Spain's Santander books record $13 billion loss on COVID-19 impairments

MADRID (Reuters) - Spain's Santander SAN.MC reported a record net loss of 11.1 billion euros (10.08 billion pounds) in the second quarter, taking the biggest hit yet for a European bank dealing with the coronavirus crisis which it tried to offset with lower costs.

The euro zone’s second-biggest bank by market value said on Wednesday it had booked one-off charges worth 12.6 billion euros as the economic deterioration caused by the COVID-19 pandemic forced it to writedown previous acquisitions, mainly in Europe.

Santander’s core markets spanning Brazil to Spain have been some of the hardest hit by the pandemic, with weaker emerging market currencies exacerbating the pain.

Of the total impairments, 10.1 billion euros are related to goodwill and 2.5 billion euros to DTAs, an instrument that grants tax breaks to companies when reporting losses or against certain provisions.

The bank said impairments would have no impact on its capital levels, which rose to 11.46% in June from 11.33% in March with the full implementation of new accounting standards.

Santander reiterated its guidance for cost of risk, a measure of the cost of insuring its loan book, at between 130 basis points and 150 basis points by the end of 2020 after it rose in June to 126 basis points. It was 100 bps in March.

Excluding one-offs, underlying attributable profit fell 27% to 1.53 billion euros against the same quarter a year ago.

FILE PHOTO: Buildings are reflected on a logo of a Santander bank branch in central Madrid, Spain, April 6, 2016. REUTERS/Juan Medina

Shares in Santander were down 3.5% by 0740 GMT, the worst performer on Spain's Ibex-35 index .IBEX which was down 0.4%.

Analysts at UBS said the cost performance was better than expected but called the results “a messy set of numbers”, confirming the negative direction for revenues in most units and the likely rise of loan loss provisions in the second half.


Santander said the group was ahead of its cost savings plan, with operating expenses down 5% year on year in real terms and the European region achieving more than 300 million euros in costs efficiencies in the first half, 75% of the 2020 target.

Net interest income, a measure of earnings on loans minus deposit costs, fell 14% to 7.72 billion euros due to pressure from low interest rates, while revenues fell 15% to 10.46 billion euros.

Analysts polled by Reuters expected net interest income at 7.75 billion euros and revenues at 10.56 billion euros.

The COVID-19 related impairments hit return on tangible equity ratio (ROTE), a measure of profitability, which stood at 5.19% at the end of June.

Santander Chairman Ana Botin said the bank was committed to raising its ROTE to 13%-15% in the medium term and would provide an update on its strategic plans in the coming months.

Santander said it was proposing a scrip dividend, payable in new shares, this year equivalent to 10 cents per share for 2019, after the European Central Bank’s recommended euro zone banks did not pay cash dividends until the end of 2020.

The bank said its board intended to resume paying a full cash dividend as “soon as market conditions normalise, subject to regulatory approvals and guidance.”

Reporting by Jesús Aguado; additional reporting by Emma Pinedo, Editing by Inti Landauro, Carmel Crimmins and Edmund Blair