By Jeannette Neumann
MADRID-- Banco Santander SA said first-quarter net profit rose
32% from a year earlier on higher fees and stronger lending in the
bank's European consumer finance and Latin American units.
The increase, along with a 15% boost in net interest income,
beat analysts' estimates despite weak growth in the bank's lending
in Spain. Release of the figures Tuesday lifted Santander's shares
1.2% in early afternoon trading in Madrid.
The Spanish lender, the eurozone's largest by market value,
posted first quarter net profit of EUR1.72 billion ($1.87 billion),
up from EUR1.3 billion a year earlier. Its net interest income, a
key driver of profit for retail banks, was EUR8.04 billion in the
first quarter. Net interest income is the difference between what
lenders pay clients for deposits and what they charge for
loans.
Net loans to customers were up 14% in the first quarter from a
year earlier. Among its main units, Santander posted a decline in
lending only in Portugal. But the Portuguese unit gained market
share, Chief Financial Officer José García Cantera told analysts,
and Santander remains interested in making a bid for small
Portuguese lender Novo Banco SA.
The growth in Santander's loan volume comes amid a push by
Executive Chairman Ana Botín to turn billions of euros in capital
the bank raised in January into new loans for individuals and
businesses.
"When we raised capital in January, we said our goal was to
target organic growth in our core markets forecast to achieve
strong economic recovery," Ms. Botín said Tuesday.
Ms. Botín, who took the helm of the bank in September after the
death of her father, said earlier this year that Santander would
forgo major acquisitions to expand its balance sheet, targeting new
loan issuance instead.
Her strategy is a shift from the modus operandi under her
father, Emilio Botín, who voraciously snatched up lenders across
the globe during his three decades as chairman, expanding Santander
from a small, regional Spanish lender into the eurozone's largest
bank.
In Santander's main banking units, only Chile posted lower
first-quarter net profit, which dropped 11% to EUR109 million,
driven by inflation, executives said. In Spain, by contrast, net
profit jumped 42% year-over-year to EUR357 million on better
lending income and fewer provisions against losses on bad
loans.
A strengthening Spanish economic recovery has helped buoy
revenue growth in Santander's home market over the past year.
Still, many individuals and businesses in Spain remain focused on
paying down existing loans, eschewing new ones.
The deleveraging is a struggle for Ms. Botín as she seeks to
expand Santander's loan book in Spain and boost profitability.
Santander said net loans in Spain were up 0.2% year-over-year.
Loans also increased slightly from the fourth quarter of last year
to the first quarter of 2015.
Deleveraging in the first quarter was particularly acute in
mortgage loans, Santander said, meaning more customers were paying
off their home loans than taking out new ones, contracting total
mortgage volume. New businesses and consumer loans in the first
quarter, by contrast, outpaced the rate at which old loans were
being paid off, increasing the total loan volume to such
borrowers.
"One basically balances out the other," Mr. Cantera said. "New
production of loans is clearly positive in the quarter."
Santander executives, however, cautioned about lending
profitability in coming quarters, as strong competition pushes down
the rates Santander and other banks charge borrowers for new loans.
"The pressure in terms of margins is going to mount," Mr. Cantera
said.
Lending income is already weaker than some analysts had
expected. Net interest income in Spain fell 4.6% in the first
quarter of this year, compared with the fourth quarter of last
year.
"Spain was the weakest link, especially in revenue terms, with
net interest income progression faring badly against domestic peers
due to increased loan pricing competition," Credit Suisse Group AG
analysts said in a research note Tuesday. Citigroup Inc. analysts
wrote: "Weaker Spain is a negative surprise which may carry over to
other banks reporting this week."
Still, lending income was higher year-over -year.
Santander said its capital ratio under Basel III "fully loaded"
criteria was 9.7% at the end of the first quarter, in line with
what the bank had said after its capital increase.
Institutional investors in January welcomed Santander's sale of
EUR7.5 billion in new shares, a move intended to calm perennial
concerns that the lender's balance sheet was weaker than its
peers.
In the U.S., Santander Holdings USA Inc. in March failed the
qualitative part of the Federal Reserve's stress test for the
second year in a row because of weak internal procedures for
managing through a stressed economic scenario.
Santander Chief Executive José Antonio Álvarez didn't rule out a
failure next year. "It depends a bit on the regulator's vision, if
it focuses on whether we've made progress or whether we've arrived"
at specific goals, Mr. Álvarez said Tuesday at a news conference..
"If [the Fed] focuses on whether we've arrived, we might not
pass."
Write to Jeannette Neumann at jeannette.neumann@wsj.com
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