April 29 (Bloomberg) -- Banco Santander SA, Spain's biggest bank, said first-quarter profit climbed 22 percent as revenue from Brazil offset slowing growth and higher loan losses at home.

Net income rose to 2.21 billion euros ($3.45 billion) from 1.8 billion euros a year ago following the purchase of ABN Amro Holding NV's Brazilian unit, the Santander-based bank said today. Loan-loss provisions surged 70 percent as credit defaults jumped in Spain and at its consumer finance unit.

Though Santander avoided the U.S. subprime-related investments that led to first-quarter losses at UBS AG and Deutsche Bank AG, it earns about half its profit in Spain and the U.K., two countries hurt by slumping economic growth. The bank, which makes 77 percent of its profit from retail banking, said today that earnings will increase an average of 15 percent for the next two years.

The results were ``solid with the increase in loan defaults that come with the economic cycle we're in,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion. ``Santander has set itself apart from the investment banks and their dramatic losses.''

Doubling Santander's presence in Brazil through the Banco Real purchase will help the bank reduce the risk of a slowdown in Spain, where credit defaults are rising, said Elena Cortina, a fund manager at Urquijo Gestion whose holdings include Santander.

Loan defaults at the bank as a proportion of total loans climbed to 1.16 percent from 0.95 percent in December and 0.82 percent a year earlier. Losses from provisioning loans jumped more than two-thirds to 1.16 billion euros, Santander reported.

Santander closed unchanged at 13.70 euros in Madrid trading after earlier dropping 1.5 percent. It has lost 7.4 percent of its market value this year compared with a 12 percent drop for Banco Bilbao Vizcaya Argentaria SA, Spain's second-biggest lender that yesterday reported profit rose 15 percent before one-time gains.

Rising Defaults

Defaults as a proportion of total loans at its consumer finance division surged to 4.1 percent from 2.66 percent a year ago, said Santander, Europe's second-biggest bank by market value after HSBC Holdings Plc and the 10th-largest by assets.

The bank, led since 1986 by Emilio Botin, spent 10.7 billion euros last year to buy ABN Amro's Brazilian unit, expanding in Latin America's biggest economy after acquiring the Dutch lender with Royal Bank of Scotland Group Plc and Fortis. The integration should be completed in the third quarter, the bank said.

Asked if Santander may announce further acquisitions, Chief Executive Officer Alfredo Saenz said today that the bank's ``not in a buying mood.''

Currency Effect

Santander's quarterly results were driven by profit increases of 17 percent in pound terms at U.K. unit Abbey National, or 4 percent due to the euro currency effect, and 22 percent in dollar terms in Latin America, or 7 percent in euros, including 38 percent in Mexico and 25 percent in Chile.

Global wholesale banking pretax profit fell 33 percent to 592 million euros, Santander said. Continental Europe's net income declined 7 percent, mostly as a result what the bank said was a reduction in corporate transactions in Spain.

In the U.S., Santander booked a 737 million-euro fourth- quarter charge on its 24.9 percent investment in Sovereign Bancorp. The bank said today that no further ``adjustment'' was planned. Shares of Philadelphia-based Sovereign have dropped 70 percent from the average $24.83 price that Santander paid in 2005 and 2006.

Brazil Buildout

Earnings from Brazil, which accounted for 12 percent of profit, increased 17 percent to 262 million euros, the bank said. Executives said in February that Brazil would eventually contribute up to 30 percent of Santander's group earnings.

``Santander is in a strong position to be able to withstand the slowdown and there's also an important growth component in Brazil,'' Cortina said ahead of the results. Profit topped the 2.16 billion-euro median estimate of 18 analysts surveyed as earnings per share rose 15 percent to 33 cents a share from a year ago.

``There are few banks in the world that can say they're reaffirming their guidance of seven months ago,'' Saenz said.

Net interest income, the difference between what a bank earns on loans and pays for deposits, climbed 15 percent to 4.03 billion euros.

The bank earned 252 million euros from its stake in Brazil's Banco Real. Profit from Latin America, where Santander owns banks from Mexico to Chile, increased to 729 million euros.

Earnings from Abbey, the third-biggest U.K. mortgage lender that contributes 14 percent of Santander profit, rose to 311 million euros. It tripled its U.K. mortgage market share in the first three months as rivals including HBOS Plc retrenched.

Profit from Santander's Spanish retail network climbed 14 percent to 525 million euros. Defaults as a proportion of lending climbed to 0.87 percent from 0.56 percent a year ago as lending growth slowed to 9 percent from 16 percent a year ago.

The International Monetary Fund predicts economic growth in Spain will be 1.8 percent this year, less than half the pace in 2007. Spanish unemployment in the first quarter jumped the most in 15 years to 9.6 percent from 8.6 percent in the fourth quarter.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net

Last Updated: April 29, 2008 12:11 EDT