Banco Santander SA, Spain’s biggest bank, said third-quarter profit fell a greater-than-estimated 94 percent after purging more soured real estate and as earnings fell in the U.K. and in Brazil, its largest market.
Net income dropped to 100 million euros ($130 million) from 1.8 billion euros a year earlier, the Santander, Spain-based bank said in a filing to regulators today. That missed the 1.21 billion-euro median estimate in a Bloomberg survey of 10 analysts.
Santander and other Spanish banks are still recognizing losses on real estate as they respond to government orders to purge assets that piled up on their balance sheets after the country’s property boom turned to bust. Declining profit in Brazil, where loan losses have also surged this year, and a slump in the U.K., where Santander earlier this month abandoned plans to build its business by buying branches from Royal Bank of Scotland Group Plc, also hurt group earnings as loans and deposits shrank in Spain.
“These were a very weak set of results,” Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd. in London who rates Santander underperform, said in a phone interview today. “The bottom line was impacted by the additional provisions for construction and real estate, but if you look at the underlying operational trends they were disappointing.”
Santander Chief Executive Officer Alfredo Saenz pointed to a quarter-on-quarter drop in Brazilian loan impairments and data that showed net new Spanish mortgage defaults declining as signs the lender has its asset quality under control. He said external aid for Spain would help cut financing terms for governments and banks and that Santander would probably participate in sales of nationalized lenders next year.
Bad loans as a proportion of total lending rose to 4.33 percent from 4.11 percent in June, the bank said. The bad-loan ratio across the Spanish business climbed to 6.38 percent from 5.98 percent in June and 5.15 percent a year earlier. The ratio for its branch network in the country climbed to 9.56 percent from 9.16 percent three months earlier.
Bad loans in Spain will probably peak in the first quarter of 2014 at about 7.2 percent, Saenz told reporters at the bank’s headquarters near Madrid today, adding that he was giving the estimate “with every right to get it wrong.”
Santander’s real estate risk fell by 5.5 billion euros over the first nine months of the year to 26.5 billion, the bank said. The default ratio for real estate-linked lending surged to 42.8 percent from 39.4 percent in June.
Santander said it covered 90 percent of the cleanup of its real estate ordered by the government this year as it charged 5 billion euros against earnings for losses on its property assets and 9.53 billion euros for non-performing loans in the first nine months of the year. Impairment charges for the third quarter rose to 2.99 billion euros from 2.71 billion euros a year ago, the lender said.
Santander’s core capital ratio was 10.38 percent in September compared with 10.1 percent in June.
Santander fell 0.3 percent to 5.76 euros at 4:26 p.m. in Madrid, paring gains this year to 10 percent and valuing the company at 59.7 billion euros. Shares in Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank that reports earnings Oct. 31, have fallen 2.9 percent in 2012.
Lending in Spain shrank 4.5 percent from June and deposits contracted 2.6 percent, Santander said. Earnings from its Spanish branch network jumped to 266 million euros from 101 million euros a year earlier.
“The numbers on Spanish loans and deposits are disappointing especially because Santander is seen as a safe haven in Spain,” said Creelan-Sandford.
Profit from the U.K. slumped 21 percent to 337 million euros in the quarter, while Brazilian earnings dropped 9 percent to 537 million euros as loan impairment charges jumped to 1.51 billion euros from 1.24 billion euros, Santander said. The bad loans ratio for Brazil climbed to 6.79 percent from 6.51 percent in June.
Net interest income across the group rose a quarterly 3 percent to 7.5 billion euros, Santander said.
Earnings from Banco Espanol de Credito SA, a listed Spanish retail banking unit of Santander, rose to 32 million euros from 22 million euros a year ago, according to today’s statement. The bad loans ratio for the unit rose to 5.74 percent from 5.27 percent in June as lending fell an annual 8.5 percent and deposits 3.4 percent.