Santander UK hedges against euro crisis

The British unit of Santander, the largest bank in the euro zone, has hedged against the risk of a member country exiting the single-currency bloc or the demise of the currency itself.

In response to prompting by the Financial Services Authority, the British regulatory body, Santander UK has taken out coverage for possible losses on 35 billion pounds of contracts, leaving its exposure to an “event” in the euro zone to only 100 million pounds.

Other British lenders have also taken similar action. Barclays withdrew capital from its Spanish unit and sought alternative financing from the European Central Bank as a hedge against the risk of Spain exiting the euro zone.

In a report, Santander UK highlights a number of different scenarios for the so-called currency redenomination risk in the euro zone. The bank said redenomination could be accompanied by exchange rate and/or capital controls, as was the case when Argentina abandoned the parity of the peso against the dollar.

The bank said it was constantly monitoring the situation, but warned that if a member country were to exit the euro this could take shape in different ways with different legal and market consequences, which could impact the effectiveness of the contingency measures it has adopted.

It said if the prospects for the euro zone continue to deteriorate, the bank’s management would evaluate the situation and adopt measures to reduce further the risk of this deterioration to its business.

Santander UK is run by Patricia Botín, the daughter of Emilio Botín, the chairman of the Santander group. She has been touted as a possible successor to her father.