(Bloomberg) -- Banco Santander SA is planning at least two significant risk transfers on American and British loan portfolios that will free up capital as it readies acquisitions in the US and UK.
The lender is working on an SRT tied to more than £1 billion ($1.33 billion) of commercial real estate loans in the UK, according to people familiar with the matter. In addition, it's designated about $2 billion of US corporate loans for a deal, said the people, who asked not to be named because the deals are private.
Banks have latched onto risk transfers in record numbers to gain regulatory relief that paved the way for new lending, acquisitions or shareholder payouts. The deals allow them to shift any first-order losses, from 5% to 15% of a loan portfolio, onto investors such as hedge funds.
Spain's largest bank is one of the market's most prolific SRT issuers — and it's also expanding its operations by snapping up rivals in the US and UK. The acquisitions will erode its capital cushion, which it's required to hold against losses. SRTs will help bring these solvency ratios back up.
Santander agreed to acquire Webster Financial Corp. for $12 billion to gain greater access to the US market. The acquisition, which is pending regulatory and shareholder approvals, would erode its common equity tier 1 ratio — a key measure of capital strength — by 140 basis points, according to a Feb. 4 presentation to fixed income investors.
The bank is also in the final stages of buying the UK's TSB from Banco Sabadell SA. The transaction, which was announced last year, would chip away about 50 basis points from its CET1 ratio.
The SRT terms, including size and timing of the potential deals, remain subject to discussions with investors. A press officer for Santander declined to comment.
Santander's UK unit recently completed an SRT tied to a portfolio of £1.5 billion of loans mostly to small and mid size corporates, according to Scope Ratings.
It plans to offload between €30 billion ($35 billion) and €35 billion of risk weighted assets annually in the period from 2026 through 2028, with one third through SRTs, according to a presentation at an investor event in February. Last year the bank was able to offload €45 billion, much of it by using SRTs.
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