Santander shares: what the rights issue means for investors

If you own shares in Santander you could be in for a windfall, but you may find your existing holding is worth less. Here’s everything you need to know.

What is the Santander rights issue?

Santander has recently bought struggling Spanish bank Banco Popular in a €1 deal to stop the latter going bust.

Santander has now announced a €7 billion (£6.18bn) rights issue to raise money to sort out Banco Popular’s finances.

#BancoSantander launches €7,072 million rights issue to support the acquisition of Banco Popular. Press Release at https://t.co/EkU4z4v4RQ pic.twitter.com/7DLkDb5zDn

— Banco Santander (@bancosantander) July 4, 2017

I’m a shareholder. What does this mean for me?

In a typical rights issue, shareholders are given the opportunity to buy extra shares at a discounted price.

The size of your shareholding decides how many discounted shares you can buy.

Shareholders would normally be given three options: they can buy discounted shares, do nothing or sell their right to buy discounted shares for cash.

However, in this situation Santander has organised an automatic sale of the rights of its UK shareholders.

British shareholders don’t hold Santander shares directly, instead they are invested via CREST Deposit Interests (CDIS).

This is because Santander is traded on a stock exchange outside of the UK – Santander is listed in Madrid.

The bank has said it is automatically selling UK shareholders rights due to the tight 15-day timetable for rights issues in Spain, combined with the massive number of UK shareholders – 1.4 million Brits hold shares largely due to the demutualisation of Alliance & Leicester and Abbey National which were bought by Santander.

To put it simply Santander says there isn’t enough time to give millions of Brits time to consider their options and make a decision and has made the decision on their behalf.

These shareholders will now receive a cash windfall – whether they wanted this option or not.

If you're among them, you should receive an information pack from Santander that will explain things in more detail, but basically your right to buy discounted shares in the fundraising has been automatically sold for cash and you will receive that money.

You don’t need to do anything except make sure Santander has your up to date contact details.

How will I be paid my windfall?

The rights will be sold in euros then all UK shareholders will receive the average price per right sold. The amount you are owed will be converted into sterling and paid via a cheque sent to your registered address.

As you have had no choice in the rights issue Santander will be covering the fees, including brokerage costs and currency conversion.

If you want to invest the money you receive back into Santander then dates will be issued in August and September when you can buy CDIs without paying broker’s fees.

Details of the dates will be included with the cheque.

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What will happen to my shares as a result of the rights issue?

You will still own the same number of CDIs in Santander, but the value of them will have been diluted thanks to the issuance of the discounted shares.

At the moment it is impossible to predict how the fundraising will affect Santander’s share price.

The bank itself has estimated that, if 100% of the new shares issued are bought, existing investors will see their holding diluted by up to 9.1%.

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Do I have to give the taxman a cut?

Usually, but in this particular instance possibly not.

Let us explain: the money you make from the sale of the rights is viewed as a capital gain by the Spanish tax authorities.

Whenever you sell or gift Santander CDIs you are obliged to report the gain to the Spanish taxman.

However, whether the Spanish revenue office wants to have 1.4 million Brits reporting small gains is still unknown.

Time will tell, but do note that if you fail to report the gain and the Spanish taxman comes calling, you could have to pay a €100 fine.

To report the gain you need to fill out Form 210 and send it to the Spanish tax authorities in Madrid. But, you may be able to claim exemption from the tax due to a double tax treaty between the UK and Spain.

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