Santander Profit Slumps After Spanish Real-Estate Cleanup

Banco Santander SA (SAN), Spain’s biggest lender, said fourth-quarter profit plunged 98 percent as it anticipated tougher rules on recognizing real-estate losses at home and earnings declined in the U.K. and Brazil. (SANB11)

Net income fell to 47 million euros ($61.9 million) from 2.1 billion euros a year earlier, the bank said in a filing to regulators today. That compared with the average 1.78 billion- euro estimate in a Bloomberg survey of 10 analysts.

Santander and other Spanish banks are under pressure from Mariano Rajoy’s new government to recognize more losses on building land and apartments that have piled up on their balance sheets as a result of the country’s property crash. The lender booked 1.81 billion euros in charges for Spanish real-estate provisions and a 600 million-euro goodwill charge at its Portuguese unit as profit sagged in its biggest markets.

“Cleaning up the real estate is a sensible thing to do and it’s probably long overdue,” said Andrea Williams, who helps manage about $1 billion, including Santander shares, as head of European equities at Royal London Asset Management. “I guess the other banks will now have to go and follow suit.”

Santander fell 0.6 percent to 5.95 euros in Madrid trading, paring this year’s gain to 1.4 percent and valuing the lender at 54.2 billion euros. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, will publish earnings Feb. 2.

Short of Pledge

Full-year net income fell to 5.35 billion euros from 8.18 billion euros and profit excluding one-time items was 7.02 billion euros, the Santander, Spain-based lender said. The bank fell short of a pledge by Chairman Emilio Botin last June to report earnings “in line” with the 8.18 billion euros posted in 2010.

Santander will maintain its dividend of 60 euro cents a share and boost earnings from Brazil, its biggest market, by 15 percent this year, Botin told reporters in Madrid today. The bank had reached “a turning point” in Spain, Botin said.

Politicians should take a “large” part of the blame for the economic crisis while banks have very little responsibility, he said.

Botin reiterated a target he set in September for Santander to achieve return on equity of 12 percent to 14 percent in 2014 “despite the recent worsening of the international environment.” The bank will have to see how things go this year and next because of the impact on earnings of a worsening economic outlook and tougher regulation, he said.

Time to Normalize

Botin told investors in September that earnings this year would be similar to those in 2011 after Chief Executive Officer Alfredo Saenz said at the same event in London that it may take three years for profit to “normalize.”

Net interest income rose to 7.97 billion euros in the fourth quarter from 7.33 billion euros a year ago, the bank said. The Santander group’s lending increased 3.6 percent from a year ago as customer deposits rose 2.6 percent.

Bad loans as a proportion of total lending reached 3.89 percent in December from 3.86 percent in September, Santander said. Net loans newly classified as in default were 4.05 billion euros compared with 4.21 billion euros in the third quarter.

The bank booked provisions for loan losses of 2.8 billion euros in the fourth quarter compared with 2.4 billion euros a year earlier, Santander said.

Real-Estate Cover

The bank previously said it had about 1.5 billion euros in gains from sales of insurance and auto loans unit stakes in the Americas to bolster its balance sheet. Santander used those funds to partly offset 3.18 billion euros in one-time provisions that included the pretax charges for Spanish real estate and Portuguese goodwill, plus portfolio writedowns and the amortization of intangibles and pensions, the bank said.

Following the real-estate charges, the bank now has provisions to cover 50 percent of properties on its balance sheet, up from 31 percent previously, Santander said. The bank said it has 8.55 billion euros of real estate on its books.

Santander’s profit before provisions of 24.4 billion euros in 2011 “underlines the group’s ability to generate future earnings in a situation where lower requirements for provisions will feed through to net profit,” the bank said in a statement.

Fourth-quarter profit from Spain plunged to 29 million euros in the fourth quarter from 320 million euros a year earlier as lending shrank 4.6 percent, Santander said.

Brazil Earnings

Bad loans as a proportion of total lending in Spain rose to 5.49 percent from 5.15 percent in September. The bad-loans ratio at its Santander branch network jumped to 8.47 percent from 5.52 percent a year earlier, the bank said.

Earnings from Brazil (SANB11) fell to 637 million euros in the fourth quarter from 751 million euros a year earlier.

Profit from the U.K. declined to 388 million euros from 436 million euros. Ana Patricia Botin, Botin’s eldest daughter who runs the U.K. unit, in September predicted a decline in its profitability in 2012 and 2013 as the bank focuses on investment. Full-year profit declined more than 40 percent because of a charge to cover compensation claims to customers mis-sold mortgage-loan insurance.

Santander’s core capital ratio rose to 10.02 percent in December under Basel II criteria from 9.42 percent in September. The bank said Jan. 9 it had met the 9 percent core capital ratio requirement set under European Banking Authority criteria six months ahead of the June deadline after selling stakes in its banks in Brazil and Chile, swapping preferred shares for equity and paying dividends in stock.

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

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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Santander Profit Slumps After Spanish Real-Estate Cleanup

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Pedestrians pass a Banco Santander SA branch in Madrid.

Pedestrians pass a Banco Santander SA branch in Madrid. Photographer: Denis Doyle/Bloomberg

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Santander Profit Slumps After Spanish Real-Estate Cleanup

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The headquarters of Banco Santander are seen in London.

The headquarters of Banco Santander are seen in London. Photographer: Simon Dawson/Bloomberg