Santander Profit Buoyed by Fees, Lending -- Update
January 25 2017 - 2:15AM
Dow Jones News
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 BotÃn, 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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