Spain weighs on Santander profits but Brazil still shines

Santander on Thursday reported a 5-percent fall in first-quarter earnings as strong growth in Latin America was offset by ongoing weakness in Spain.

Spain's biggest bank, however, signaled that things may be starting to turn around in its domestic market.

Santander's net income dropped to 2.11 billion eurosin the first three months of the year from 2.22 billion a year earlier. Attributable earnings from Santander's Spanish branch network fell 31.4 percent from a year earlier but were up 54 percent from the end of last year, while revenues grew 11 percent.

Santander also noted a decline in new non-performing loans in Spain, and as a result less need for provisions for loan losses. Loan defaults for the group rose 27 basis points from a year earlier to 3.61 percent, and for Spain stood at 4.57 percent, well below the sector average.

However, Chief Executive Officer Alfredo Sáenz told analysts at a presentation that the bad-loan ratio is expected to continue to grow before peaking at around 5 percent in the third quarter. Santander's share price closed yesterday up 1.49 percent.

The dynamism of Brazil continued to underpin earnings, with the contribution from the Latin American giant climbing 23 percent. Latin America now accounts for 43 percent of Santander's earnings, and Brazil alone 25 percent. Continental Europe makes up a further 36 percent, with 13 percent coming from Spain, and 19 percent from Britain. "These results highlight the enormous benefits of geographic diversification," Santander Chairman Emilio Botín said in a statement. "Revenues are growing at a good pace throughout the group and in Spain reversed the downward trend of recent quarters. I am convinced that this change will continue in the coming months."

Santander's core capital ratio climbed by 0.87 points to 9.66 percent as of the end of March, well above the new minimum of 8 percent. Sáenz said Santander would continue to generate capital in the region of 15 to 20 basis points over the coming quarters, allowing the bank to maintain its core capital ratio above 9 percent this year and the next.

"There's still pressure on Spain, but overall the operating performance of the group is looking good," Bloomberg quoted Daragh Quinn, an analyst at Nomura International in Madrid, as saying. "The good capital number makes this a reasonable set of results."

Portuguese exposure

Sáenz said Portugal's debt crisis could have some impact on Santander Totta, but added its Portuguese unit had sufficient capital to absorb impairments while still generating profits.

Santander's earnings in Portugal declined 34 percent in the first quarter to 90 million euros. Santander Totta holds 1.6 billion eurosin public debt, 4 percent of the group's portfolio.

"The changed outlook that could result from the rescue plan requested by the Portuguese government would have an immaterial impact on the group," Santander said.

Sáenz said Santander maintains its plan to list its British unit on the stock market in the second half of the year.