(Adds CEO comment on buys.)
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 net profit target of EUR8.88 billion and said it was sticking with its dividend policy of distributing 50% to shareholders.
Santander's results showed how the euro zone's biggest lender by market value remains in fund-raising mode. The bank said it is attracting client deposits at double the rate that it writes loans. It also continued to bolster its balance sheet by booking billions in capital gains from asset sales and provisions for expected future loan losses. But that doesn't mean it will go out and buy more banks in the short term, Chief Executive Alfredo Saenz said. "We don't have any ideas of doing any acquisitions in any of our main geographical areas," he said.
Santander last year went on a buying spree while banks around the world were struggling to cope with the global banking crisis. It bought Alliance & Leicester and the branch network of Bradford & Bingley in the U.K., and Philadelphia lender Sovereign in the U.S. Now, Saenz said, Santander will focus on integrating and restructuring these assets.
The bank said third-quarter net profit was 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 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 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 1147 GMT, Santander shares were down EUR0.42 or 3.7% at EUR10.93. The Spanish market was down 1.8%.
-By Christopher Bjork, Dow Jones Newswires; +34-91-3958123; christopher.bjork@dowjones.com
(Leire Barrera and Jonathan House contributed to this article.)