Santander profits hit by UK provision for mis-sold products

Leading Spanish bank Santander's earnings fell sharply in the first half of the year as it took a charge for possible claims against mis-sold insurance products in the United Kingdom.

Santander said it had set aside a fund worth 620 million euros for possible claims against payment protection insurance (PPI) products, which cover, for example, mortgage payments in the case of unemployment or sickness. That helped push down the bank's net attributable profit in the first six months of the year by 21 percent to 3.501 billion euros.

At a presentation of the bank's results, Chief Executive Officer Alfredo Sáenz said British banks as a whole had set aside about 6 billion euros for possible PPI claims, with Santander's share of that proportional to its exposure to such products. "There will be an avalanche of back claims and this could have a strong economic impact," Sáenz said. "That is why the provision is so big. We have 10 percent of the PPI market, and that, unfortunately, is the impact it will have on us."

The provision caused Santander's UK division to report a loss for the second quarter of 136 million euros.

Sáenz said Santander has dropped plans for initial public offerings of its UK and Argentinean units this year because of turbulence in the financial markets, and would probably leave the IPOs for next year.

"If they are going ahead with this partial IPO in the UK, they want to clean the books," Reuters quoted WestLB banking analyst Neil Smith as saying.

Without the PPI charge, Santander's net profit in the first half was down 7 percent at 4.121 billion euros. Earnings from Spain declined as lending fell 7 percent, while second-quarter profits from Brazil dipped due to an increase in loan impairments. Revenues for the first half were up 6 percent from a year earlier, and hit 11 billion euros for the first time in any quarter in the period April-June.

"Our strong capacity to generate revenues will enable us to close 2011 with a recurrent profit in line with last year's and to keep our dividend at 0.60 euros per share," Santander Chairman Emilio Botín said in a statement.

Latin America contributed 44 percent to group earnings, with Brazil alone accounting for a quarter of the total. Continental Europe's share was 34 percent, while Spain contributed 12 percent. Excluding the PPI provision, Britain made up 17 percent of group profits.