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 fell nearly 50% to EUR1.278 billion
($1.41 billion) in the second quarter compared with a year earlier.
That was better than analysts had expected, though, and shares were
up nearly 4% in early afternoon trading in Madrid.
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. Net interest
income, a key profit driver for retail banks, is the difference
between what lenders pay clients for deposits and charge for
loans.
Santander Chief Executive José Antonio Álvarez said investors
should expect strong revenue growth in coming quarters from the
bank's units in Latin America and Poland.
The eurozone, by contrast, faces "a difficult business case"
because of negative interest rates, an economic slowdown and lower
lending volumes, Mr. Álvarez told analysts during a presentation
Wednesday morning.
The U.K.'s vote to leave the European Union is likely to trigger
lower-for-longer interest rates in the U.K. and the U.S. as well,
he added, an additional hurdle to profitability.
In the U.K., Mr. Álvarez said, "what best defines the situation
now is uncertainty."
Santander executives said it was too early to assess the full
impact of Brexit on the bank's U.K. unit. The bank will provide
more details to investors during a presentation in September, they
said.
"The environment continues to be very challenging for banking
activity," Mr. Álvarez said.
Santander's U.K. unit on Wednesday 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 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 mainly by cost-cutting moves in Spain.
Santander has already closed around 350 bank branches in Spain
and expects to close around 100 more in the coming months, Mr.
Álvarez told analysts. Around 1,000 employees in Spanish bank
branches and around 400 in the corporate center have been laid off
or retired early, he added.
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.
The branch closures and employee layoffs will cut costs by up to
4% in the Spanish banking unit and by up to 10% in the corporate
center this year, Mr. Álvarez said.
In Spain, executives said Wednesday that strong fee growth will
help to offset weaker lending margins, as negative interest rates
and historically weak demand for loans take a toll.
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 U.S.A. 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 on
Monday.
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.
Santander executives said Wednesday the delay was related to
discussions about whether fees the consumer unit charges to car
dealers should be accounted for up front or accrued over time. The
unit had been accruing such fees over time. Mr. Álvarez said on
Wednesday that once the discrepancy is resolved, it won't have a
material impact on the unit's results.
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.
Mr. Álvarez said on Wednesday that he couldn't guarantee the
bank would pass the stress test next year but noted that Santander
has made progress in addressing regulators' concerns. "We feel much
more comfortable about our prospects to pass going forward," he
said.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
(END) Dow Jones Newswires
July 27, 2016 08:09 ET (12:09 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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