Santander Profit Dented by Restructuring Costs -- 2nd Update
July 27 2016 - 3:37AM
Dow Jones News
By Jeannette Neumann
MADRID-- Banco Santander SA said Wednesday that net profit fell
by half in the second quarter from a year earlier as one of
Europe's largest banks booked an anticipated restructuring charge
due to branch closures and employee layoffs and lending margins
were squeezed.
Santander said net profit was EUR1.278 billion ($1.41 billion)
in the second quarter, in line with analysts' estimates, compared
with EUR2.54 billion a year earlier.
Santander had booked a one-time gain in the second quarter of
last year when a favorable court ruling in Brazil had allowed the
bank to free up provisions, boosting the lender's profit by EUR835
million in that period.
The Spanish lender, run by Executive Chairman Ana BotÃn, said
net interest income in the second quarter of this year was EUR7.57
billion compared with EUR8.28 billion a year earlier. That was
below the EUR7.73 billion analysts had anticipated, according to
data provider FactSet.
Net interest income, a key profit driver for retail banks, is
the difference between what lenders pay clients for deposits and
charge for loans.
Lending margins were down year-over-year in Spain as negative
interest rates squeezed profit and they were flat during the same
period in the bank's U.K. and Brazil units when calculated in local
currencies.
Santander reported a capital ratio in the second quarter of
10.36% under international regulations known as "fully loaded"
Basel III criteria, up slightly from 10.27% in the first quarter.
Santander said that was in line to meet its target of 11% in
2018.
Bad loans as a percentage of total lending fell slightly to
4.29%.
Santander confirmed it would increase its dividend to EUR0.21 a
share on its 2016 accounts, a 5% increase from last year. The first
payment of EUR0.055 will be made on Aug. 1 in cash, the bank
said.
Santander's U.K. unit reported a drop in net profit
year-over-year and quarter-on-quarter in both euros and the pound.
Net profit in the second quarter fell 28% to EUR390 million
compared with a year earlier.
The consequences of the U.K.'s vote to leave the European Union,
such as a drop in the pound against the euro, is expected to take
an increasing toll on Santander in coming quarters.
Investors also expect the Brexit to slow Britain's economy and
lessen the revenue Santander generates in its U.K. unit in coming
quarters.
Santander booked a EUR475 million charge in the second quarter
triggered by the closure of around 450 bank branches in Spain and
the layoffs or reassignments of around 1,380 employees. Santander
had indicated at the end of June that those restructuring costs
would be around EUR500 million and would be offset in part by the
sale of a stake it holds in Visa.
Spain has among the greatest number of bank branches per person
in Europe. Santander and other Spanish banks are on the hunt for
revenue and they are starting to cull more aggressively their bank
branches, which can be expensive to maintain.
In the U.S., where the bank is struggling to shake regulators'
scrutiny, Santander reported a year-over-year decline in net
profit.
In Santander's latest setback in the U.S., the bank's consumer
lending unit said on Monday that it was delaying the publication of
its financial accounts for the second time this year.
Santander Consumer USA said executives are in discussions with
its current and former accountants about how the firm determines
loan-loss provisions. "The resolution of these matters may impact
prior period financial statements," the company said, without
detailing whether the effect would be positive or negative.
Investors and analysts said they are growing impatient about how
much longer it will take Santander to put to rest concerns about
its accounting and management in the consumer-lending unit, a major
issuer of risky car loans.
The unit had also failed to file its 2015 annual report on
time.
In June, Santander's U.S. holding company failed the Federal
Reserve's stress test for an unprecedented third year in a row
because of weaknesses in "internal controls, governance, and
oversight functions" as well as problems measuring and monitoring
risk.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
(END) Dow Jones Newswires
July 27, 2016 03:22 ET (07:22 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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