By Jeannette Neumann
MADRID-- Banco Santander SA, the euro zone's largest bank by
market value, on Thursday reported a 38% rise in second-quarter net
profit to EUR1.45 billion ($1.94 billion), boosted by gains at its
U.K. and Spanish units and a big drop in bad debt provisions.
Santander said its second-quarter net interest income totaled
EUR7.37 billion, roughly flat compared with the EUR7.34 billion the
bank reported a year earlier.
Both those figures beat analysts' estimates.
Santander reported a big fall in provisions to cover losses on
bad loans in the second-quarter compared with last year. The bank
said the EUR2.64 billion in loan loss provisions it set aside was
the lowest amount in more than two years.
The bank's second-quarter profit doesn't include net capital
gains from recent asset sales, including the sale of 85% of its
real estate service. Those gains have been set aside to cover
restructuring and technology costs, the bank said, and to bolster
provisions against U.K. clients' claims regarding the wrongful sale
of payment protection insurance, or PPI.
Net profit from Santander's U.K. unit was EUR775 million in the
six months to June 30, up 59% from a year earlier. The unit is run
by Chairman Emilio Botín's daughter, Ana Patricia Botín, and is
among the biggest contributors to the bank's overall results. A
long-awaited initial public offering of the U.K. unit won't happen
this year or next, Chief Executive Javier Marín told journalists
Thursday. "We're not there yet," he said.
Santander's Brazil unit, which vies with the U.K. subsidiary for
top-profit driver, posted net profit of EUR758 million in the first
six months of this year, a decline of 18% compared with the same
period a year ago.
Brazil, once a counterweight to Santander's crisis-stricken
Spanish market, has seen sluggish growth in recent quarters. The
International Monetary Fund on July 24 cut its 2014 forecast for
Brazil's annual growth to 1.3% from 1.9%.
Santander in April offered to buy out the 25% of its Brazil unit
that it doesn't currently own, a deal that could be worth EUR4.7
billion and which the bank expects to close in October.
Santander's results showed its Spanish unit is on the upswing,
in line with second-quarter earnings reported by domestic
peers.
The Spanish bank posted net profit of EUR513 million in the
first six months to June 30, a surge of 79% from a year earlier.
The unit also posted gains from the first quarter to the
second.
The gains come as Spain on Wednesday said its economic growth
was 0.6% in the second quarter from the previous quarter the
fastest growth in six years. The increase beat economists'
forecasts and makes Spain one of the strongest performers in the
euro zone but came as consumer prices fell slightly in July from a
year earlier, strengthening the specter of deflation in the
country.
The IMF expects Spain's economy to grow by 1.2% this year,
roughly on par with Brazil.
Santander said its subsidiary in Argentina posted a
second-quarter net profit of EUR79 million, up 42% from the first
quarter. The Spanish lender said it opened nine bank branches in
the country in the second quarter and has a 10% share of loans and
deposits. Mr. Marín said he expected no major impact on Santander
from a potential default by the country.
Santander reiterated Thursday it plans to have a core capital
ratio of 9% by the end of 2014 under the latest regulations. The
bank doesn't disclose that ratio quarterly.
Exane BNP Paribas analyst Santiago López Díaz expects the ratio
to be 8.9% at year-end, below the 11.2% he expects for European
banks on average.
A lower capital level means a bank has less of a buffer against
losses.
Write to Jeannette Neumann at jeannette.neumann@wsj.com