(Updates to add Botin’s comments on unit’s profitability starting in the eighth paragraph.)
Sept. 29 (Bloomberg) -- Banco Santander SA Chief Executive Officer Alfredo Saenz said it may take three years for profit to “return to normal” as revenue from emerging markets drives growth at Spain’s biggest bank.
The bank will see a “gradual normalization” of profit, which may improve its return on equity by between three and six percentage points, Saenz said in a statement based on a presentation for analysts today. Santander’s return on equity, a measure of profitability, was 9.2 percent in June.
Santander has relied on emerging markets such as Brazil and Mexico to bolster earnings as profit slides in Spain, which accounts for a third of its lending. The bank in July posted a 38 percent drop in second-quarter net income of 1.39 billion euros ($1.9 billion) as loan losses rose in Spain and it set aside money to compensate U.K. clients mis-sold loan insurance.
“The world is too complex to be a ‘one-trick pony,’” Saenz said in the presentation. “It is possible to create value in both mature and emerging markets.”
Fast-growth economies will provide “double-digit” profit increases in the short and medium term while mature markets where provisions have stabilized or are falling such as the U.K. and U.S. will register “single-digit” growth over the next three years, Saenz said.
Spain and Portugal will generate 2 billion euros of free capital a year in 2013 and 2014 and the bank’s task now is to retrieve lost profits in mature markets where it’s now provisioning heavily for loan losses, he said.
In the U.K., Santander predicts an “investment period” in 2012 and 2014 with “higher profitability starting in 2014,” the unit’s CEO, Ana Patricia Botin, said in a presentation today. The focus over the next three years will be to integrate operations acquired from Royal Bank of Scotland Group Plc, which the bank expects to complete in the final quarter of 2012, she said.
“By 2014, Santander U.K. will be the leading U.K. bank in efficiency and profitability,” Botin said. Return on tangible equity at the U.K. unit, a measure of profitability, is expected to drop to about 11 percent in 2012 and 2013 from 15 percent this year as its cost-to-income ratio rises to as much as 50 percent from 45 percent, she said.
“By 2014, after absorbing systemic and structural impacts, Santander U.K. will be as efficient and profitable as it is today,” she said.
The bank now doesn’t expect to sell shares in its U.K. unit until after 2012 and an initial public offering may not happen until as late as 2014, Saenz said today in London.
Santander forecast its lending in Brazil will increase by as much as 17 percent a year in 2012 and 2013, according to a presentation by Marcial Portela, head of the unit. Profit in the country, which contributes a quarter of Santander’s earnings, will rise 15 percent in 2012 and 2013, he said.
--Editors: Jon Menon, Steve Bailey
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