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Banesto Posts Quarterly Loss, Hurt by Real-Estate Market

Banco Espanol de Credito SA, a Spanish consumer banking unit of Banco Santander SA, posted a fourth-quarter loss after it took a 280 million-euro ($356 million) charge for souring real-estate loans.

The net loss was 173.3 million euros, compared with a profit of 9.46 million euros a year earlier, the Madrid-based lender said in a filing to regulators today. The average estimate of seven analysts surveyed by Bloomberg was for a 7.34 million-euro profit.

Banesto, the first Spanish lender to report earnings for the period, said it took the charges to reflect trends it sees in real estate after reducing its loan book by 8.6 percent in 2011. The bank is scaling back lending and setting aside more funds to cover damaged assets amid pressure on lenders from Spain’s new government to clean up their balance sheets.

“It’s going to get very difficult this year, especially for the domestic banks, because of the provisions they’re going to have to make” for property loans under government pressure, said Alberto Espelosin, head of analysis at Ibercaja Gestion in Zaragoza, Spain, said by phone.

Banesto shares rose 2.8 percent to 3.64 euros in Madrid, valuing the bank at 2.5 billion euros, as financial stocks rallied across Europe. The shares slid 40 percent in 2011.

Lending Risk

Spanish banks face as much as 50 billion euros of additional provisions as the government wants to minimize costs to taxpayers, Economy Minister Luis de Guindos said this month.

“The more that gets provisioned, the better,” Banesto Chairman Antonio Basagoiti said at a news conference in Madrid. He said the property charge was decided on in recent days and wasn’t prompted by the government, though he said the step was judged “excellent” by the Bank of Spain.

The bank said it reduced its lending risk associated with real estate to 6.6 billion euros at the end of 2011, down from 8 billion euros a year earlier.

The bank now classes 47 percent of its lending for real estate as “substandard” or “doubtful,” up from 30 percent a year earlier. Banesto now has 36 percent of its acquired or foreclosed real-estate assets covered with provisions, compared with 24 percent a year ago.

Redepositing ECB Funds

Bad loans as a proportion of total loans rose to 4.94 percent from 4.65 percent in September and 4.08 percent a year earlier, the bank said. Net entries of loans into default reached 316 million euros in the period, up from 175 million euros in the third quarter, Banesto said. Deposits shrank 15 percent from a year earlier.

Net interest income slid 14 percent from a year earlier to 323.8 million euros. The core capital ratio was 9 percent, up from 8.3 percent a year ago, and the bank said today it aims to keep it above that level in 2012.

Banesto tapped the three-year loans made available by the European Central Bank, and the funds have been “redeposited” back at the ECB and not put to “net use,” Juan Delibes, the company’s financial-planning director, said on a webcast for analysts today. Banesto ended 2011 with net ECB funds of 700 million euros, down from 1.5 billion euros a year earlier, the bank said.

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