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Santander Sees First-Half Profit Rising as Bank Sells Stock

  • Earnings were about $4.1 billion for the period, bank says
  • Lender to sell 1.5 billion shares at 4.85 euros apiece

Banco Santander SA said its takeover of failing Banco Popular Espanol SA will have a minimal impact on first-half earnings, with the bank set to post a profit of about 3.6 billion euros ($4.1 billion).

Spain’s largest lender also set the price of its 7.07 billion-euro capital increase at 4.85 euros each, or 19 percent below Monday’s close of 6 euros, according to statements issued late Monday. The Madrid-based bank is selling 1.5 billion shares to shore up its balance sheet after taking over Banco Popular for 1 euro in a deal brokered by European regulators.

Before the acquisition, Santander Chairman Ana Botin forecast improved performance at the bank, saying she expected to see economic growth in the firm’s 10 main markets, despite the Brexit vote and negative interest rates at home. Based on the bank’s estimate, profit rose about 24 percent in the first six months from a year earlier, excluding the minimal effect from Banco Popular. That would give Santander a second-quarter profit of about 1.73 billion euros compared with 1.28 billion euros a year earlier.

“Santander’s estimates for first-half results are pretty positive on the face of it,” said Arjun Bowry, a London-based analyst at Bloomberg Intelligence. “However, the main talking point on the second-quarter call will inevitably be the disposal of Popular’s real estate assets.”

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Santander was trading 0.3 percent lower at 5.97 euros as of 1:31 pm in Madrid trading, bringing this year’s gain to 21 percent. The Euro Stoxx bank index was little changed.

Santander bought Popular on June 7 after European regulators wiped out the failed lender’s shares and junior debt to offset losses from bad assets. The acquisition will leave Santander leading overall lending in Spain, with a market share of about 20 percent. That could ease pressure on margins from low interest rates and weak demand for credit.

Read more: Santander’s Botin takes on crippled rival in her boldest bet

Popular is expected to contribute about 82 billion euros of net loans, or 10 percent of Santander’s total, and 65 billion euros of deposits, equivalent to 8.5 percent of the total, Santander said. That gives the bank a bad-loan ratio of about 5.4 percent in the second quarter, compared with 3.9 percent in first quarter before the deal was announced.

The bank’s fully load common equity Tier 1 ratio, a measure of financial strength, will be about 10.7 percent as of June 30, assuming the share sale is fully sold, the lender said. That compares with 10.55 percent in the first quarter before Popular deal.

Santander said in a filing that the rights to subscribe to the new shares will trade between July 6 and July 20. Citigroup Inc., UBS Group AG and Santander will be joint global coordinators of the sale. Apart from Citigroup and UBS, the transaction is underwritten by another 17 banks including BNP Paribas SA, Credit Suisse Group AG, Goldman Sachs Group Inc. and Jefferies Group LLC.

Separately, Banco Popular hired Morgan Stanley to help it find partners for a portfolio of repossessed real estate assets and delinquent loans. Those assets have a gross book value of 30 billion euros, it said in a filing Friday. The transaction comes at a time when the real estate prices are rising as the Spanish economy recovers from recession and unemployment declines.

The “current macro situation is helping Santander accomplish great results for this year,” said Imanol Urquizu, a fund manager at Rho Investments Sil SA. “The bank has a great history of incorporating new banks into their brand and dealing with tough situations.”

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