Santander Profit Misses Estimates on Higher Provisions

Banco Santander SA posted a fourth-quarter profit that missed analyst estimates as Spain’s biggest lender set aside money for further loan losses in its home market and earnings slumped in Brazil and Britain.

Net income rose to 401 million euros ($544 million) from 47 million euros in the year-earlier period when it took one-time charges including 1.8 billion euros to cover real estate losses, the Santander, Spain-based bank said in a regulatory filing today. Earnings missed the 801.6 million-euro average estimate of 11 analysts surveyed by Bloomberg.

Santander took provisions of 18.8 billion euros last year, 6.6 billion euros more than in 2011, after the government ordered banks to recognize losses on real estate and it set aside charges to cover more defaults. While Santander Chairman Emilio Botin said in a statement that 2013 earnings would see a “marked recovery,” quarterly earnings at the Brazil and U.K. subsidiaries, two of its largest, slumped.

“Spain by itself should be enough to make 2012 a turning point for earnings because there were a lot of one-off costs for real estate,” said Carlos Joaquim Peixoto, an analyst at Banco BPI SA in Porto, Portugal, with a buy rating on the shares. “The performance of other regions, especially Brazil, still represents a significant challenge.”

‘Full Productivity’

Santander shares fell 3.5 percent to 6.18 euros at close of trading in Madrid. They’ve advanced 1.3 percent this year, compared with an 8.5 percent gain for the 38-member Bloomberg Europe Banks and Financial Services Index. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, which reports earnings tomorrow, has climbed 5.2 percent.

Botin signaled confidence at a press conference in Madrid today, saying Spain and Europe were “entering a new phase” that would yield clearer signs of recovery in 2014.

“We are close to a change in the cycle,” he said. Botin, who is 78, joked with a journalist who asked about his future plans, saying he and Chief Executive Officer Alfredo Saenz, 70, were operating at “full productivity.”

Provisioning costs for covering asset impairments jumped 22 percent from a year ago to 3.13 billion euros, the bank said. Bad loans as a proportion of total loans climbed to 4.54 percent at group level from 4.33 percent in September and to 6.74 percent from 6.38 percent at its Spanish business, it said.

ECB Loans

Profit before costs of provisions fell to 5.38 billion euros compared with 5.68 billion euros in the third quarter and 5.54 billion euros in the same quarter a year ago.

“With the exceptional write-offs behind us, we should see a marked increase in earnings, based on the group’s recurrent revenues and cost control,” Botin said.

The bank returned 24 billion euros of emergency three-year loans from the European Central Bank and keeps 11 billion euros of so-called LTRO funding as “liquidity insurance,” it said.

The lender cut real estate holdings by half to 12.5 billion euros as it sold 33,500 properties owned by the bank and property developers. The bank assigned 1 billion euros to its budget to cover costs of accelerated real estate sales because of concerns about a so-called “bad bank” set up by the government to absorb the soured property of nationalized lenders might affect the market, Saenz said on a webcast today.

Santander’s core capital ratio, a measure of financial strength, slipped to 10.33 percent from 10.38 percent in September, it said.

Spanish Lending

Net interest income, the difference between what a bank earns from lending and what it pays on deposits, slipped 5.1 percent from a year ago to 7.15 billion euros as net lending fell 3.9 percent. Deposits dropped 0.9 percent from a year ago, according to the statement.

Profit from Spain rose to 236 million euros from 29 million euros a year ago, while lending in the country fell 8.5 percent, Santander said.

The bank said last month it would buy out minority investors in its Banco Espanol de Credito SA Spanish consumer unit and shutter 700 branches to cut costs. Spanish deposits jumped 22 billion euros in 2012, the bank said. The bad loans ratio at its Spanish branch network climbed to 9.65 percent in the fourth quarter from 9.56 percent in the third.

“The results in the two major profit centers -- U.K. and Brazil -- were disappointing,” Patrick Lee and Adrian Cighi, London-based analysts at RBC Europe Ltd., said in a e-mailed note. “All the difficult trends remain for the Spanish divisions.”

Quarterly earnings from Brazil dropped 18 percent from a year ago to 524 million as net interest income fell and loan-loss provisions rose. The bad-loans ratio for Brazil climbed for a fifth quarter to 6.86 percent from 6.79 percent in September. Profit from the U.K. slumped 34 percent to 271 million euros as net interest income declined 21 percent.