Santander is rethinking its business in Britain two decades after its acquisition of Abbey National made it a major player on the British high street, people familiar with the matter said.
The bank is exploring a number of strategic options, one of which is to exit the UK market, people familiar with the matter said. No deals or announcements are imminent and the review is at an early stage, they added.
The process comes as the Spanish bank faces lower returns from its UK business relative to other markets and risks a UK court ruling over possible mis-selling of car loans. In November it set aside £295m to cover the potential costs of the ruling.
Santander UK, which covers its retail and business banking operations in the UK, has caused discontent within the wider group in recent years, a former executive said.
They added that this was due to its persistently higher cost base, the UK's ring-fenced regime, independent boards and the fact that the UK had not benefited from rising interest rates in recent years to the same extent as other markets such as Spain.
The former executive said it was "always possible" that Santander executive chairman Anna Botin would decide to sell the beleaguered bank as a result of the setbacks. It was unclear who was interested in buying the unit, two people familiar with the matter said.
Santander may still decide to keep the business.
Santander entered the UK retail banking market in 2004 by acquiring former building society Abbey National and emerged from the financial crisis to become one of the UK's largest banks by merging Abbey with Alliance & Leicester and part of Bradford & Bingley. In 2010, the combined entity was renamed Santander UK.
At the time, Santander's entry into the UK was seen as a huge foreign investment in the country. The sale could be seen as a sign of declining confidence in Britain as the Labor government struggles to revive Britain's flagging economy.
The Abbey deal helped transform Santander from a family-run regional mortgage lender into a multinational giant. Botin, whose family has controlled Santander since the early 20th century, ran the British business from 2010 until her father's death in 2014, when she was promoted to group chairman.
Some investors in the Spanish group question Santander's logic in maintaining a presence in the different markets in which it operates. Santander's shares have fallen about 30% since Botin became chairman.
The bank has already cut headcount in the UK, announcing in October plans to cut 1,400 jobs in the UK as part of a cost-cutting program dubbed "Project Nike". The company employs around 21,000 people in the UK and has 14 million customers.
The bank is considering exiting the UK, in part because it wants to focus on larger growth regions such as the United States, people familiar with the matter said.
Recently it has aggressively expanded its corporate and investment banking operations, hiring heavily from former Credit Suisse bankers.
Even if Santander does decide to exit retail and business banking in the UK, people familiar with the matter said the bank would continue its corporate and investment banking operations and retain a London outpost for the business.
Santander UK reported pre-tax profit of 947 million pounds in the first nine months of 2024, down from 1.73 billion pounds in the same period last year as net interest income fell and it set aside provisions for car finance rulings. As of the end of September, its total assets were £275 billion.
"The UK is a core market for Santander and this has not changed," Santander said.
Additional reporting by Barney Jopson in London