Palace Revolt in Eurozone’s Largest Bank

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

Don Emilio Botín, for decades the undisputed Capo of Spanish banking, is dead. By contrast, the bank he leaves behind him, Grupo Santander, is both alive and kicking – at least to all outward appearances. It is now the largest bank by market capitalization in the Eurozone as well as one of the thirteen leading banks in the world – no mean feat given that when Botín III took the reins of the family business from his father, Santander was merely a midsized domestic bank with just a tiny smattering of overseas operations.

Now its operations quite literally span the Western hemisphere, with the mother country accounting for just 7% of the group’s profits. Brazil’s stuttering economy is its biggest source of lucre, last year bringing in roughly 23% of the Group’s total profits, with the U.S. and Mexico accounting for 10% each. In Europe, its biggest market is the UK (17% of profits), though the bank has interests throughout the continent, most notably in Germany (6%) and Poland (6%).

However, it is the New World, not the Old World, on which Santander now has its sights firmly set. Last year, Latin American markets represented 51% of the group’s total operating revenues. Despite its recent slowdown, the region remains Santander’s main strategic target for business growth. According to the Group’s own website, it has carved out leadership positions in the continent’s “most dynamic and solid economies” – economies such as Brazil, Mexico, Chile, Uruguay, Peru, Puerto Rico and that hyper-dynamic, super-stable economy called Argentina.

Naturally, with so many of its eggs in just one basket – and one that is fast losing its allure – one can’t help but wonder what might happen should things, god forbid, go south, south of the Rio Grande. Just as importantly, now that the King of Debt is dead, who’ll be on hand to steady the ship should the South Atlantic Seas get a little choppy?

Keeping the Business in the Family

For now the answer to that question is Ana Botín, Emilio’s fifty-three-year-old daughter who was named successor less than 24 hours after her father’s passing. In many ways her appointment was the obvious choice. What better way to ensure a smooth transition than to keep the business in the family? After all, Santander Bank has already been run by three generations of Botíns; why not a fourth? The fact that Ana Botín is a woman and that women are ludicrously underrepresented in Spanish C-suites was merely an added bonus.

The problem, however, is that not everyone’s on board. In fact, there are already early murmurings of mutiny on the Santander ship. The first shot across the bow was fired yesterday by the Anglo-Saxon financial elite’s favourite weapon of choice, the Pearson Group-owned Financial Times, which raised serious questions about both the transparency of the succession process as well as the wisdom of choosing yet another Botín to lead the bank through the coming storms.

Although the article praises both the preparation and talent of the Santander heiress, in particular the “valuable” experience she gained working for JP Morgan, Coca-Cola and Santander itself, it does raise serious questions about her four-year spell as the chief of Santander’s British division in the ’90s, during which “profits fell considerably.” It also criticized the selection process, remarking that the process should at the very least be “minimally transparent and competitive,” especially in light of the fact that Santander is Europe’s biggest financial entity.

The Real Owners

Botin’s appointment is viewed as controversial by a number of major shareholders who contest the family’s continued management of the bank despite the fact that it owns only 0.7% of its shares – a remarkable statistic considering Don Emilio was always portrayed in the Spanish press as a man in complete control of the institution he headed. In reality, he was little more than a front man – granted, a very gifted one with an enviable knack at courting government and skirting scandal – but a front man all the same.

The real owners of Santander are a handful of very powerful institutional investors. They include State Street Bank and Trust (with 9.3% of Santander holdings at the last count), Chase Nominees Ltd (7.05%), the Bank of New York Mellon (3.49%), EC Nominees Ltd (4.57%) and Clearstream Banking (3.49%). With the exception of Clearstream Banking, the obscure scandal-tainted clearing and settlement division of Deutsche Borse, these institutions share one defining characteristic in common: they are all headquartered in the U.S.

And at least some of them, it seems, are growing just a little weary of the Botín dynasty. The recent implosion of Portugal’s Banco Espirito Santo bank, whose founding family’s holdings are being investigated for financial irregularities, has hardly helped matters. Neither has Santander’s post-crisis performance. Even during Don Emilio’s latter years, a large number of investors began expressing displeasure at the way the bank was being managed. In 2011 almost 25% of the bank’s shareholders opposed the re-election of Botín as president – a number that would have been unimaginable five years before.

The Limits of Growth

How long Ana Botín holds onto the job her father bequeathed her, only time will tell. What is clear is that Santander has some seriously rocky months and years ahead. Despite a recent recovery, its share price has tumbled over a third since its 2009 peak. What’s more, Don Emilio’s aggressive international strategy of acquisitions has begun to splutter. Its primary market, Latin America, is slowing dramatically, including two of its largest national markets, Argentina and Brazil, the latter of which faces the very real prospect of another sovereign default.

It’s not just in Latin America where economic slowdown could take its toll on Santander’s balance sheets. As Fortune magazine reports, the bank is also rushing into China at a time when international rivals are selling out on fears of an economic downturn and a possible banking crisis:

Santander’s main Spanish rival, BBVA, recently trimmed its stake in China’s CITIC Bank Corp. Goldman GS -1.98% exited its stake in International and Commercial Bank of China (ICBC) in 2013 as well…

China’s economic growth is slowing. And a number of strategists and prominent investors have warned that its economy may be over-leveraged.

