EMILIO BOTIN, chairman of Banco Santander Central Hispano, has built a reputation as the wiliest of dealmakers after a string of audacious takeovers.

In his quest to turn a domestic minnow into Europe’s second-biggest bank, he has had doubters at every turn. Invariably, he has proved them wrong.

So few were surprised last week when he swooped on Alliance & Leicester with a £1.3 billion, all-share offer that the ailing high-street bank couldn’t refuse.

Less steely rivals might have thought twice about making such a bold move at a time when their home market is crumbling. The week in which BotÍn launched his latest assault on British high-street banking was one of the most traumatic in decades for the Spanish economy. Martinsa-Fadesa, one of the country’s largest property developers, collapsed into administration, the biggest victim so far of the crisis in Spain’s housing market.

Pedro Solbes, the finance minister, admitted: “This is the most complex crisis we’ve ever seen, due to the number of factors at play.”

To round off the week, the chief executive of Renta Corporación Real Estate, another quoted property group, resigned after revealing the group’s first loss, capping a downward spiral in which its shares have lost nearly 90% of their value.

The signs for Spain, long seen as Europe’s economic miracle, are dire.

Known for 15 years as the most prolific producer of new jobs in the European Union, its labour market began to shrink in February. Inflation is soaring, and Spanish consumers have stopped consuming; there was a near one-third drop in car sales in May. Jose Carlos Diez, chief economist at Intermoney, said: “All the economists thought there would be a deceleration, but not at this velocity. It has been tremendous.”

Housing is the most worrying factor. Since 1986, the year Spain joined the EU, Spanish construction groups have built 8m new homes. In the same period, the UK has added only 2.8m. The blizzard of bricklaying has far overshot the demand from British pensioners and other immigrants. Nearly 1m flats and houses now stand empty, and prices are plummeting.

The credit risk consultancy Crédito y Caución reported that bankruptcies of property developers have more than doubled in the past 12 months.

That is bad news for banks, which face abreakdown oftherelationshipwith construction companies that has been the key to their growth. Building groups created the demand for mortgages with a torrent of new homes, while the banks funded the buying spree, as well as the building programmes of the construction companies. No longer.

Domestically focused banks are particularly vulnerable. Banco Popular, the biggest bank creditor of Martinsa, saw its shares plunge last week as the company went down. Goldman Sachs has slapped a “sell” recommendation on the bank, as well as Banco Sabadell and Bankinter.

BBVA, the country’s other home-grown international bank, has fared better, though there are concerns about its health because it has significant exposure to America as well as Mexico, which is heavily influenced by the health of its northern neighbour. Carlos Digrandi, banking analyst at HSBC said BBVA’s exposure in Mexico made it “by far the most vulnerable to the effects of a US slowdown”.

Santander has escaped fairly unscathed, partly because it has no appreciable investment-banking business. It has also steadily reduced its reliance on its home country. Less than a third of profits come from within Spain. Muchoftherestcomesfrom Latin America, where economies are still growing strongly. Brazil, for example, is expected to account for nearly half of Santander’s Latin American income. Through bold and canny dealmaking there, BotÍn has turned his bank into the third-biggest player in one of the world’s fastest-growing economies.

Santander has also benefited from the Bank of Spain’s much more conservative approach to capital levels than anything imposed by Britain’s Financial Services Authority. That prudence has served its charges well. “Santander has €6 billion (£4.7 billion) set aside for delinquencies that haven’t even happened yet,” said Arturo de Frias, an analyst at Dresdner Kleinwort.

Taken with its ownership of Abbey, the addition of Alliance & Leceister should allow Santander to take big chunks of the mortgage market away from the likes of HBOS and Barclays, which are still nursing their credit- crunch wounds.

“Both through luck and risk management, these guys will be the winners in the mortgage market,” said De Frias. “They will be the new kids on the block.”

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