and quantitative research will be used, namely the following:

- Internal documentation through desk research

Within BANIF, as well as within Santander, much knowledge is documented about their business structures and ways of working. Both Abbey and Santander have extensive documentation on Abbey itself and its proposed structural changes. This information will be used to create a detailed insight of the companies’ way of conducting their business and their individual competencies and financial position. Presentations and other information have been analysed that discuss matters concerning the companies’ business models, working methods and similar issues. To assure that verifiable, reliable and objective information is obtained, which is a prerequisite of a sound research, only those presentations and financial publications are used that are of a general and factual nature and can be verified and therefore be considered objective The information has been obtained from various internal sources. First of all by studying annual reports from the companies. These reports contain enormous amounts of information on all subjects concerning the company. This information is publicly available, verified by the Financial and Supervisory Authorities and in conformity with the Generally Accepted Accounting Principles (GAAP).

Obviously a lot of the presented information in these reports is of no interest for

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Karami, A., Rowley, J. (2006)‘Research and Knowledge Building in Management Studies: An

Analysis of Methodological Preferences’ International Journal of Management, Vol. 23 Issue 1, p43-52

this research. In order to get hold of the required information only, the focus has been on matters merely concerning Private banking. A second pool of information comes from the internal intranet. Many presentations on the companies are grouped on the intranet where more up-to-date information is available. In this case only data intended for clients and the media that has been checked and verified, is used to ensure the objectivity, reliability and verifiability.

- Interviews and questionnaires through field research

By way of extensive verbal and written interviews of stakeholders such as employees of BANIF and strategists within Santander and Abbey, much needed information has been obtained. In this way not only useful information that is not documented, has been compiled, but also real-life factors have been brought into the picture. Interviews have been used in two ways. First of all in a less structured way by means of questions asked by the researcher during the 6 months working period concerning all kinds of subjects in order to grasp the general sense of Private banking activities and understanding the implications of the business. Secondly a comprehensive and detailed questionnaire, a quantitative research method, has been drafted with the purpose of obtaining a wealth of specific information on the business set-up of BANIF, job functions of the various employees and details on preferred team set-ups in terms of portfolio management, number of Account managers and other real-life issues. This carefully designed questionnaire has been handed out to a large number of employees and officers in various positions throughout the company to ensure usability and objectivity. The questionnaire was developed with open-ended qualitative questions. Only verifiable information that conforms to the answers of peers, and can therefore be considered correct, has been used.

When applying the above mentioned research methods, extensive use has been made of quite some literature on the different subjects that will be discussed and analysed such as culture and cross selling. By way of triangulating the articles the reliability and usability of the various articles has been guaranteed. Other, more specific, practical issues like implementing private banking are hardly discussed in scientific literature.

There is however professional literature available on these subjects and that has

particularly formed the theoretical framework.

Chapter 3 Abbey and Santander

In this chapter the following subjects will be covered. First of all Abbey will be discussed and after that the acquisition of Abbey by Grupo Santander. Including the reasons and intentions of Grupo Santander with Abbey, an overview of the possibilities seen by Santander will be presented. As was presented in Chapter 1, Santander had certain changes in mind, when acquiring Abbey. This chapter will present the major alterations, as this will show the principal ideas and goals of Santander. Understanding the reasoning behind Santander’s action plan provides a sound basis for its intentions and above all why implementing Private banking in Abbey can be an extra feature in their plans. Therefore this chapter will elaborate on Abbey and Santander’s intentions.

The last years before the takeover by Santander, Abbey was in difficulties. The intention to change the building society into a bank, had failed mainly due to treasury losses and credit failures. It became necessary to change its strategy completely.

§3.1 Abbey

Abbey is one of the leading personal financial services companies in the UK. It offers a large range of personal services including savings and mortgages, loans and credit cards, bank accounts, long-term investments policies, critical illness and unemployment cover and household finance

. However historically it did not provide private banking services, as that was not part of the banking product portfolio of a typical building society.

