18 May 2012

Santander UK insists British savers' money is safe, but after Kent county council pulls overnight deposit account, the trust is gone


Santander UK has laid out the safety measures it has in place to prevent potential difficulties at its Spanish parent spreading to its British customers. The bank moved to reassure UK customers after Kent County Council said it would no longer use the bank for overnight deposits after the Spanish government was forced to take measures to ensure the country's banks are safe from collapse. On Friday, the government in Madrid announced all toxic loans at the country's banks will be placed in ‘bad bank’ holding companies and banks will be required to raise and set aside an extra  €30billion (£24billion) against their good mortgage loans.




Ring-fenced: Santander says that 'money raised in Britain stays in Britain'
The Spanish government also took a 45 per cent stake in Bankia, Spain’s fourth-biggest bank, as its exposure to the failing property market proved unmanageable.
That followed a downgrade of Spanish banks by ratings agency S&P at the end of last month. The banks, including Banco Santander, saw their ratings cut following a downgrade to Spain overall, but S&P made clear that Santander UK - the UK arm - was not exposed to the same risks as its parent bank and that it did not see any need to alter its rating.  
The latest funding measures impact on Banco Santander, the Spanish banks that owns 100 per cent of shares in Santander UK. The UK operation said that they posed no risk to UK accounts, and that ‘money raised in Britain stays in Britain’.
Councils were among the hardest hit by the collapse of Icelandic savings banks in 2008. They, along with many individuals, were attracted by the competitive rates on offer and placed millions on deposit with the banks. 
This money was at risk when Iceland's banks collapsed in 2008, and it was only through governmental talks that the money was repaid up to three years later.
Individual savers have greater protections than large institutions. Under the Financial Service Compensation Scheme individuals have the first £85,000 of their savings with any one bank protected.   
The refusal by Kent County Council to use Santander UK for overnight deposits - as revealed by this website on Sunday - signals the caution now being taken to avoid any risk of losses from future bank collapses.
Councillor John Simmonds, the cabinet member for finance, said the authority had been placing about £3million overnight with Santander UK, but would no longer do so.
However, the council's finance chiefs have not removed Santander UK from their list of approved banks and may continue to use it for other services. It may also remove its bar on using the bank for overnight deposits following a meeting today between the parties.
Today a Santander UK spokesman said that its ownership structure protected UK savers large and small. He said: 'Santander operates under a subsidiary model. This means that Santander UK plc is completely autonomous from its Spanish parent company. This structure acts as a firewall to prevent problems within one part of the group spreading to other units in the event of financial difficulties.  
'Santander also operates a “firewall” approach to borrowing and lending in the markets it operates in. This means that money raised in the UK stays in the UK.”'
Santander UK said that the only avenue for Banco Santander to suck cash from its UK division would be via a share dividend. Such a dividend would have to be approved by the City watchdog, the Financial Services Authority, to ensure that Santander UK continued to comply with capital adequacy rules.
Just 10 per cent of Banco Santander's operations are in Spain. Measures to raise funds, if needed, could include sales from its portfolio of assets around the world that make up the remaining 90 per cent of its business.

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