The Spanish owner of Santander is said to be contemplating the separation of its troubled motor finance division from its other UK operations in a corporate restructuring effort aimed at enhancing the bank’s appeal to prospective buyers.
Banco Santander has been assessing the future of its UK operations in recent months, in light of increasing frustrations regarding regulations and expenses. The implications of the escalating car finance commission scandal are significant, with analysts at RBC Capital estimating that the bank may face compensation costs of up to £1.9bn for its previous borrowers.
According to Bloomberg, citing unnamed sources, the potential reorganisation would entail relocating the consumer finance division, which includes its car loan business, away from the Santander UK business. The anticipated division would necessitate authorization from financial regulators. The bank’s spokesperson chose not to provide a comment.
Separating the car finance business, located in Redhill, Surrey, may enhance the appeal of the UK bank to prospective buyers. In January, it was revealed that Santander UK might be put on the market, although City executives have privately indicated that locating a buyer would be challenging until the ultimate expenses related to the motor finance commission scandal are determined.
A decision from the supreme court is expected later this year. Should the court decide in favor of consumers, car loan providers such as Santander may be confronted with a total liability reaching as high as £30bn, as reported by the rating agency Moody’s.
Santander UK allocated £295m to address possible payouts to car loan customers in November, following a delay in the release of its financial results as it evaluated the implications of a court of appeal ruling regarding the car finance scandal.
The judgment issued in October significantly broadened the Financial Conduct Authority’s investigation into motor finance commissions and caused compensation estimates to rise dramatically. The significant ruling established that it was illegal to pay a “secret” commission to car dealers who facilitated loans without revealing the amount and conditions of that commission to borrowers.
The multinational lender experienced a decline in annual pre-tax profits, with the UK being the sole region to face a downturn in earnings in 2024, aside from Santander’s South American division, which includes Peru, Uruguay, and Colombia. The potential impact of a corporate overhaul in the UK on job cuts remains uncertain.
The bank, with 18,000 employees in the UK and headquartered in Milton Keynes, announced in October that it would be reducing its workforce by 1,400 positions across its UK operations as part of its cost-cutting measures. In February, it announced that it was exploring ways in which additional “simplification and automation” of the business could “contribute to cost efficiencies in 2025”.
