Santander Plotting Exit Route as Car Loan Scandal Deepens

A potential shake-up at Santander could mark the beginning of the end for its UK operations, as the Spanish banking giant takes steps to hive off its troubled car finance business.

The proposed split comes in the wake of mounting legal and regulatory pressure surrounding mis-sold motor finance loans—an issue that’s rocked the industry and put billions in compensation on the line. Santander’s move, though not confirmed officially, is being viewed as a calculated manoeuvre that could lead to a full retreat from the British market.

'S' Is for Separation — and Possibly ‘Sale’

At the heart of the issue is Santander’s car finance division, based in Redhill, Surrey. It’s been dragged into the spotlight after a landmark court ruling last October found that “secret” commissions paid by car dealers—acting as loan brokers—were unlawful.

These hidden payments, which were not disclosed to consumers at the time of sale, have opened the floodgates for claims. Santander, among others, now faces the prospect of massive payouts. Analysts put the potential compensation bill at up to £1.9 billion, while broader industry estimates suggest a hit as high as £38 billion if the Supreme Court rules against lenders later this year.

In response, Santander has already earmarked £295 million in provisions. The bank also delayed publishing its results in November, citing the fallout from the court ruling.

Now, the separation of its car finance arm could be an attempt to ringfence liabilities and sanitise the core UK banking unit—making it more palatable for a potential buyer.

Strategic Realignment or Silent Goodbye?

While Santander Group’s Executive Chair, Ana Botín, said in February that the bank wasn’t for sale, the restructuring plan tells a different story.

“If you’ve got an unquantifiable liability, it’s hard to sell,” said Gary Greenwood, an analyst at Shore Capital. “Buyers don’t want that risk.”

Benjamin Toms of RBC Capital Markets added that carving out the car loans business “will likely help with the marketability of the Santander UK asset.” The message is clear: separating the toxic from the clean may be a step toward closing the books on Santander’s UK chapter.

And that chapter has already started to shrink. Santander confirmed in October it was slashing 1,400 jobs as part of a drive to cut costs. Further “simplification and automation” efforts are underway, with more streamlining likely in 2025.

Banking Sector Bracing for Impact

The fallout from the car finance scandal is rippling across the sector. The Financial Conduct Authority (FCA) has taken the unusual step of intervening in the Supreme Court case, and if the ruling goes against lenders, it may introduce a redress scheme. This would standardise compensation payouts—saving consumers the headache of lodging individual complaints and potentially weakening the role of claims management firms.

Such a scheme could prove disastrous for smaller lenders and even challenge larger players. For Santander, pulling out before the full weight of liability hits might be the cleanest exit.

As the Supreme Court prepares to make its decision, all eyes are on Santander. Whether this separation is merely a surgical correction or the prelude to a full-blown exit remains to be seen.

But one thing’s clear—Britain’s banking landscape is on the cusp of major change, and Santander’s next move could set the tone for what follows.