Net income climbed to 1.45 billion euros ($1.94 billion), the highest in the last nine quarters, from 1.05 billion euros a year earlier, the Santander, Spain-based lender said today. Earnings compared with the 1.36 billion-euro average estimate in a Bloomberg survey of 13 analysts.
The bank’s U.K. unit, run by Chairman Emilio Botin’s daughter, Ana Patricia Botin, is setting the pace for earnings growth at Santander, while Spain is emerging from its economic slump. After the bank took bad-loan provisions and writedowns of more than 65 billion euros over the past five years, Chairman Botin told shareholders in March that Spain would be one of its “most positive stories” over the next three years, helping the bank boost earnings toward pre-crisis levels of 9 billion euros.
“The momentum from the U.K. has been pretty strong, and the expectation is this will continue,” said Benjie Creelan-Sandford, a bank analyst at Macquarie Bank Ltd. in London. “Things are definitely getting better for Santander in Spain, but the extent of the recovery shouldn’t be overstated.”
Santander shares fell 2 percent to 7.55 euros at close of trading in Madrid, valuing the bank at 88.9 billion euros. The stock has risen 16 percent this year, compared with a 0.5 percent decline for the 43-member Bloomberg Europe Banks and Financial Services Index.
Banco Bilbao Vizcaya Argentaria SA (BBVA), which yesterday reported a 39 percent drop in second-quarter profit after year-earlier asset sale gains weren’t repeated, has risen 3 percent.
“The outperformance was driven by higher-than-expected operating profits, repeating the trend of good net interest income performance from the Spanish banks this quarter,” Daragh Quinn, an analyst at Nomura International in Madrid, said in a note to clients today. “U.K. was as good as expected.”
Santander’s net interest income, or the difference between what the bank charges for loans and pays for its funding, rose to 7.37 billion euros from 6.99 billion euros in the first quarter, beating the 7.17 billion-euro forecast of analysts.
Net customer loans fell 1.1 percent from a year earlier. Bad loans as a proportion of total loans dropped to 5.45 percent from 5.52 percent in March. Net loans newly classified as in default were little changed from the previous quarter at 2.54 billion euros, down 60 percent from a year ago. Net loan-loss provisions fell to 2.64 billion euros in the quarter from 3.4 billion euros a year earlier.
“Performance in the first half of 2014 proves that Santander is on track to return to pre-crisis profit levels,” Botin said in a statement. “The group’s geographic diversification has played a key role.”
Profit from the U.K. rose 52 percent from a year earlier to 399 million euros as net interest income jumped to 1.04 billion euros from 989 million euros in the first quarter, the bank said.
“Customers in the U.K. are coming to us -- one in four of those who have switched bank in the last 12 months have joined Santander,” Ana Patricia Botin said on a conference call today.
Santander has no plans this year or next to sell shares in its U.K. unit in an initial public offering, Chief Executive Officer Javier Marin said at a news conference at the bank’s headquarters near Madrid today.
Earnings from its Spanish banking business rose more than threefold to 261 million euros, Santander said. Net interest income in Spain rose 4.1 percent from the first quarter to 1.19 billion euros as lending grew 1.1 percent. The unit’s bad loans ratio dipped to 7.59 percent from 7.61 percent in March.
Its separate Spanish real estate business generated losses of 307 million euros in the first half of the year, narrowing from a 337 million-euro loss a year earlier.
Profit from Brazil (SANB11) slipped 6 percent to 395 million euros. Santander said in April it would offer to buy back about 25 percent of its Brazilian unit in a transaction valued at 4.7 billion euros.
Santander’s Brazil unit agreed to invest 460 million reais ($205 million) in a payroll-lending joint venture with Banco Bonsucesso SA, based in Belo Horizonte, according to a filing today. Santander will have a 60 percent stake in the venture, while Bonsucesso will hold the remaining 40 percent.
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