Spain's Santander (SAN.MC) consolidated its full service operation in Germany with the acquisition of the retail banking division of Sweden's SEB (SEBa.ST), the bank said on Monday.

The 555 million euros ($699 million) deal comes as the euro zone's No. 1 bank by market capitalization attempts to increase its footprint in Europe's biggest economy at a time when the retail banking sector is in a state of flux.

"Germany is a core market for Santander. This acquisition is a significant step toward achieving our goal of being a full service retail bank in Europe's largest market," Chairman Emilio Botin said in the bank's press release.

The purchase price is close to what Reuters had previously reported Santander would pay for SEB's German retail division, which made an operating loss of 117 million euros in 2009.

The acquisition includes 173 branches serving over 1 million customers in Germany.

The impact on Santander's financial position is relatively small with the bank saying its core capital ratio could fall by ten basis points from the acquisition.

"Strategically, this move makes sense at it doubles Santander's exposure to the German economy, the growth engine of the euro zone," said BPI in an investors note.

NEGATIVE IMPACT

SEB will book a net loss of 240 million euros in 2010 results with an overall negative impact of 320 million euros, the Swedish group said.

At 1105 GMT, Santander was trading down 1.2 percent at 9.8 euros per share while SEB shares were off 1.0 percent at 45.4 euros/share.

Separately, the Spanish bank is looking to increase its presence in Colombia and Peru, where it has market shares of between 10 and 20 percent, said Francisco Luzon, head of Santander's Latin American operations, the Financial Times reported.

"Santander's comfortable capital position and aggressive non-organic growth profile leads us to believe that further acquisition scenarios should not be ruled out and Latin America is, in our opinion, the ideal background for these expansion moves," BPI said.

Santander, which largely managed to dodge the fallout of the U.S. toxic debt crisis due to strict Bank of Spain rules on the kind of financial derivatives Spanish banks can hold, has continued its aggressive acquisition campaign in recent years.

The bank has bid for a network of 318 UK branches being sold by Royal Bank of Scotland (RBS.L) and has had conversations on merging its U.S. operations with M&T (MTB.N), a company official said recently.

Santander also announced Jun 24 plans to acquire $3.2 billion of CitiFinancial Auto's auto loan portfolio and offered around $56 million for part of the capital it does not already own in Puerto Rico Santander Bancorp.