Santos on Guillen and Tschoegl, _Building a Global Bank: The Transformation of Banco Santander_

[Book Reviews in Economic and Business History]

Published by EH.NET (January 2009)

Mauro F. Guillen and Adrian Tschoegl, _Building a Global Bank: The 
Transformation of Banco Santander_.  Princeton, NJ: Princeton University 
Press, 2007.  x + 280 pp. $35 (cloth), ISBN: 978-0-691-13125-2.

Reviewed for EH.NET by Joseph M. Santos, Department of Economics, South 
Dakota State University.


In _Building a Global Bank_, Mauro F. Guillen and Adrian Tschoegl of the 
Wharton School chronicle how Banco Santander, established in 1857 and 
family-led since 1909, ascended from Spanish-provincial lender to 
tenth-largest bank in the world (as measured by 2005 tier-one capital). 
  Santander has remained primarily a commercial bank and today it is 
most active in Europe and Latin America.

The authors set out to explain how this long-lived family-led Cantabrian 
institution, shaped by a uniquely Spanish political, social, economic, 
and cultural history, expanded globally and with such success in retail 
banking -- a financial-services niche with high regional barriers to 
entry imposed by local customs.  Along the way, they showcase 
Santander’s Botín family and discuss in some detail the advantages and 
disadvantages -- for Santander, but also for banking more generally -- 
of family-led retail-bank management.

The authors proffer a sensible and well-reasoned explanation for how 
Santander achieved its global-player status, which they argue took shape 
in the 1970s thanks, in large part, to its earlier commitments to 
commercial banking.  In essence, Santander’s commercial-bank model 
shielded it from direct exposure to Spanish industry and, hence, enabled 
it to escape relatively unscathed the economic crises of the 1970s that 
eliminated or weakened severely so many of its domestic and 
international rivals.  Hence, Santander exited the 1970s with a 
tremendous competitive advantage: it retained the capabilities to 
innovate, merge, and acquire -- in effect, to hunt rather than to be 
hunted.  These capabilities proved particularly crucial in the 1980s and 
1990s, when Spain joined the European Union, the European (and, so, 
Spanish) banking sector liberalized, and Spanish banks were forced to 
compete with their larger European rivals.  (In the early 1980s, 
Santander was the smallest of Spain’s seven largest banks, the largest 
of which was ranked 100th in the world.)  Santander’s 
merger-and-acquisition wave began in Spain (where by the early 2000s 
Santander and BBVA essentially shared the domestic market with myriad 
well-established savings banks), moved to Latin America -- and, most 
importantly, Argentina, Chile, Mexico, and Brazil (where by the 1990s 
large-scale financial deregulation and shared and familiar languages 
made Santander the largest bank in the region), and then returned to 
Europe (where by 2004 Santander’s initial strategy to acquire small 
stakes in several banks evolved to allow larger acquisitions, the most 
notable of which was Abbey National Bank in the United Kingdom).

Although Santander’s growth over the last two decades has been 
exceptional, its returns on equity have not.  Nevertheless, the authors 
speculate that Santander’s acquisitions have served its shareholders 
well in the sense that shareholders’ returns would have been no greater 
had they purchased (counterfactually) the otherwise-independent banks 
that Santander ultimately acquired.  As for family-led bank management, 
the authors contend that, on balance, Santander has benefited throughout 
much of its history from the Botín’s “decisive ...top-down” leadership 
-- an outcome that demonstrates, if nothing else, that family leadership 
is not incompatible with successful bank management (p. 61).

¬_Building a Global Bank_ contributes much to the current debate among 
policymakers, academics, and bankers on the wisdom of universal banking 
and the characteristics of good governance.  In particular, it 
emphasizes the merits of both a single-focused commercial-banking 
business model and family-led governance.  Nevertheless, readers may 
wish that the authors approached the case of Banco Santander with more 
analysis and less description.  In particular, the authors somewhat 
neglect the important question of how Santander -- and, most 
importantly, the Botín leadership -- knew to focus, almost exclusively, 
on commercial banking.  To be sure, despite the success of Santander’s 
approach, the authors concede that, “[t]here is some dispute as to 
whether Santander’s small role in industry was planned” (p. 38). 
Consequently, readers are left to wonder if and how our understanding of 
Santander’s experience should shape, more generally, bank policy and 
strategy going forward.

In any case, the Santander experience is worth reading about and 
_Building a Global Bank_ offers an excellent opportunity to do so.  In 
addition to archival materials and secondary sources, the authors draw 
extensively on myriad interviews with financial-industry leaders, 
policymakers, and journalists.  In doing so, they write for a general 
audience and offer an accessible and data-rich institutional history, 
complete with a detailed (seventeen-page) chronology of the bank’s 
evolution and several citation-filled pages of endnotes.


Joseph M. Santos (joseph.santos at sdstate.edu) is a professor of economics 
at South Dakota State University where he teaches undergraduate and 
graduate courses in macroeconomics and banking.  His current research 
examines early North American futures trading and the evolution of the 
Canadian Wheat Board.

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