Is this a good buy or a trap for the greedy?
The details of the security (7.037% Step-up Callable Perpetual Reserve Capital Instruments) are given here. It is a Tier 1 security, meaning that ranks below Tier 2 and senior debt, although above ordinary shareholders. The coupon is payable up to 2026, when a new coupon rate will be set, based on prevailing gilt (UK government bond) rates plus 3.75%. The principal is also redeemable thereafter - but only at the option of the issuer. Any deferred payment will benefit from a 2% interest rate.
Perpetual bonds are a bit unusual - there is no maturity date, so it is very much a 'buy and hold' purchase. The fixed coupon and lack of redemption mean that this security is particularly sensitive to general interest rates (which are low) and inflation expectations (which are high-ish and uncertain).
The reason for the fall in price and the wide spread are almost certainly related to the turmoil in the Euro area and Spain's generally poor financial situation. If Spain goes belly-up, so will Santander and - the suspicion is - so will Santander UK.
So, a bit of a gamble - but as part of a diversified corporate bond portfolio, it should be OK.
[Blog reader Nandan has identified as an alternative LSE:SAN: Santander UK PLC 10 3/8% Non-cumulative Sterling Preference Shares, which are currently yielding over 10% (quoted yields usually are net of the UK 10% 'notional tax credit' on shares). However, some would argue that preference shares are more risky than corporate bonds.]
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.