Meanwhile, closer to home, sinking real estate prices, lingering bad debt and weak credit continue to plague the Spanish banking sector. It’s worth recalling that Santander, despite its apparent immunity to the problems that doomed Spain’s savings banks, was the biggest recipient of the LTRO, the no-strings-attached life-line the European Central Bank kindly offered to credit-starved European banks in 2011-2012.

That money was used primarily to stock up on high-yielding national debt, with the result that two-and-a-half years later, Santander, like most Spanish banks, is filled to the gills with deceptively high-priced but ultimately shaky Spanish sovereign debt. As such, wherever Spain goes (and for the moment, it’s going nowhere slowly), so goes Santander. Naturally, the opposite also applies: wherever too-big-to-fail, bail out, or jail Santander goes, so too goes Spain. By Don Quijones. An exclusive for Wolf Street.

The new EU banking regulations? Expect further debt crises, bank collapses, bailouts, and bail-ins. Read…   EU Caves to Powerful, Scandal-Infested Finance Paradise, the City Of London

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  7 comments for “Palace Revolt in Eurozone’s Largest Bank

  1. Crocodile Chuck says:

    Rookie error.

    The ‘shareholders’ the author identifies are nominee companies. These are custodians of investors, not the actual investors themselves.

    • Don Quijones says:

      Crocodile Chuck,

      Thanks for bringing this issue to light — it wasn’t, as you subtly insinuate, an error on my part — just a case of mere oversight. The main point of the article was to highlight the fact that a bank that is always discussed in Spain as both a majority-owned Spanish bank as well as a bank belonging primarily to the Botín family is in actual fact neither. Now, while it’s true that the main shareholders of Santander outlined in the article are custodian banks — companies who hold the assets of asset managers to ensure timely processing of things like foreign dividend and bond interest, name changes (due to mergers, etc.), foreign currency conversion and the like — that does not, in my view, take away from the main thrust of the article.

      On a side note, don’t you think that the question of bank ownership is one worthy of serious consideration? After all, largely thanks to the role played by custodian banks in muddying the waters of share ownership, we have next to no idea which individuals, families and entities really own the world’s biggest banks. Given that the too-big-to-fail banks now effectively control — and as has been definitively proven in recent years, manipulate — key strategic markets, own large holdings of shares in many bluechip companies, can create money out of thin air and have our political representatives by the balls, perhaps it’s about time we began asking the question: who actually owns the banks?

      After all, it’s ownership — and ownership alone — that grants real control over resources.

      Granted, custodian banks do not own the assets, or even really control the assets — they merely house the assets. But that does not mean thay they are not, in and of themselves, immensely powerful and strategically vital financial entities. They include BNY Mellon, JP Mogran Chase, State Street, Citi, BNP Parabas and HSBC — hardly what you’d describe as minnows.

      Indeed, according to a study from Australia’s University of South Wales, not only are the world’s biggest custodian banks too-big-to-fail (i.e. are identified by the US Financial Stability Board as global systemically important banks or G-SIBs), they are getting bigger and more concentrated.
      (read the summary of the study’s findings here:

      In Europe one of the biggest custodian banks is Clearstream, which has been heavily criticized for allowing banks to move money undetected and has been accused of involvements in a number of cases involving money laundering, tax evasion and political extortion. As Denis Robert wrote in his book on Clearstream’s myriad corruption scandals:

      “The chaos of financial flux is only an appearance. Of course, offshore banks and tax havens perfectly hide the points of arrival and of transit of dirty capital. It is even their reason of existence (raison d’être). Trying to find the illegal money flux in those offshore centers is hopelessly doomed… However, since capital from criminal origin pass in the same financial ‘pipes’ as other ones [legal funds], i.e. clearing and financial routage companies, they become vulnerable precisely during their transfer [in those clearing companies].”

  2. Alligator Bob says:

    Don Quijones,

    Your articles are always interesting and provocative.

    However, in this case, you clearly made a mistake. Why don’t you just admit that Crocodile Chuck is right? You wrote “The real owners of Santander are a handful of very powerful institutional investors”, a statement that is just flat out wrong, since those “real owners” are just custodian banks.

    Although you claim this mistake was just a “mere oversight”, if you read the sentence again you will realize that it was not an oversight, but a failure to understand the fact that the banks listed are custodial banks: “the real owners…are a handful of very powerful institutions…”.

    All you have to say is “mea culpa” and be done with it. Your long defense of your mistake just weakens your credibility.


    Alligator Bob

    • Don Quijones says:

      Dear Alligator Bob and Crocodile Chuck,

      You’re both completely right.

      Mea Culpa!

      I messed up twice — first in not checking thoroughly enough the information on Santander’s shareholders, and second in not admitting my error first time around, for which I apologise directly to you, Croc Chuck.

      Both were, as you put it, rookie errors.

      I hope that this episode will serve as an important learning experience for me. For starters, I am now far more aware of what a custodian bank is (for which I thank you). I also know, however, that in the future I will make more mistakes, but at the very least I will try to ‘fess up as soon as someone flags them up.

      Anyway, thanks to the both of you for bringing this important issue to light. And once again, my sincerest apologies for not coming clean straight away.


      • Wolf Richter says:

        Well said, Don Quijones. We all make mistakes. But it’s important to admit to them and learn from them. That’s how we get better at what we do.

      • Crocodile Chuck says:


        Always interested in your posts on Spain. Keep up the good work.

  3. Alligator Bob says:


    Appreciate your honesty. As I said before, I enjoy reading your stuff. We can’t all be experts on everything.

    Keep up the stimulating work!


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