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Banesto Quarterly Profit Falls 88% on Real Estate Charges

Banco Espanol de Credito SA, a Spanish consumer-banking unit of Banco Santander SA, said first-quarter profit plunged 88 percent as it stepped up government-ordered provisions for real estate losses.

Net income fell to 20.2 million euros ($26.5 million) from 169.5 million euros a year earlier, the Madrid-based bank said in a filing to regulators today. That beat the 6.43 million-euro average estimate in a survey of four analysts.

Spanish banks face slumping demand for credit and a battle to prevent more loans from defaulting as the country slides into recession. Banesto, the first Spanish lender to report quarterly earnings, said it took a charge of 475 million euros to cover about half of the 1 billion euros in real estate provisions it must take this year to comply with government requirements.

“They have been able to anticipate a good part of the real estate provisions,” said Juan Pablo Lopez, an analyst at Espirito Santo Investment Bank in Madrid, who has a buy rating on the shares. “There is still plenty of work to do.”

Banesto shares rose 0.7 percent to close at 3.32 euros in Madrid today, reversing an earlier loss of as much of 1.6 percent and paring this year’s decline to 11 percent.

Bad Loans

Bad loans as a proportion of total lending were stable at 4.93 percent from 4.94 percent in December as it sold off 220 million euros of loans, the bank said.

Without that, the bad loans ratio would have been 5.18 percent, Chief Executive Officer Jose Antonio Garcia Cantera said in an interview. Underlying trends for bad loans are set to worsen this year as the economy slides into recession, he said in a webcast for analysts today.

Net newly defaulted loans, known as entries into default, fell to 186 million euros from 316 million euros in the fourth quarter of last year. “Entries are still high, but maybe there is a ray of light on asset quality,” said Lopez.

Banesto sold more than 1,500 homes in March at an average discount that was less than the provisioning rate of 45 percent applied to the assets, said Garcia Cantera. “That demonstrates that at a certain price there is significant demand for housing in Spain,” he said.

Lending slumped at an annual rate of 8.3 percent and customer deposits slid 10 percent, the bank said. Net interest income fell 8.6 percent from a year ago to 347.8 million euros.

“The Spanish economy needs to deleverage and the deleveraging needs to be seen in the Spanish banks’ balance sheets,” Garcia Cantera said. “We think that is going to continue for quite a while.”

The bank said it partly offset the charges by booking one-time gains of 365 million euros from transactions including the sale of stakes in companies and loans that had been fully provisioned. Other provisions to cover asset impairments jumped 66 percent to 151.9 million euros, Banesto said.

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