Bloomberg News

Santander Net Rises 10% as Spanish Bad-Loan Provisions Drop

October 27, 2011

(Updates with closing share price in fifth paragraph.)

Oct. 27 (Bloomberg) -- Banco Santander SA, Spain’s biggest lender, pledged to exceed new European capital requirements after third-quarter profit rose 10 percent on lower bad-loan provisions in its home market.

Net income rose to 1.8 billion euros ($2.52 billion) from 1.64 billion euros a year earlier, the Santander-based bank said in a filing to regulators today. That was lower than the 1.87 billion-euro mean estimate of 13 analysts surveyed by Bloomberg.

Chief Executive Officer Alfredo Saenz told investors last month it may take three years for profit to “return to normal” in the face of mounting Spanish defaults and weakening earnings in the U.K. and Brazil. Santander expects to “approximately” match 2010 profit this year, he said today. The bank said it could reach a core capital ratio of 10 percent by June 2012, exceeding European requirements, without selling new shares and while maintaining its dividend policy.

“In Spain, I’m still a bit scared about the real-estate market because I still have the impression that there are more losses to come out there,” said Peter Braendle, who helps manage about $60 billion, including Santander shares, at Swisscanto Asset Management in Zurich. “Fortunately, Spain is only one side of the Santander story because they have a diversified business.”

Shares Gain

Santander shares rose 7.5 percent, the biggest gain since January, to 6.44 euros in Madrid, paring this year’s decline to 19 percent. The 46-company Bloomberg Europe Banks and Financial Services Index climbed 8.8 percent today after European leaders agreed to bolster lenders’ capital and boost the region’s rescue fund in a bid to stem the debt crisis.

Santander’s core capital ratio rose to 9.42 percent in September from 9.2 percent three months earlier, the bank said. The ratio includes 7 billion euros from the sale of convertible bonds to 129,000 retail customers in 2007.

Taking into account the European Banking Authority’s method for calculating capital, the ratio would have been 8.12 percent in September. Given the 9 percent requirement, that left Santander with a capital shortfall of 5.2 billion euros, the bank said in a presentation today.

The bank expects to book 1.5 billion euros of gains from the sale of stakes in its Latin American insurance business and U.S. auto loans in the fourth quarter, CEO Saenz said on a webcast for investors. Santander plans to use those funds to write down Spanish real-estate assets, he said.

Bad Loans

Bad loans as a proportion of total lending at Santander rose to 3.86 percent from 3.78 percent in June, the bank said. The bad-loan ratio in its home market climbed to 5.15 percent from 4.81 percent three months earlier. The group’s net new loans classified as in default increased to 4.21 billion euros from 4.02 billion in the second quarter and 2.9 billion euros a year ago.

The bank’s net lending rose an annual 2.6 percent to 734.3 billion euros as deposits increased 3.1 percent. Net interest income climbed to 7.7 billion euros from 7.4 billion euros a year ago.

Santander’s profit from Spain, where lending contracted an annual 5.6 percent, rose 23 percent to 141 million euros, the bank said. Earnings in the third quarter of last year were crimped by a 472 million-euro charge as the company complied with Bank of Spain rules obliging it to recognize bad loans more quickly.

Earnings from Brazil, the biggest contributor to Santander’s profit, fell 24 percent to 592 million euros as provisions for bad loans rose 46 percent. Lending in Brazil rose 10 percent. Profit from the bank’s U.K. unit, led by Botin’s eldest child Ana Patricia Botin, fell 21 percent to 411 million euros.

--Editors: Dylan Griffiths, Keith Campbell.

To contact the reporters on this story: Charles Penty in Madrid at

To contact the editors responsible for this story: Frank Connelly at

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