(Adds CEO comment.)
By Christopher Bjork
Of DOW JONES NEWSWIRES
MADRID -(Dow Jones)- Banco Santander SA (STD) on Wednesday reported flat third-quarter net profit as resilient revenue growth in Europe and Latin America offset a sharp rise in impairments for loan losses.
The banking giant reiterated its full-year target of reaching EUR8.88 billion in earnings and said it was sticking with its dividend policy of distributing 50% of profits to shareholders.
Santander's results showed how the euro zone's biggest lender by market value remains in fund-raising mode. The bank continued to bolster its balance sheet by booking billions in capital gains from asset sales and provisioning for expected future loan losses. Santander said it is attracting client deposits at double the rate that it writes loans.
The bank said third-quarter net profit stood at to EUR2.22 billion, marginally above the EUR2.21 billion it reported a year ago, and bang in line with analyst expectations. Net interest income rose 24% to EUR6.82 billion from EUR5.48 billion, boosted by higher lending margins.
But provisions for possible loan losses also rose sharply as some of Santander's main markets, including Spain and the U.K., remain mired in recession. Third-quarter provisions and impairment charges rose to EUR2.94 billion from EUR1.76 billion.
For the nine-month period, Santander said net profit was down 3% to EUR6.74 billion from EUR6.94 billion a year earlier. Results were driven by its Continental Europe division, which contributed 49% of earnings. Brazil provided 20%, the rest of Latin America 15% and the U.K. 16%, Santander said.
"Even in a stress environment, U.K. and Latin America are growing, and Europe remains stable," said Chief Executive Alfredo Saenz.
Its recently acquired U.S. bank, Sovereign, remained a drag on earnings, reporting a $29 million loss in the first nine months of the year.
Despite the tough environment for most banks, Santander said its total loans rose by 11% and deposits by 21% in the nine-month period.
The bank has booked EUR2.25 billion in capital gains this year, which it is using to strengthen its balance sheet and to build provisions for real-estate assets it has bought since the start of the financial crisis.
Just after the close of the third quarter, it raised EUR1.42 billion by selling 15% of its Brazilian unit in an initial public offering. It also reaped an EUR823 million gain by exchanging billions of existing securities for new ones and from buying back securitized bonds at a discount.
Including the proceeds from the Brazil sale, Santander's core capital ratio will stand at 8.4%, the highest level in the company's history, the bank said. That ratio was 7.7% at the end of September, up from 6.7% a year earlier.
CEO Saenz said the bank estimates it can generate between 0.1-0.15 percentage points of core capital per quarter with cash flow from results. "This (capital strength) gives us great comfort as the bank faces an uncertain regulatory and macroeconomic environment," he said.
The bank's non-performing loan ratio rose to 3.03% at the end of September from 1.71% a year earlier. Santander also took a EUR600 million write-down on its portfolio of real-estate assets. The bank has bought up some EUR4 billion of such assets since the start of the crisis, mostly from struggling home builders.
At 0839 GMT, Santander shares were down 2.3%, or EUR0.27 at EUR11.08. The Spanish market was down 1.1%.
-By Christopher Bjork, Dow Jones Newswires; +34-91-3958123; christopher.bjork@dowjones.com (Jonathan House contributed to this article.)