Santander Profit Doubles Amid Lower Charges for Bad Loans

Jan 30, 2014 11:10 am ET

(Updates with Chairman’s comments on growth, U.K. IPO outlook, divisional outlook from third paragraph.)

Jan. 30 (Bloomberg) -- Banco Santander SA, Spain’s biggest bank, said fourth-quarter profit more than doubled as it made fewer provisions for bad loans and income increased in the U.K.

Net income rose to 1.06 billion euros ($1.44 billion) from 423 million euros a year earlier, the Santander, Spain-based bank said in a filing to regulators today. That compared with the 1.2 billion-euro average estimate in a Bloomberg survey of 16 analysts. The bank will propose a 60 cent a share dividend on 2014 earnings, Chairman Emilio Botin said at a press conference in Madrid today.

Botin, 79, is cutting costs and preparing for an economic recovery in Spain following a five-year property bust and said today that a priority for Santander would be to grow in the U.S., perhaps by acquiring a consumer bank there. Weakening currencies in key markets such as Brazil, which buoyed the bank’s profit during Spain’s economic slump, may slow the earnings recovery.

“Profit and loss were in line with expectations,” Daragh Quinn, an analyst at Nomura International in London with neutral rating on the stock, said in a telephone interview. “There will be concern about the outlook because of emerging markets.”

Santander shares rose 0.5 percent to 6.42 euros at 3:49 p.m. in Madrid, paring its loss so far in 2014 to 1.3 percent and valuing the bank at about 73 billion euros.

Emerging Markets

Earnings from Brazil, the biggest contributor to Santander’s profit, fell 28 percent from a year ago to 1.58 billion euros for the full year. Net interest income dropped 21 percent from the year earlier to 10.1 billion euros. Fourth- quarter profit fell to 301 million euros from 518 million euros a year earlier.

Santander officials played down recent volatility in emerging markets that has seen currencies plunge on concern about Chinese growth and the withdrawal of economic stimulus in the U.S.

Botin said foreign-exchange instability in Argentina doesn’t change the country’s positive economic data, and Chief Executive Officer Javier Marin said Brazil’s fundamentals are “intact.” The sell-off of emerging markets assets has been “exaggerated,” Botin said.

U.K. Accounts

In the U.K, quarterly earnings rose to 357 million euros from 256 million euros a year earlier, as net interest income rose to 962 million euros from 796 million euros.

Current account balances grew by 75 percent, the bank said. Santander expects profit from its U.K. business, run by Botin’s eldest daughter Ana Patricia, to rise 17 percent this year, he said. An initial public offering of shares in its U.K. business won’t happen in 2014, Marin said in an online presentation.

Profit from Spain fell 45 percent for the full year to 478 million euros as lending shrank 11 percent and net interest income fell 15 percent. Net interest income rose 3.2 percent in the quarter to 1.1 billion euros. Spain’s economy, which has suffered two recessions since 2008, expanded 0.3 percent in the fourth quarter, data showed today.

“Banco Santander is starting a period of strong profit growth over the coming years,” Botin said in the statement. The banks expects profit from Spain to reach 1 billion euros this year and 3 billion euros in 2016, Botin said at a news conference.

Bad Loans

Santander said bad loans as a proportion of total lending at its Spanish banking business rose to 7.49 percent from 6.4 percent in the third quarter.

For the entire bank, the bad loan ratio rose to 5.64 percent from 5.43 percent in the third quarter. Net loans newly in default reached 3.8 billion euros, down from 4.1 billion euros in the third quarter.

Loan-loss provisions were 2.28 billion euros in the final three months of 2013, the lowest in eight quarters. Provisions will decline by between 500 million euros and 1 billion euros this year, the bank said.

“It’s a geographically diverse bank and there are bright spots and shadows,” Javier Bernat, an analyst at Beka Finance SV in Madrid with a hold rating on the stock, said in a phone interview.

Building Capital

Santander’s core capital under Basel II criteria, a measure of financial strength, rose to 11.71 percent from 11.56 percent in September, the bank said.

The lender has been selling bits of its business and paying dividends in stock as it builds capital ahead of an assessment of bank assets by the European Central Bank later this year. Santander is targeting a capital ratio under the latest rules set by the Basel Committee on Banking Supervision of 9 percent this year, Botin said.

Santander made 939 million euros of capital gains in 2013, which it plans to fully provision, using them to cover integration costs in Spain and Poland and strengthen its balance sheet. The 740 million-euro gain from selling a 4 percent stake in its U.S. auto-loans unit as part of its IPO and the sale of its real-estate unit, Altamira, will be booked in 2014 and also used to strengthen the balance sheet.

--With assistance from Ben Sills and Nick Leiber in Madrid. Editors: Keith Campbell, Jon Menon