January 31, 2018 / 10:00 AM / a year ago

U.S. charges take shine off Brazil-driven Santander profit

MADRID (Reuters) - Banco Santander’s (SAN.MC) on Wednesday reported a 4 percent fall in fourth-quarter net profit due to one-off impairments in its U.S. business, which marred otherwise solid results and a strong performance in the bank’s largest market, Brazil.

A woman walks past a Banco Popular and Santander banks offices in Barcelona, Spain June 7, 2017. REUTERS/Albert Gea

The results show how Santander, the euro zone’s biggest bank by market value, is benefiting from its Latin American business, while in Spain it has been struggling to increase profitability because of low interest rates and fierce competition.

The bank reported a net profit of 1.54 billion euros ($1.92 billion) for the October-December period. Analysts had expected net profit to come in at 1.46 billion euros in the quarter.

Analysts broadly welcomed the results driven by lower overall lower loan-loss provisions and with Latin America as the main area of strength for the full year and the quarter.

“Throughout the year we have seen strong growth in Latin America, with our businesses in Brazil and Mexico performing exceptionally well,” Ana Botin, Santander’s executive chairman said in a statement.

Santander’s shares were up 1 percent at 0900 GMT, against a 0.2 percent rise on the European STOXX banking index .SX7P.

“Our investment thesis is driven by an ongoing improvement of profitability thanks to better revenues, mainly in fees and lower provisions charges mainly in Latam,” Deutsche Bank said in a note to clients.

At end of the fourth quarter, Santander finished with a return on tangible equity (ROTE) ratio of 11.21 percent within the reach of a 11.5 percent target it set for 2018.

The bank’s bottom line was hit however by impairments of 752 million euros, mainly on its U.S. consumer finance group after a review of the bank’s goodwill driven by a fall in earnings at Santander Consumer USA Holdings relative to previous years.

In the United States, which accounts for four percent of the group’s profit, Santander booked a fourth-quarter loss of 5 million euros after taking unexpected additional charges of 149 million euros related to provisions for hurricanes and an increase in Santander’s stake in Santander Consumer USA to 69 percent.

Excluding net charges of 382 million euros, underlying net profit at the group in the quarter rose 9 percent to 1.92 billion euros, above analyst’s forecasts.

Santander has consolidated Banco Popular into its accounts since the third quarter after taking over the troubled Spanish lender in June.

Santander’s net interest income (NII) - a measure of earnings on loans minus deposit costs - was 8.6 billion euros in the quarter, up 6.3 percent from last year boosted by Popular, which contributed more than 400 million euros to lending income.

Analysts polled by Reuters had expected NII to come in at 8.52 billion euros.

But lending income was down 0.9 percent against the previous quarter as competition in Spain continue to erode margins.

In Brazil, which accounts for more than quarter of the group’s earnings, net profit grew 26 percent, boosted by solid growth in revenues and lending income, while in the Britain, its second-biggest market, profits fell 12 percent.

The bank managed to cut its non-performing loan ratio to 4.08 percent of total loans at end-December from 4.24 in September after sold a majority stake in a 30 billion euros property portfolio inherited from Popular.

The European Central Bank is currently working on a draft of new measures targeting soured loans sitting on banks’ balance sheets, although the publication of new rules may be postponed after fierce criticism from lawmakers and bankers.

The bank also said it had delivered on all strategic targets for 2017 and it remained confident it would achieve all targets for 2018.

($1 = 0.8557 euros)

Reporting By Jesús Aguado; Editing by Paul Day and Gopakumar Warrier. Editing by Jane Merriman

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