Santander’s Botin Expects ‘Similar’ Profit in 2010

Santander dodges the worst of the credit crisis
Banco Santander SA Chairman Emilio Botin delivers his message to shareholders. Photographer: Denis Doyle/Bloomberg

Banco Santander SA Chairman Emilio Botin told shareholders he expects 2010 profit to be “similar” to last year in a rejoinder to investors that ditched Spanish bank stocks on concern the country may fail to fix its finances.

Santander rose 7.2 percent in Madrid trading, after the comments by Botin at the biggest Spanish lender’s annual shareholders’ meeting. The uncertainties about Spain weighing on shares were “blown out of proportion,” he said, adding the bank has funds “to cover us for what may come.” Net income was 8.94 billion euros ($10.8 billion) in 2009.

“During this period of crisis, Banco Santander has been the international financial group with the best quality and consistency of profits,” said Botin. “I am very optimistic about the outlook for the group.”

Earnings from Brazil will outstrip profit from the bank’s home market for the first time, said Botin, 75, at the meeting in the Spanish port of Santander, where the company was founded in 1857. While Spain’s property crash pushed up loan defaults, Santander dodged the worst of the credit crisis and seized opportunities to buy lenders in the U.S., the U.K. and Germany.

Santander captured 30 billion euros from a deposit- gathering campaign in Spain and has boosted group deposits by 75 billion euros this year, a 15 percent increase since December, Botin said. Santander’s debt is “appropriately spread out over time” and has average maturities of 4.5 years, he said.

Brazil Compensates

Santander’s diversified business across nine main markets means its performance in stronger economies compensates for weaker ones, said Botin. While Spain’s contribution to operating profit will drop to 21 percent from 26 percent last year, Brazil’s will jump to 23 percent from 20 percent, he said. The U.K. will contribute 17 percent from 16 percent and the U.S. 5 percent from 1 percent.

“So it’s clear, and we have to insist on this, that the lesser results from Spain are fully compensated by other markets,” said Botin.

The bank, run by Botin since 1986, said on June 9 it would pay $2.5 billion in cash to buy 24.9 percent of its Mexican unit back from Bank of America Corp.

Santander shares have slumped 25 percent this year, cutting the bank’s value to 70.85 billion euros, as investors expect Spain’s struggle to slash its budget deficit to slow economic growth and drive up lenders’ financing costs. In his speech, Botin said government efforts to address the deficit “go in the right direction” and called for “urgent” progress in attempts to make labor laws more flexible to bring down unemployment.

Bigger Issues

“I’m not sure they can actually do a lot by themselves to improve sentiment because there are bigger issues affecting their share price including governmental debt levels,” said Kevin Lilley, a fund manager at Royal London Asset Management, which oversees about 1.25 billion euros in continental European stocks, including Santander. “I don’t think that by themselves they’re doing anything particularly wrong.”

Santander will maintain last year’s dividend of 60 cents per share in 2010, Botin said. The board yesterday approved a first dividend against 2010 earnings of 13.5 euro cents per share, unchanged from a year earlier, he said.

Santander climbed to 8.61 euros in Madrid. That made the stock the third-best performer on the 52-member Bloomberg Europe Banks and Financial Services Index, which gained 1.8 percent.

Budget Deficit

Concern about Spain’s ability to tackle its budget deficit without further damage to an economy that’s emerging from its worst recession in 60 years is weighing on investor appetite for the stocks and bonds of Spanish banks.

Santander five-year credit default swaps, a type of insurance against debt default, rose to as high as 259 on June 8 and have now fallen to 178 basis points. By comparison, swaps for HSBC Holdings Plc, Europe’s biggest bank by market value, are at 101 basis points. A basis point is a hundredth of a percentage point.

At today’s AGM, 97.7 percent of shareholders represented voted in favor of re-electing Alfredo Saenz as chief executive officer.

In the first ever vote on Santander’s remuneration policy, 95 percent of shareholders backed it while 3.1 percent voted against and 1.9 percent abstained, the bank said. Saenz, the bank’s highest-paid executive, earned 8.45 million euros in salary and bonus last year. He has 86 million euros in accrued pension rights.

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