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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

I.M.F. Says Euro Zone Remains Vulnerable

In its first official assessment of the European Union financial system, the I.M.F. urged political leaders to show resolve in addressing the remaining weaknesses in the structure of the euro zone. Unfinished tasks include creation of a mechanism for winding down failed banks, and a system to guarantee customer deposits in order to prevent runs on banks, the I.M.F. said.

The fund praised the decision by euro zone leaders last year to concentrate bank supervision in the hands of the European Central Bank, rather than solely with national regulators who have sometimes been reluctant to impose tough measures on their home banks. But, in a 60-page report, the fund also said that a lot of work remained to be done.

“More forceful action is warranted to cement recent gains in market confidence and end the crisis,” the I.M.F. said.

The fund was once known primarily for dealing with financial and debt crises in poor nations, but in recent years has focused more of its resources on Europe and the crisis in the euro zone. As the report Friday illustrated, the I.M.F. and its president, Christine Lagarde, have been increasingly willing to lecture European leaders on how they should combat the crisis.

Many of the weaknesses pointed out by the I.M.F. in the report were familiar. Among them was a dependence by banks on wholesale funding from money markets, which experience has shown can dry up quickly in a crisis.

The I.M.F. also expressed concern that some banks may not have fully disclosed possible losses from bad loans or risky investments. The organization urged banks to continue raising capital, so that they are better able to absorb losses.

“Legacy assets remain a problem in many E.U. countries,” the report said. The I.M.F. did not specify which kinds of assets it meant, but some of the well-known categories include real estate mortgages in countries like Spain or loans to the depressed shipping industry by German, British and Scandinavian banks.

To be an effective bank regulator, the fund said, the E.C.B. needs to have a means to shut down banks in an orderly way, without creating a burden for taxpayers. But European leaders are still discussing how this so-called resolution authority would work. As long as there is no such body, the E.C.B. would be limited in its ability to deal with sick banks, the fund said.

The I.M.F. also highlighted dangers to the insurance industry, which constitutes a large part of the European financial system but has received far less attention than banks. Years of slow growth and low interest rates have become a threat to life insurance policies or pension plans that promised fixed returns.

“A weak economic environment, if it persists, can threaten the financial health of the life insurance and the pensions industries,” the I.M.F. said.

Article source: http://www.nytimes.com/2013/03/16/business/global/imf-says-euro-zone-remains-vulnerable.html?partner=rss&emc=rss

DealBook: Santander Earnings Slump on Weak Economy

I.M.F. Says Euro Zone Remains Vulnerable

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