Santander warns over U.K. changes

Proposed U.K. bank reforms could result in a smaller presence in the U.K. for Banco Santander SA, Santander UK chief executive Ana Botín warned U.K. lawmakers in a letter published Thursday, as she and other U.K. bank bosses said they expect the new rules to cost far more than their creators' estimates.

Ms. Botín, in a letter to the House of Lords Economic Affairs Committee, said Banco Santander remains committed to the U.K. but that "increasing potential costs could in the future affect investment decisions and therefore the size of our U.K. business within the group."

She and other heads of the U.K.'s biggest banks have already acknowledged that the reforms are unavoidable after the Independent Commission on Banking's findings won support from the government. But they are continuing to lobby for adjustments that would make them less expensive and easier to put in place.

The House of Lords released letters from bank executives who testified last month on the overhauls, but didn't make its own recommendations on the ICB proposals, citing time constraints.

Ms. Botín estimated the annual costs of the regulatory overhauls, which have received initial endorsement from the government and are due to be written into law next year, could be closer to £10bn ($15.6bn) for the U.K. banking sector, rather than the £4bn to £7bn estimated by the ICB.

Spain's Santander has become a major challenger to rivals Barclays PLC, Royal Bank of Scotland Group, Lloyds Banking Group PLC and HSBC Holdings PLC since entering the country with its purchase of Abbey National in 2004.

In a separate letter to the committee, HSBC Chairman Douglas Flint said he also thinks the costs will be higher than those estimates, mainly because of a sharp rise in funding costs. Just raising the additional debt required under the rules could cost HSBC $2.8bn before tax, he said.

The ICB in September called for banks to hold as much as 20% capital against their assets—far more than most international peers—and to segregate, or "ring-fence," their retail arms from other activities. The aim is to make the banking system safer, encourage competition and reduce the odds of any fresh taxpayer bailouts of the sector.

Chancellor of the Exchequer George Osborne has endorsed key elements of the ICB report and said the government will issue a written response to the commission's recommendations by the end of the year. The Liberal Democrat-Conservative coalition government has pledged to put the overhauls into law during the current parliament, which runs through 2015, though full implementation might not come until later. Lawmakers will be asked to debate the reforms next year.

A separate House of Commons Treasury Committee that has also been taking evidence hasn't weighed in yet with its final verdict on the overhauls. In July it said some of the measures look like a "leap in the dark" and hadn't been adequately assessed.

Among other bankers, RBS CEO Stephen Hester told the House of Lords in his letter that his bank's estimates are above those of the ICB's, and that implementation costs for RBS alone could be up to £1bn, plus hundreds of millions of pounds in continuing operational costs.

In his letter responding to the House of Lords' question on how much he expected the rules to cost, Lloyds Chairman Win Bischoff declined to give a "rival" estimate to the ICB's figure, but said the bank does expect the benefits to the wider economy will outweigh their costs "if implemented well."

Barclays chief Robert Diamond said the ICB's £4bn to £7bn figure appears to be a "reasonable estimate" but that the bank isn't able to accurately assess the costs until the final shape of the rules becomes clearer.

(Published by WSJ - December 2, 2011)

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