Spanish banking crisis hits streets of Britain

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The Spanish banking crisis has hit the British high street, with the news that Santander has had its credit rating cut  Pics By NewslineToday    Gallery Enlarge Image

By Yakesh Tyagi
Date  18 May 2012
Millions of British bank customers were facing added worries today as Santander became the latest giant to be hit by the eurozone crisis.

The High Street chain saw its credit rating was slashed as anxious consumers in Spain withdrew £1bn -  sparking fears of a run on the country's banks.

The move sparked fears of panic withdrawals at the UK arm of the Spanish bank similar to those last seen when Northern Rock went under in 2008.

The shock downgrade compounds fears of contagion spreading from Greece and is the first time that the crisis now engulfing the ailing eurozone has been felt directly on British shores.

Furthermore, hundreds of UK institutions that have lent on the interbank market to Santander could be rocked if the Spanish lender becomes a victim of the worsening single currency disaster.

A string of local authorities, including Kent County Council and Westminster, have already moved their deposits from Santander to safer accounts.
Spain's Prime Minister Mariano Rajoy, can not afford to bail out the country's banks

Spain's Prime Minister Mariano Rajoy, can not afford to bail out the country's banks

Many more retail savers with large deposits are expected to do the same in the coming days as the bank could be exposed to billions of pounds in 'bad loans' to failed property ventures and other eurozone nations.

Millions of people across the country with Santander mortgages, loans, credit cards and overdrafts could also be affected by the chaos gripping the continent.

Anxious savers worried that they could lose their money took to Twitter.

One wrote: 'Oh my god. Concerned to see the Spanish Banks are in trouble. We got quite a bit of savings tied up in Santander! Do we move it? Advice needed.'

Another added: 'Attempts to close my Santander account must be taken to the next level.'

Santander UK was among the banks highlighted after the ratings agency yesterday took aim at its parent Banco Santander, based in Spain.

The downgrading of 16 other banks in Spain has sent shockwaves through the economy.

Stock markets across Europe opened lower today with the FTSE 100 index of leading UK shares down by 50 points at 5295 shortly after opening.

The German DAX had also plummeted by 0.8 per cent as was down 50 points 6270.8.

Spain's Madrid IBEX fell by two per cent before recovering.

Spain is in the eye of the storm of the eurozone debt crisis amid worries that its banks are overexposed to toxic property loans and the government, fighting recession and a nearly 25 per cent jobless rate, could not afford to bail them out if it needed to.

Prime Minister David Cameron today said that 'if things go wrong in the eurozone, that affects us'.

'It's a very difficult economic time we're in and what’s happening in the eurozone is truly worrying,' Mr Cameron said.

'If things go badly wrong in the eurozone that affects us. If they keep kicking the can down the road we could see the situation gets a lot worse.

'Now Britain does have some advantages, because we've got our own currency, our own central bank, because we've got a strong government, a strong deficit reduction plan, our banks are strong.

'We do have those advantages but of course if things do go badly wrong in the eurozone that affects us, that's where 40 per cent of our trade goes.


That's why yesterday as well as saying I will keep Britain safe, I was saying we've got to do more to persuade the eurozone countries to take the really decisive action to deal with the problems that they've got.'

Santander is one of the biggest players in UK retail banking, having taken over the former Abbey National, Alliance & Leicester, Bradford & Bingley and most recently the English branches of the Royal Bank of Scotland.

The buy-outs caused anger among customers with regulators being flooded with complaints about the 'poor' customer service at Santander.

The new lower A2 credit rating is certain to be a cause of anxiety to Santander UK’s millions of British customers - and could be the final issue that sees them flock from the bank.
Bank run: Former customers of Northern Rock jostle for position as they wait outside a branch in Kingston in 2007 at the height of the credit crunch

Bank run: Former customers of Northern Rock jostle for position as they wait outside a branch in Kingston in 2007 at the height of the credit crunch
Stock markets across Europe plunged again today after the downgrade of Spanish banks, with the FTSE and German DAX both down

Sell off: Stock markets across Europe plunged again today after the downgrade of Spanish banks, with the FTSE and German DAX both down

Nevertheless, they can be confident that their deposits up to £85,000 are guaranteed by the British government should there be a loss of confidence.

Although it is a wholly owned subsidiary of Madrid-based Banco-Santander, the UK offshoot is regulated by the Financial Services Authority and would have access to Bank of England emergency funds in the unlikely case that it is threatened.

Senior UK regulators noted last night that Santander UK had more share capital and a better cushion of cash than the Spanish bank and it is hermetically sealed from the problems of the Spanish banking system.

Moody’s said the 'A2' rating of Santander UK was one notch above its parent company. It also pointed out that Santander UK had 'no direct exposure to the Spanish government (or regional governments)'. It added that the FSA was 'unlikely' to allow Santander UK to weaken itself in order to support its parent.

However, a spokesman for Santander UK reassured customers that it was 'completely autonomous' from its parent firm, adding that 'money raised in the UK stays in the UK'.

Last night’s downgrades followed a hectic day on Madrid’s financial markets which saw the shares in Bankia, Spain’s fourth-largest bank, plunge by more than a quarter following reports that savers had withdrawn more than £1billion in recent days.

Its shares were temporarily suspended as investors panicked over reports of an accelerating bank run.

Deputy economic minister Fernando Jimenez Latorre was forced to deny a flight of deposits at Bankia, which was part-nationalised earlier this month.

But prominent Spanish economist Dr Pedro Schwartz said senior officials at the bank had told him savers were withdrawing ‘large deposits’.
Santander UK, with its headquarters in London (pictured here) is one of the biggest players in the UK retail banking sector

Santander UK, with its headquarters in London (pictured here) is one of the biggest players in the UK retail banking sector

He said £400million had been taken out of the bank on Tuesday, which was a public holiday, with a further £800million being withdrawn yesterday.

Yesterday, the Spanish government’s borrowing costs rose sharply again and are now dangerously close to the 7 per cent figure that is considered unsustainable.

Moody’s said it was acting because of ‘adverse operating conditions’ in the euro area and Spain in particular. It said the country was plagued by ‘renewed recession, the ongoing real estate crisis and persistent high levels of unemployment’.

The downgrade is certain to cause new tensions across the world’s financial markets when then re-open today.

The warnings came after a fourth grim day on European stock markets, with the FTSE 100 index of leading UK shares down by  67 points.

Meanwhile, there were warnings that all eurozone countries could be downgraded – and face higher borrowing costs – if Greek voters elect an anti-austerity government in fresh elections next month.

Ratings agency Fitch downgraded  debt-crippled Greece deeper into junk territory, warning it could be close to a ‘widespread default’ on both government and private-sector loans, and leaving the euro.

Bank officials have revealed withdrawals from Greek banks are running at £650million a day in the wake of this month’s inconclusive elections.

Greek president Karolos Papoulias has warned of the risk of ‘panic’ if the situation escalates.

The National Bank of Greece was forced to deny reports yesterday that it was planning to limit cashpoint withdrawals to just £40 a day.

Analyst Capital Economics warned: ‘Concerns are growing that bank runs could soon become a regular feature in other troubled countries in the region deemed at risk of following Greece’s lead.’

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