Abbey operates not only in the UK where it has its headquarters and a large branch network throughout the whole country, but as well in Europe and the United States. It employs around 25.000 people. The company’s leading market position in the personal financial services and mortgage industry provides it with an edge over its competitors and strong brand recognition. However, the projected decline in the mortgage market in the United Kingdom threatened to negatively impact the company’s top line growth (solely income growth).

As was shortly discussed in the first chapter, Abbey National therefore re-launched its business and brand in November 2003 in order to ‘turn banking on its head’

. It changed its name from Abbey National into Abbey and proclaimed to radically shift the way it would treat customers. First by simplifying the way it presents its accounts and services so it would reflect what clients really are interested in. Apart from that it would change the way it handles complaints. Research shows that Abbey mishandled around 5.000 complaints between October 2001 and September 2003

. Such mishandlings not only exposed Abbey to scrutiny but did also lead to a decline of the customers’ trust in Abbey and affect its customer base.

As shown, Abbey operates a rather diversified business. This diversification allows the company to attract a wide range of customers and spread its risk through a range of operations, however the bank was not successful and new management was put in place in 2001 that tried to stop the decline. It started new lines of business such as corporate banking, treasury services and investment banking, thereby competing with the large

17

Datamonitor: Abbey National plc, Company Profile, July 2005

18

Internet: www.aboutabbey.com/home/ group_info/group_info-key_facts.htm

19

Datamonitor: Abbey National plc, Company Profile, July 2005

UK full service banks like Lloyds, Barclays and Royal Bank of Scotland. All of these banks much bigger and stronger. But mistakes were made, lack of professionalism of employees and losses occurred. It became clear that there was no future for Abbey as an independent institution. In that period Santander became interested as they saw interesting possibilities with the acquisition of Abbey and thought it possible to change the course of the company into a profitable bank again.

In November 2004 Abbey was formally acquired after shareholder’s approval. In 2005 Abbey announced the alignment of the corporate identity with the global identity used by Grupo Santander across 40 countries. The familiar Abbey brand name will be used with Grupo Santander’s flame symbol. One of the reasons for not wanting to change the name was the strong brand recognition that Abbey has in the United Kingdom. The new identity will make it possible for Abbey to use the corporate strength and global position of Santander to its advantage. They will also be able to gain from the expertise, experience and systems that Santander uses in order to change its business and capture a stronger position in the UK market. A more detailed description of the reasons and ideas of Santander to acquire Abbey will be shown in the next paragraph of this chapter.

§3.2 Abbey’s takeover by Santander

In the following part of this chapter the reasons and ideas of Santander to acquire Abbey will be presented and discussed.

Retail banks will have to think and act strategically when it comes to their course of action in the future, but the essential for a greater market-orientation will need to be balanced against the constraint of each bank's own internal resources and cost base [Gardener, Howcroft and Williams; 1999]

. At the same time, the immediate pressures to cut costs must be balanced with the need to encourage longer-term customer service.

It has become clear that banks should cut costs by way of excellent technology and improve quality in client service. The IT platform Santander uses, Partenon, has resulted in these required lower costs and will help make Abbey run more efficient as well.

Furthermore, the strategy to improve efficiency is becoming more and more important for banks, as increasingly banks will be subject to market tests to see whether all their operations are efficiently run. As will be shown in the paragraphs to come, Santander is one of the most efficient banks in the world. With their experience and competence they will be able to pass on this knowledge and know-how on to Abbey.

In the spring of 2004 Abbey announced that it had reached an agreement with Santander on the terms of a recommended acquisition by Santander of Abbey. Following shareholders’ approval on both Abbey’s and Santander’s Extraordinary Shareholders Meeting, the takeover was formally approved by the courts. On 12 November of that same year Santander acquired Abbey and started its integration plans.

§3.2.1 Reason for acquisition

Before officially approaching Abbey, Santander investigated the possible outcomes of a takeover in order to get a picture of the possible benefits for Santander. The process of the analysis took two months with a fully dedicated team, consisting of a Santander management team, a local consultant with extensive experience in UK retail banking and a group of brokers. The analysis was based on industry benchmarks and

20

Gardener, E., Howcroft, B., Williams, J. (1999) ‘The new retail banking revolution’, The Service