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Santander Profit May Depend on U.K. Instead of Brazil

With growth faltering in Brazil, Banco Santander SA’s performance in the U.K. may hold the key to whether Spain’s biggest bank posts a profit for the first quarter.

Net income rose to EU1.23 billion euros ($1.71 billion) from 1.21 billion euros in the same period a year earlier, according to the average estimate in a Bloomberg survey of 11 analysts.

The U.K. recovery is helping to support Santander’s earnings as it rebuilds profits at its Spanish unit, said Carlos Joaquim Peixoto, an analyst at Banco BPI SA.

The bank, based in the northern Spanish city of the same name, will report earnings before the stock market opens in Madrid tomorrow.

Investors will be watching for signals on when Spanish loan defaults will peak and the outlook for its business in Latin America, said Nick Anderson, an analyst at Berenberg Bank in London.

Brazil vs Britain

Profit from Brazil may drop to 342 million euros from 499 million euros a year earlier, according to estimates from Banco BPI. Economic growth in the country, which accounted for almost a quarter of Santander’s 2013 profit, is set to expand 2 percent this year, according to Brazilian central bank estimates

That would be slower than the Latin America average for a fourth straight year. Earnings from Latin America may decline 27 percent from a year ago to 711 million euros, according to estimates by Keefe, Bruyette & Woods.

Britain’s economy, meanwhile, will grow 2.9 percent this year, faster than any other Group of Seven country, the International Monetary Fund predicts. Earnings from Santander’s U.K. unit, managed by Ana Patricia Botin, daughter of Chairman Emilio Botin, may jump 59 percent from a year ago to 356 million euros, according to KBW estimates. Profit from the Spanish banking business excluding real estate may increase 19 percent from a year earlier, according to KBW.

“A big focus again is going to be credit quality especially as some banks have been out there saying the corner has been turned -- credit quality in Spain is a key earnings driver for all the banks,” Anderson said in a phone interview. “There is still the issue of emerging market exposure especially in Brazil where there has been some concern among investors about the slowdown in the economy.”

After taking 65 billion euros in provisions and write-downs for bad loans over the past five years, Santander is banking on a recovery in its home market to help restore earnings to pre-crisis levels approaching 9 billion euros by 2016, Botin told shareholders last month.

Santander is set to book about 1.1 billion euros of gains from asset sales, including its real estate platform and a 4 percent stake in its U.S. auto-lending unit as part of an initial share sale, according to KBW. The bank will probably use those funds to bolster its balance sheet rather than book them as profit, Antonio Ramirez and Marta Sanchez, analysts at KBW, said in an April 22 report.

Santander shares have risen 8 percent this year compared with a 16 percent gain for the 43-member Bloomberg Europe Banks and Financial Services Index. Shares in Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank that reports earnings April 30, have declined 0.8 percent this year.

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