STD Banco Santander, S.A. Sponsored Adr (Spain)

By Jeannette Neumann 

MADRID--Banco Santander SA said Wednesday that net profit rose in the fourth quarter from a year earlier on higher fees and stronger-than-expected lending income, as one of Europe's largest lenders kicks off the region's annual bank earnings season.

Santander said net profit was EUR1.60 billion ($1.72 billion) in the fourth quarter of 2016 compared with EUR25 million a year earlier, and against analysts' forecasts of EUR1.42 billion, according to a poll by FactSet.

The year-earlier figure was dragged down by EUR1.7 billion in charges to cover the declining value of its software and EUR600 million to address potential claims by clients for the wrongful sale in the U.K. of payment protection insurance, which was meant to cover mortgage, auto and other loan payments if the borrower lost a job or fell ill.

In the third quarter of 2016, Santander reported a net profit of EUR1.7 billion.

The Spanish lender, run by Executive Chairman Ana Botín, said net interest income in the fourth quarter was EUR8.1 billion compared with EUR7.89 billion a year earlier.

Net interest income, a key profit driver for retail banks, is the difference between what lenders earn from loans and pay for funding.

Analysts had anticipated net interest income of EUR7.89 billion, in line with last year's quarterly figure, according to FactSet.

Fees rose 7.7% year-over-year to EUR2.6 billion.

Santander reported a capital ratio of 10.55% as of December 2016 compared with 10.47% in September under international regulations known as "fully loaded" Basel III criteria.

In the U.K., fourth-quarter net profit of EUR474 million was flat from a year earlier. Net profit rose 19% when calculated in pounds on higher fees and slightly stronger net interest income.

Santander's earnings in the U.K., where the bank generates around one-fifth of its net profit, have been weighed down by sterling's falling value against the euro since the country's vote in June to leave the European Union.

Santander also generates around one-fifth of its net profit n Brazil, where it rose 61% to EUR510 million in the fourth quarter from a year earlier. The increase was more moderate when calculated in reais, Brazil's currency.

In Santander's Spanish banking unit, net profit rose to EUR237 million from EUR94 million a year earlier.

Santander is Europe's first major lender to report fourth-quarter earnings and its results will help set the tone for other banks that publish during the next two months.

In the U.S., banks stocks have rallied because investors say they are expecting loosened financial regulation, lower taxes and infrastructure spending under President Donald Trump. Such policies might help to boost economic growth and inflation, encouraging the Federal Reserve to raise interest rates.

The expectation of an increase in U.S. interest rates has buoyed hopes in Europe.

While most analysts say they don't think the European Central Bank will raise interest rates before 2018, investors have been buying up bank stocks in the region during the past couple of months to position themselves for an eventual increase, which could boost the profit banks make on lending.

Analysts also expect pending rules on how European banks calculate the riskiness of their assets to be more manageable than they had previously anticipated, which has further boosted lenders' share prices.

Santander's shares have increased 17% since the U.S. presidential election on Nov. 8 through Jan. 24.

Some analysts say the European bank stock rally shouldn't have much further to run.

For Santander, "we believe the market is already reflecting the bank's profitability levels," Credit Suisse Group AG analyst Andrea Unzueta wrote in a research report last week.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

January 25, 2017 02:00 ET (07:00 GMT)

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