STD Banco Santander, S.A. Sponsored Adr (Spain)

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 Botín, 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)

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