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Banesto 9 month profit misses forecast

Source: Reuters - Tue 11th Oct 2011

Mid-sized Spanish bank, Banesto , missed forecasts for 9 month profit on Tuesday in a three-month period marked by falling income and higher provisions, boding ill for a pressured sector at the start of results season.

Spanish banks, fresh from a government-driven shake up of the country's financial system, are struggling to balance closed wholesale money markets with calls to increase provisions against perished real estate assets.

"The third quarter of 2011 has been a difficult period for banks, and economic weakness during the financial year has added new uncertainties and provoked scenarios of high tension and great volatility in the markets," Banesto said in a statement.

The lender, majority-owned by the euro zone's biggest bank Santander , reported profits down by a third from the year-ago period at 298 million euros. Bad loans as a percentage of total loans continued to creep upwards, hitting 4.65 percent at end-September, against 4.39% end-June.

Banesto is embarking on a programme of deleveraging, cutting back on the amount borrowed as compared to equity, by selling assets like loans, in order to preserve capital.

Losses due to the bursting of a real estate bubble have piled up faster than banks can raise new capital, leaving Spain's financial system more extended.

The rush to cut back lending puts a drag on economic growth and corporate profits, but reduces banks' dependency on frozen wholesale money markets.

Banesto will give a press conference at 0830 GMT. Investors are likely to question the bank on its intentions to buy failed savings bank CAM, up for auction by the government.

Spain's fifth largest bank Popular made an offer to buy small rival Pastor on Friday, the latest step in a wave of consolidation and recapitalisation of the country's overbanked financial system.

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