By Jeannette Neumann
MADRID-- Banco Santander SA said fourth-quarter net profit
tumbled from a year earlier as the bank set aside millions to cover
claims related to payment protection insurance sold by the lender's
U.K. unit.
Santander reported net profit of EUR25 million ($27.12 million)
in the fourth quarter, a dive from the EUR1.46 billion the bank
reported a year earlier.
Santander said it booked EUR1.7 billion in charges in the fourth
quarter of last year, including EUR600 million to address potential
claims by clients for the wrongful sale of payment protection
insurance in the U.K.
The charges wrong-footed investment analysts who had forecast
net profit of around EUR1.29 billion, according to a poll by data
provider FactSet.
Santander faced lower global growth rates in 2015 compared to
2014 as well as falling commodity prices, market volatility and low
interest rates, Chief Executive José Antonio Álvarez told investors
on Wednesday,
"In this environment, it was not easy," Mr. Alvarez said.
Santander shares were down around 1.3% in late-morning trading
in Madrid.
Without the charges, the bank said it would have reported a
fourth-quarter net profit roughly in line with the previous
year.
"There was underlying weakness across all divisions
quarter-on-quarter," Barclays PLC analyst Rohith Chandra-Rajan
wrote in a research report, "with Europe and the U.S. seeing the
most significant declines."
Profit at Santander's units in continental Europe in the fourth
quarter compared to the third quarter of last year, weighed down by
weak results in Spain. Profit in the U.S. plummeted during the same
period as the bank continues to step up spending to address
regulators' concerns about how Santander manages its capital and
corporate governance.
The bank reported a "fully loaded" capital ratio of 10.05%
compared with 9.85% as of September of last year. Investors and
analysts welcomed that slight climb upward as they are closely
watching the pace at which Santander is able to generate capital
given concerns that the bank is one of the most weakly capitalized
European lenders.
Santander Executive Chairman Ana Botín said the bank was on
track to reach its goal of a "fully loaded" capital ratio above 11%
by 2018. "We are not going to raise capital and we are not planning
to sell assets," Ms. Botín said.
The bank's ratio of bad loans to total loans fell to 4.36% in
2015 down from 5.19% in 2014. The bank said the level of
nonperforming loans fells in all its markets except for
recession-hit Brazil.
Net interest income was roughly in line with what the bank
reported a year earlier at EUR7.89 billion and with analysts'
expectations.
Spain was a weak spot. Net interest income in Santander's
Spanish banking unit fell 16% in the fourth quarter of 2015 from a
year earlier.
Net interest income, a key driver of profit for retail banks
such as Santander, is the difference between what lenders pay
clients for deposits and charge for loans.
In Spain, total loans dropped in the fourth quarter from a year
earlier and from the previous quarter. While Spain's economy is
recovering after a deep recession, many individuals, businesses and
public institutions in the country aren't taking out new loans,
instead focusing on paying down their existing debts.
Rock-bottom interest rates have also hurt the net interest
income of Spanish banks. Most mortgage loans in Spain, for
instance, are variable rather than fixed.
Santander's launch of a higher-interest checking account for
clients has taken a further toll, analysts say, since existing
clients who have switched to the new account become more expensive
for the bank than they were before. Santander executives say that
over time the 1|2|3 account, as it is called, will be
profitable.
Profit in the Spanish unit took a nose dive to EUR94 million in
the fourth quarter from EUR289 million a year earlier. The bank
also made a required contribution to Spain's deposit guarantee
fund.
At Santander's U.K. unit, net interest income grew in the fourth
quarter from a year earlier. But analysts highlighted a weak spot
with a decline in year-over-year and quarter-on-quarter in
fees.
In Brazil, lending income and net profit in euros fell in the
fourth quarter compared with a year earlier. While the Latin
American country posted an increase in net interest income and net
profit in the local currency, the Brazilian real's 26% fall in
value against the euro last year chips away at Santander's revenue
there when it is converted into euros on the lender's financial
statements.
Provisions on bad loans in Brazil also increased in the fourth
quarter compared with the third. Francisco Riquel, an analyst with
Madrid-based financial-services firm N+1 Group, estimates that
Santander's nonperforming loans in Brazil will more than double by
2017 compared with 2014.
In 2015, Santander's U.K. unit contributed 23% of the bank's
annual profit, excluding non-recurring capital gains and
provisions, followed by Brazil with 19% and Spain with 12%.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
Corrections & Amplifications
Santander posted net profit of EUR25 million ($27.12 million) in
the fourth quarter, a dive from the EUR1.46 billion the bank
reported a year earlier. An earlier version of this article
misstated the net profit figure.
(END) Dow Jones Newswires
January 27, 2016 06:34 ET (11:34 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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