LONDON Selling shares to small investors propped up the listings of two Spanish savings banks this month and Santander (SAN.MC) has many reasons to follow suit, with a rare retail offer when it spins off and floats its UK arm next year.
Retail buyers forked out about 2.2 billion euros ($3.1 billion) for shares in Bankia (BKIA.MC) and Banca Civica BCIV.MC, accounting for around 60 percent of each offer and saving them from flopping.
Santander's float of its UK arm, which the bank said on Wednesday was almost certain to be delayed until next year due to rocky markets and regulatory uncertainty, could raise 4 billion pounds ($6.6 billion) from selling a 25 percent stake, making it one of the highest-profile London floats in years.
With 1.8 million British shareholders among Santander group's 3.1 million, thanks to the army of investors it took when it bought former mutuals Abbey National and Alliance & Leicester, the bank is considering including a retail element.
Alex Potter, bank analyst at Berenberg Bank in London, said it could be an attractive proposition, depending on valuation.
"There are very few ways to invest in what you would call clean UK banking," Potter said, adding new business is profitable and it is legacy issues dragging on the sector.
Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) have big overseas operations while the purest UK bank, Lloyds (LLOY.L), has lost billions of pounds in Ireland and is trying to narrow a huge funding gap, and has an insurance arm.
Retail offerings, a common feature in Hong Kong, have been rare in Britain since the 1980s privatizations of BP, BT, British Airways and others by Margaret Thatcher's government, which actively targeted the man in the street, dubbed "Sid".
In addition to existing shareholders, Santander has more than 25,000 UK staff and 26 million customers to pitch to.
Once a cumbersome, costly operation, including the general public in a share sale has become simpler since the 1980s retail heyday, thanks to the internet making printing and posting hefty offer documents a thing of the past.
"Nowadays you can do the whole thing online. There are additional hoops to jump through, but provided you address the issue at the start of the timetable it is relatively straightforward," said Julian Stanier, corporate partner at lawyers Norton Rose.
A company does not need to produce a separate prospectus for the retail tranche and, although it can lengthen the timetable there can be many benefits for the initial public offering (IPO) process and the company afterwards.
Companies provide a price guidance range for their shares and institutional investors put in bids at various price levels, but retail buyers tend to commit to shares at the final price.
"It provides an alternative source of demand, with non-price sensitive orders," said Nigel Morris, director of Solid Solutions, which manages retail share offerings.
"For retail facing companies it also rewards customers and improves brand loyalty."
With many European IPOs struggling to attract investor interest in tough markets, opening an offer to retail investors exposes them to a huge pool of relatively untapped capital.
The private client wealth industry had 475 billion pounds of assets under management at the end of last year, according to research firm ComPeer. Assets held by execution-only brokers was 77 billion pounds, up from 48 billion in 2007.
With more than 1,400 branches, and the growth of stocks and shares savings accounts and self-invested pensions, there would be limited need for Santander to match the costly advertising of the past, like the "If you see Sid, tell him" campaign used in the 1986 privatization of British Gas.
"You are generally appealing to people who already have accounts with intermediaries," said Morris. "Your target audience is on the end of an email, so companies don't need to spend millions advertising in the newspapers."
And Sid is not a small spender. Retail investors in Bankia bought an average of 6,000 euros of shares, and most were not looking to get out on the first day.
"It is quite sticky money ... so to some degree it is a safer place to put stock than, say, a faster-moving hedge fund or institutional audience," said one banker.
Santander has not announced which banks will run its offer, but bankers have said that Bank of America Merrill Lynch and Credit Suisse are expected to get roles, alongside a possible four other banks, including Deutsche Bank.
Santander could tap retail investors through intermediaries, such as brokers like Hargreaves Lansdown (HRGV.L), or websites like ALL IPO.
British online grocer Ocado (OCDO.L) and fashion retailer SuperGroup (SGP.L) offered some customers an opportunity to buy in to their IPOs last year.
SuperGroup's share price has more than doubled, but Ocado's is flat and traded below the issue price for the first six months.
"If you open the offer to your customers and the deal goes well they will love you, but if the price drops below the IPO price you risk damaging part of your business in more ways than one, so it is not something you undertake lightly," said Norton Rose's Stanier.
(Editing by David Hulmes)