Santander declined as much as 4.3 percent in Madrid trading after reporting net income of 1.21 billion euros ($1.6 billion), down from 1.63 billion euros a year earlier and less than the 1.31 billion-euro average estimate of eight analysts surveyed by Bloomberg.
Chief Executive Officer Alfredo Saenz said this week that a “new cycle” of profitability is starting that will lead to at least three years of strong earnings growth for the bank after it completes a clean-up of Spanish real estate. Still, shrinking lending margins in Spain together with a 22 percent decline in earnings from Brazil undermined first-quarter profit.
“This looks like a weak set of results with the key area of disappointment being Brazil, where people will be looking at the weak lending, revenue and provisioning results,” Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd in London, said in a phone interview.
Santander closed down 2.4 percent at 5.49 euros in Madrid trading. The stock has lost 10 percent this year compared with a 4.2 percent gain for the 40-member Bloomberg Europe Banks and Financial Services Index and a 4.9 percent advance for Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, which reports earnings tomorrow.
Bad loans as a proportion of total loans rose to 4.76 percent from 4.54 percent in December, Santander said. Net loans newly classified as in default increased to 3.8 billion euros from 3.7 billion euros in the fourth quarter.
Net interest income, or the excess revenue generated from interest earned on assets compared with payments to depositors, fell 14 percent to 6.65 billion euros in the first quarter from a year earlier. Net loans dropped 2.8 percent and deposits increased 1.6 percent.
“The group trend on net interest income was significantly below our expectations,” said Creelan-Sandford.
Spanish banks face worsening conditions in a home market where rising unemployment is sapping demand for loans and driving up defaults.
The nation’s jobless rate reached 27.2 percent in the first quarter, the highest level in at least 37 years, according to data published by the National Statistics Institute today. A plunge in benchmark interest rates -- average 12-month Euribor fell to 0.57 percent in the first quarter from 1.67 percent a year ago -- is also squeezing margins for lenders.
Bankia SA (BKIA) said yesterday that net interest income plunged 39 percent in the first quarter from a year earlier as its bad loan ratio increased to 13.1 percent from 13 percent at the end of last year. CaixaBank (CABK) SA, Spain’s third-biggest lender, said its ratio climbed to 9.4 percent from 8.62 percent three months earlier.
Santander targets a Basel III core capital ratio of 9.2 percent by the end of this year, taking into account all the adjustments that have to be made by 2019, said a spokesman for the bank, who asked not to be identified in line with company policy. Core capital under Basel II rose to 10.67 percent in March from 10.33 percent in December, the bank said.
Profit from Brazil plunged 22 percent from a year ago to 499 million euros as net interest income fell 17 percent, the bank said. Costs for covering asset impairments rose 5.5 percent from the fourth quarter to 1.47 billion euros as the bad-loan ratio at the unit increased to 6.9 percent from 6.86 percent.
Earnings in Spain rose 2.5 percent from a year earlier to 207 million euros as lower provisions offset a 17 percent drop in net interest income after lending contracted an annual 3.8 percent. Profit at Santander’s U.K. bank slumped 23 percent to 224 million euros as net interest income fell 11 percent.
Santander said it repaid 31 billion euros borrowed under the European Central Bank’s long-term refinancing operations.
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