Santander profit doubles amid lower charges for bad loans

Banco Santander SA reported Thursday that its net income rose to $1.44 billion in the fourth quarter from $575 million a year earlier, a 150 percent increase. / BLOOMBERG FILE PHOTO/ANGEL NAVARRETE
Banco Santander SA reported Thursday that its net income rose to $1.44 billion in the fourth quarter from $575 million a year earlier, a 150 percent increase. / BLOOMBERG FILE PHOTO/ANGEL NAVARRETE

MADRID – 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 ($575 million) a year earlier, the Santander, Spain-based bank said in a filing to regulators on Thursday. That compared with the 1.2 billion-euro ($1.6 billion) 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 on Thursday.

Botin, 79, is cutting costs and preparing for an economic recovery in Spain following a five-year property bust. 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, said in a telephone interview. “There will be concern about the outlook because of emerging markets.”

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Santander shares fell 0.5 percent to 6.35 euros ($8.64) at 2 p.m. in Madrid, taking its loss so far in 2014 to 2.4 percent and valuing the bank at about 72 billion euros ($98 billion).

Emerging markets

Earnings from Brazil, the biggest contributor to Santander’s profit, fell 28 percent from a year ago to 1.58 billion euros ($2.15 billion) for the full year. Net interest income dropped 21 percent from the year earlier to 10.1 billion euros ($13.7 billion). Fourth-quarter profit fell to 301 million euros ($410 million) from 518 million euros ($705 million) 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 CEO Javier Marin said Brazil’s fundamentals are “intact.”

In the U.K, quarterly earnings rose to 357 million euros ($486 million) from 256 million euros ($348 million) a year earlier, as net interest income rose to 962 million euros ($1.3 billion) from 796 million euros ($1.1 billion). Current account balances grew by 75 percent, the bank said.

Profit from Spain fell 45 percent for the full year to 478 million euros ($650 million) 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 ($1.5 billion). Spain’s economy, which has suffered two recessions since 2008, expanded 0.3 percent in the fourth quarter, data showed Thursday.

“Banco Santander is starting a period of strong profit growth over the coming years,” Botin said in the statement.

Bad loans

“Expectations are building for a recovery in Spain,” said Carlos Joaquim Peixoto, an analyst at Banco BPI SA in Porto, Portugal, in a phone interview before earnings were published.

Still, 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.

On a group level, bad loans as a proportion of total lending rose to 5.64 percent from 5.43 percent in the third quarter. Net loans newly classified as in default reached 3.8 billion euros ($5.2 billion), down from 4.1 billion euros ($5.6 billion) in the third quarter.

Loan-loss provisions were 2.28 billion euros ($3.1 billion) in the final three months of 2013, the lowest in eight quarters. Provisions will decline by between 500 million euros ($680 million) and 1 billion euros ($1.4 billion) this year, the bank said.

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 off bits of its business and paying dividends in stock as it builds up capital ahead of an assessment of bank assets by the European Central Bank later this year.

Santander made 939 million euros ($1.3 billion) 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 ($1 billion) gain from selling a 4 percent stake in its U.S. auto-loans unit as part of its initial public offering and the sale of its real-estate unit, Altamira, will be booked in 2014 and also used to strengthen the balance sheet.

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