With Kent county council pulling out £3m from Santander UK, questions are now being asked about whether others should worry about the Spanish-owned bank. We report this morning that Havering council has also removed Santander from its approved list – while Westminster city council took £10m out of the bank 18 months ago.
The concerns revolve around the parent company, Santander, amid nervousness about the vulnerability of the Spanish economy. One senior MP told us yesterday that the news reminded him somewhat of the early days of Northern Rock, even though the two situations are very different.
Yet the first point to make is that Havering, Westminster and Kent were all caught out by the collapse of the Icelandic banks; they were among those English councils with relatively large deposits there. Therefore they are no doubt super-cautious now, perhaps when they may not need to be.
The second is that Santander operates uses a subsidiary model, meaning that the UK operation is ringfenced with its own capital and day-to-day financing. UK regulators would have the power to block any excessive transfer of dividends, capital or liquidity back to Spain.
My colleague Patrick Jenkins, our banking editor, notes that Standard & Poor’s recently gave Santander UK a higher credit rating than its parent company: “In our view its financial prospects are linked to the UK environment in which it operates, rather than the fortunes of the wider group.”