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Santander is plotting to ditch its scandal-hit motor finance unit in a shake-up which could pave the way for the bank to exit the UK entirely.
The Spanish lender is seeking approval to separate its British car finance division – which is subject to a wave of possible litigation linked to the ongoing car loan mis-selling case – from the rest of its UK banking business.
Santander, along with other lenders, has already set aside millions to cover possible compensation costs after a landmark court ruling said “secret” commissions paid to car salesmen by drivers were unlawful.
Separating the scandal-hit unit from the rest of the UK bank could make it more attractive to potential buyers, City analysts say.
Santander has been exploring plans to exit Britain because of frustrations around the regulatory regime alongside concerns about the car finance case.
Benjamin Toms, of RBC Capital Markets, said: “Shifting of the consumer finance business out of the UK subsidiary could be an important step in this sale process.
“Given the ongoing litigation in the motor finance space, removing this product from the equation, will likely help with the marketability of the Santander UK asset.”
Gary Greenwood, of Shore Capital, added: “It’s difficult to find buyers when you’ve got an unquantifiable liability. It’s unlikely that a buyer would take on that sort of risk.”
The UK bank’s heavy exposure to the mortgage market placed pressure on the British division’s profitability, which created “frustration” in the upper ranks of the Spanish lender’s management, Mr Toms said.
Santander’s plans come as the UK’s Supreme Court gets ready to decide whether lenders should be made liable to pay compensation to drivers.
The total bill for the payout is an estimated £38bn, which would be paid by dozens of banks and specialist lenders.
Rachel Reeves, the Chancellor, was previously blocked from intervening in the case amid concerns about the wider impacts of any ruling on Britain’s economy.
In its application to intervene, the Treasury warned in February that a ruling in favour of drivers could “adversely affect the United Kingdom’s reputation as a place to do business, with a consequent impact upon economic growth.”
Lenders including Close Brothers and Lloyds Banking Group have made more than £1bn in provisions to cover the costs of paying compensation to customers who say they were mis-sold loans.
Santander declined to comment.