Santander could bring its UK arm to market

The rapidly-growing bank, which bought Alliance & Leicester, Abbey, and Bradford & Bingley's retail network, said it is analysing the possibility of an IPO of its UK operations but has not made a decision yet.

Santander is the final bidder for the 318 branches from RBS and is expected to submit a final offer of between 1.7bn and 1.8bn.

Yorkshire Bank owner National Australia Bank dropped out of the auction for the RBS network, which comes with the Williams & Glyn's brand name.

Santander chief executive Alfredo Senz told analysts he expects a "solution" on the RBS branches in August

The bank continued its aggressive drive into the UK by revealing pre-tax profits rose 10 per cent to 875m in the first six months of the year, compared with 2009.

Santander said it will add 600 new jobs at its branches and call centres "to support business growth" as it wins market share. The group said it was too early to say where the roles would be created, but its call centre in Bradford, where it employs about 1,200, could be a beneficiary.

"This investment demonstrates the success of our strategy, our commitment to customer service, and our ongoing support for the UK economy," said UK chief executive Antnio Horta-Osrio.

However, the bank also echoed caution around the UK economy as public sector cuts slow the recovery.

"The UK economy has made modest progress but demand for credit is subdued and we expect the market will remain challenging," it said. "House purchase volumes are higher than a year ago, but remain low relative to the past decade, and house price inflation remains stable. We therefore expect interest rates to remain low for the rest of this year."

Santander, which has more than 1,300 UK branches and 22,500 UK staff, is now second only to Lloyds in the savings market.

It opened 519,000 new accounts in the first half of 2010, taking in 4.6bn in retail deposits. Credit card sales of 239,000 were 31 per cent higher than a year ago.

Santander is also trying to grab more of the business market via its 25 corporate banking centres, including sites in Leeds and Sheffield. It increased its lending to small and medium-sized enterprises by 20 per cent to 7.5bn.

The bank also extended gross mortgage lending of 12.3bn in the UK, and writes about one in every five new mortgages.

"Our continued focus on the quality of new lending based on

affordability and robust risk management continues to serve us well," it said.

Dim outlook

Analysts are pessimistic about the outlook for the housing market after the Nationwide's July numbers showed prices dropped by 0.5 per cent, as a glut of properties is not met by demand.

Bank of England also reported that mortgage approvals weakened from already low levels in June.

Howard Archer, chief European and UK economist at IHS Global Insight, believes house prices will fall by three to five per cent in the second half of 2010, possibly followed by a five to 10 per cent fall in 2011.