DealBook: Santander Earnings Slump on Weak Economy

Sergio Perez/ReutersEmilio Botín, chairman of Banco Santander.

LONDON – Banco Santander said on Thursday that first-quarter net profit fell 26 percent, hurt by continuing troubles in Spain and a slowdown in developing economies.

Santander, the largest Spanish bank, said net income fell to 1.2 billion euros ($1.6 billion) from 1.6 billion euros in the period a year earlier, missing analysts’ estimates.

As the Spanish economy continues to struggle with double-digit unemployment and major declines in its real estate market, Santander has not been immune from the domestic troubles. The bank said earnings were weighed down by anemic growth and a drop in revenue in its major markets, as well as by low interest rates worldwide that hurt profitability.

The bank’s leaders expressed optimism about the rest of the year, however, saying results would outpace those of last year, when Santander made provisions of 18.8 billion euros to cover delinquent mortgages in Spain and an increase in other troubled loans across its businesses.

“Profit in 2013 will be significantly higher than the 2.29 billion euros registered in 2012,” the bank’s chairman, Emilio Botín, said in a statement.

Santander said it had made additional provisions of almost 3 billion euros in the first quarter, a 6 percent decline from those made in the first quarter of 2012.

The bank’s shares fell 3 percent in early morning trading in Madrid on Thursday.

Santander experienced declines across its global operations. In Latin America, which now accounts for more than half of its quarterly earnings, net profit fell 18 percent, to 988 million euros, despite a slight increase in lending and customer deposits.

In Continental Europe, net income plunged 27 percent, to 307 million euros, as Santander tried to pare its exposure by reducing lending to local consumers.

Over the last several years, the bank has attempted to reduce its real estate business in Spain as mortgage delinquency rates have skyrocketed. In the first quarter, Santander said its exposure to troubled domestic real estate totaled 11.9 billion euros when adjusted for provisions.

The bank’s ratio of delinquent loans in Spain increased slightly, to 4.1 percent, though the figure for real estate exposure remains far higher: 56.3 percent. For the entire bank’s global operations, the ratio rose marginally, to 4.8 percent, compared with the end of 2012.

First-quarter net income in Santander’s British division fell 23 percent, to 224 million euros, while profit from its unit in the United States declined slightly, to 233 million euros.

Like its competitors across Europe, Santander is increasing its reserves to meet regulators’ more stringent capital requirements intended to provide a buffer against future crises.

Santander said it had now returned 31 billion euros of short-term funding offered by the European Central Bank, adding that its core Tier 1 equity ratio, a measure of a bank’s ability to weather financial shocks, had risen steadily to 10.7 percent.

Article source: http://dealbook.nytimes.com/2013/04/25/santander-earnings-slump-on-weak-economy/?partner=rss&emc=rss