Spanish bank to buy U.S. thrift

Banco Santander of Spain said Monday that it would buy the rest of Sovereign Bancorp Inc. that it didn’t already own for $1.9 billion, extending a wave of consolidation as the banking industry struggles to deal with a load of soured debt related to mortgages.

The Spanish bank already has a nearly 25% stake in Sovereign, a Philadelphia-based thrift, and will buy the rest with stock valued at about $3.81 for each share of Sovereign, a premium of 3.5% to Sovereign’s closing price Monday.

Like many U.S. banks, Sovereign Bancorp has been pummeled by rising mortgage delinquencies as the housing market tumbles. Its stock has lost nearly two-thirds of its value in the year to date.

The spreading credit crisis has resulted in consolidation among national banks including Wachovia Corp., which is being bought by Wells Fargo & Co., and analysts say they’ve been expecting mid-size regional banks to be next.

The driving force behind the consolidation of regional banks is a lack of capital, said Doug Landy, a partner in the U.S. banking practice of law firm Allen & Overy. Large banks and very small banks have a much easier time raising capital than regional banks because big banks can tap into the international markets for cash and small banks have a local connection.

Ralph Whitworth, a member of Sovereign’s board of directors and chairman of its capital and finance committee, said in a statement that the company made the choice because of the “unprecedented uncertainty” in the marketplace.

Banks and other companies in the financial industries are losing money on bad mortgage bets and products that repackaged those debts as homeowners struggle to keep up with their payments.

Later Monday, after the deal was announced, Sovereign showed just how much it was being affected by the bad bets as it pre-announced its third-quarter earnings.

The company said it posted a loss of $982 million, or $1.48 a share, in the period that ended Sept. 30. That compares with net income of $58.2 million, or 11 cents a share, in the same period last year.

Shares of Sovereign fell 13 cents, or 3.5%, to close Monday at $3.68 before the deal was announced.

U.S.-traded shares of Banco Santander jumped $1.47, or 11.3%, to $14.50.