Santander Profit Jumps as Lower Clean-Up Costs Offset Brazil

Banco Santander SA (SAN), Spain’s biggest bank, said second-quarter profit rose eightfold as lower costs for cleaning up soured property assets offset falling earnings in Brazil and its home market.

Net income climbed to 1.05 billion euros ($1.39 billion) from 123 million euros a year ago, when it booked 1.3 billion euros of one-time charges for Spanish real estate, the Santander, Spain-based bank said in a filing to regulators today. That compared with the 1.1 billion-euro average estimate in a Bloomberg survey of seven analysts.

Santander is rebuilding earnings that slumped almost 60 percent in 2012 when the bank boosted provisions and took charges to cover losses on assets linked to Spanish real estate. Javier Marin, named as the bank’s new chief executive officer in April, must also soothe investor concern about capital levels, declining revenues in Brazil and bad loans in Spain.

“The results look pretty weak, with the key divisions of Brazil and Spain a lot weaker than expected,” Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd. in London. said in a phone interview. “In Spain, we are still seeing asset quality deterioration at a rapid rate.”

Marin, 46, used his first earnings presentation after replacing Alfredo Saenz as CEO to assert the bank had no need to change its dividend policy this year or raise new capital.

Photographer: Antonio Heredia/Bloomberg

Javier Marin, chief executive officer of Banco Santander SA, present his first earnings report in Madrid. Close

Javier Marin, chief executive officer of Banco Santander SA, present his first earnings report in Madrid.

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Photographer: Antonio Heredia/Bloomberg

Javier Marin, chief executive officer of Banco Santander SA, present his first earnings report in Madrid.

Personal Advice

“The only thing I know is that the board appointed me unanimously 90 days ago today,” Marin told reporters at the bank’s headquarters outside Madrid. “Alfredo Saenz has not only given me professional counsel but also a lot of personal advice.”

Santander rose 0.8 percent to 5.49 euros at close of trading in Madrid, paring this year’s decline to 10 percent. The 44-member Bloomberg Europe Banks and Financial Services Index gained 8.1 percent over the same period. Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank, which reports earnings tomorrow, has risen 1.7 percent.

Bad loans as a proportion of total lending rose to 5.18 percent from 4.76 percent in March as the bank booked 2 billion euros of loans as “doubtful” to comply with new Bank of Spain criteria for refinanced loans, Santander said.

The reclassification will not require further provisions as the bank already had 340 million euros set aside to cover it, Santander said. Net loan loss provisions fell to 3.07 billion euros from 3.4 billion euros a year ago.

Comfortable Capital

Core capital under Basel II criteria rose to 11.11 percent from 10.67 percent in March. The bank intends to keep its core capital ratio assuming Basel III rules were fully imposed above 9 percent, Santander said.

Photographer: Angel Navarrete/Bloomberg

A vehicle passes a sign outside the offices of Banco Santander SA in Madrid. Close

A vehicle passes a sign outside the offices of Banco Santander SA in Madrid.

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Photographer: Angel Navarrete/Bloomberg

A vehicle passes a sign outside the offices of Banco Santander SA in Madrid.

That’s enough to ensure the bank won’t need to change its policy of paying out 60 cents a share this year with most investors taking the payment in stock, said Marin. The Bank of Spain told lenders in June that dividend distributions in 2013 should “be limited.”

“We are not going to issue capital,” Marin said on a webcast for analysts today. “We are very comfortable with the actual capital levels.”

Net interest income, or the excess revenue from interest earned on assets compared with payments to depositors, fell 12 percent to 6.72 billion euros from a year earlier as net lending shrank 8.4 percent from a year ago and 3.3 percent from the first quarter.

Brazilian Decline

Profit from Brazil, Santander’s biggest earnings contributor, declined to 420 million euros from 498 million euros a year ago.

Net interest income slipped to 2.71 billion euros from 2.8 billion euros in the first quarter. The bad-loans ratio was 6.49 percent compared with 6.51 percent a year ago and 6.9 percent in the first quarter. Bad loans in Brazil have peaked and credit will be growing by as much as an annualized 10 percent by the end of the year, Marin told analysts.

Earnings from Spain slumped 57 percent to 86 million euros from a year ago as net interest income slid 17 percent, Santander said. The bad-loans ratio for Spain jumped to 5.75 percent from 4.12 percent in March and 3.26 percent a year ago.

Profit from the U.K. rose to 263 million euros from 246 million euros.

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

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

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