Banco Santander Profit Seen Falling as Brazil Loan Income Weighs

Banco Santander SA, Spain’s biggest bank, will probably say first-quarter net income declined on lower profit from Brazil and the U.K. and as reduced interest rates squeezed Spanish lending margins.

Profit may drop 18 percent from a year earlier to 1.31 billion euros ($1.7 billion), according to the average estimate in a Bloomberg survey of eight analysts. The Santander, Spain-based bank is due to publish first-quarter earnings tomorrow, before the Madrid stock exchange opens.

Chairman Emilio Botin is talking up prospects for Santander, telling shareholders last month to expect a “significant” increase in future profit as the bank completes a clean-up of its Spanish real estate assets. Santander’s relatively low capital adequacy ratios at a time when Spain’s economy is still shrinking and weak performance in key markets such as Brazil and the U.K. mean investors are still concerned about share performance, said Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd.

“The feeling in the market is that most of the effort in cleaning up real estate in Spain has now been done but we still see that as an area of potential disappointment,” he said by telephone from London. “People will certainly be looking for signs of recovery in Brazil and the U.K.”

Profit from Santander’s Brazilian banking business may have fallen 38 percent in the first quarter from a year ago to 401 million euros as net interest income dropped, said Carlos Joaquim Peixoto, an analyst at Banco BPI SA in Porto, Portugal.

Earnings at Santander’s U.K. bank may have dropped 27 percent to 222 million euros, Nick Anderson, an analyst at Berenberg Bank in London, said in a report last week.

Shares Underperform

Shares in Santander have dropped 8 percent this year compared with a 3.5 percent gain for the 40-member Bloomberg Europe Banks and Financial Services Index. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank which will publish earnings April 26, rose 5.5 percent in the period.

Santander set aside provisions of 18.8 billion euros last year, 6.6 billion euros more than in 2011, to cover losses on assets such as Spanish property. The bank cut its Spanish real estate holdings in half to 12.5 billion euros as it sold 33,500 of its own properties and those of developers. Even so, the bank has assigned 1 billion euros to its budget this year to cover the costs of accelerated real estate sales, Chief Executive Officer Alfredo Saenz said in January.

“If you strip out the effect of the extraordinary provisions that they’ve done, there won’t be any improvement in the underlying cost of risk because the Spanish economy is in recession,” Peixoto said.

Profit from European operations, a division that includes Spain, may decline 9 percent to 533 million euros as Santander earned less in interest from Spanish mortgages, according to Peixoto.

Before it's here, it's on the Bloomberg Terminal.