Santander Profit Climbs as Property Clean-Up Charges Ease

Banco Santander SA, Spain’s biggest bank, said third-quarter profit rose more than eightfold as lower costs for absorbing losses on real estate outweighed falling earnings from Brazil and its home market.

Net income climbed to 1.06 billion euros ($1.46 billion) from 122 million euros in the same period a year ago, the Santander, Spain-based lender said in a filing to regulators today. That was in line with the 1.07 billion-euro average estimate in a Bloomberg survey of eight analysts.

Bad loans as a proportion of total lending rose to 5.43 percent from 5.18 percent in June, while interest income fell, Santander said. Chief Executive Officer Javier Marin is focusing on cutting costs and winning higher-value corporate business to boost profitability and rebuild earnings after last year’s government-ordered provisions for soured real-estate assets.

“Earnings looked quite weak, with net interest income down,” Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd. in London, said in a phone interview today. “You’re still struggling to see any signs of real improvement in underlying asset quality.”

Net interest income, or the excess revenue from interest earned on assets compared with payments to depositors, fell 16 percent from a year ago to 6.29 billion euros as net lending shrank an annual 8.7 percent.

Core Capital

Santander shares rose 1.1 percent to 6.61 euros at close a.m. in Madrid, extending its gain for this year to 8.4 percent, compared with a 19 percent advance for the 44-member Bloomberg Europe Banks and Financial Services Index. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, which reports earnings tomorrow, has risen 30 percent.

Net loans newly classified as in default reached 4.1 billion euros in the third quarter. That compares with 5.9 billion euros in the second quarter, when the bank reclassified 2 billion euros of loans in Spain as non-performing, and 3.8 billion euros in the same quarter a year ago.

Santander took a 1.14 billion-euro one-time charge a year ago for real estate losses. Net loan-loss provisions fell to 2.6 billion euros from 2.99 billion euros a year ago and 3.1 billion euros in the second quarter, the lender said.

“After several years of high levels of write-offs and reinforcement of capital, Banco Santander is preparing for a new period of increased profitability,” Chairman Emilio Botin said in a statement accompanying the results.

Santander will keep studying growth opportunities and will look at buying two Spanish state-owned lenders, NCG Banco and Catalunya Banc, as well as the Polish lender Bank Gospodarki Zywnosciowej SA, Marin said at a news conference today. Marin welcomed the European Central Bank’s plans to go through the books of about 124 of the region’s banks, saying he didn’t expect big surprises for Spanish lenders and that the exercise wouldn’t affect the way Santander runs its business.

Capital Levels

The lender’s core capital ratio under Basel II criteria rose to 11.56 percent from 11.11 percent in June. The bank remains very comfortable with its capital and liquidity levels, Marin said on a webcast for analysts today.

“They are world-class operators of retail banking franchises, but our concern is still about Spain and the economy there, which faces the prospect of extremely low growth over a long time,” Nick Anderson, an analyst at Berenberg in London, who rates Santander sell, said before the results. “The concern about capital hasn’t gone away and remains a key issue.”

Profit from Brazil, the market that contributes the most to Santander’s earnings, dropped to 358 million euros from 531 million euros a year ago as net interest income fell 29 percent, the bank said. Loan-loss impairment charges fell to 1.07 billion euros from 1.37 billion euros in the second quarter, as the bad-loans ratio slid to 6.12 percent from 6.49 percent in June.

Earnings from Spain dropped to 73 million euros from 342 million euros a year ago as net interest income slumped 20 percent and lending dropped 8.7 percent. Bad loans as a proportion of total loans jumped to 6.4 percent from 5.75 percent in June and 3.64 percent a year ago.

Spanish real-estate holdings, including foreclosed assets and loans, fell to 11.42 billion euros from 11.58 billion euros in the second quarter.

Profit from the U.K. fell to 306 million euros from 322 million euros.

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