Santander boosts capital, solid Latam business offsets European units

MADRID (Reuters) - Spain's Santander SAN.MC boosted its capital ratio in 2019 and will target a further increase in 2020, the bank said on Wednesday, lifting its shares, as a solid underlying performance in Latin America offset sluggishness in Britain and Spain.

FILE PHOTO: The logo of Santander bank is seen at a branch in Mexico City, Mexico April 12, 2019.REUTERS/Edgard Garrido/File Photo

Santander’s diversification overseas, especially in Brazil and Mexico, has helped it cope with tough conditions for lenders in Europe in the years since the financial crisis, but its has consistently had weaker solvency ratios than its European peers.

The bank had said in the previous quarter that it was aiming to end 2019 with a capital ratio of 11.4% to 11.5%, but on Wednesday struck a more bullish tone saying its CET1 capital ratio had risen by 35 basis points to 11.65% and was expected to end 2020 close to 12%.

Shares in Santander, the second-biggest bank in the euro zone in terms of market value, were up 3.4% at 3.67 euros by 0917 GMT, the top performer on Spain's blue chip index .SX7P.

“We earned the loyalty of our customers, delivering record annual revenues and strong underlying profit. This allowed us to further strengthen our capital base and grow our CET1 capital ratio,” Santander’s Executive Chairman Ana Botin said.

Taking into account a regulatory impact of 23 basis points from the full implementation of new accounting standard IFRS-9, the capital ratio stood at 11.42% compared to 11.07% at the end of September.

“The big positive surprise was the strong capital the quarter,” JP Morgan said in a note to analysts.

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Santander also said it was well on the way to achieving its medium-term goals and expected to deliver high single digit average annual earnings per share growth over the next three years

It posted a 35% increase in fourth-quarter net profit from a year earlier to 2.78 billion euros, beating analysts expectations of 2.5 billion euros, according to a Reuters poll.

The bottom line was buoyed by capital gains of 711 million euros, mainly related to an agreement with Credit Agricole CAGR.PA to combine custody and asset servicing operations.

Net profit for the whole of 2019 fell 16.6% to 6.5 billion euros, hit by one-off charges of 1.74 billion euros ($1.66 billion) related primarily to its British business in the third quarter.

Overall, net interest income, a measure of earnings on loans minus deposit costs, was 8.84 billion euros, down 2.4% from the same quarter last year but 0.4% higher than in the previous quarter due to solid lending growth in Latin America.

Analysts had forecast a NII of 8.86 billion euros.

In Brazil, where the lender makes close to a third of its overall profit, underlying profit rose 4.6% in the quarter from a year earlier. In Mexico, its fourth biggest market, profit was up 42%. While low interest rates prevail across the euro zone, benchmark rates in Mexico stand at 7.25%.

In the United States, where underlying profits rose 31.4% in the quarter, its Santander Consumer Holdings business announced on Wednesday an offer to buy up to $1 billion of its shares.

On Wednesday, the bank also said it would pay a second dividend of 0.13 euros per share, which, when added to a 0.10 euro per share dividend paid in November, takes the full-year 2019 dividend to 0.23 euros per share, the same as in 2018.

Additional reporting by Jose Elias Rodriguez; Editing by Ingrid Melander, Kirsten Donovan