Santander beats forecasts

 

Santander, the euro zone's largest bank, beat profit forecasts on Thursday as diversification away from a tough domestic market into fast-growing areas like Brazil paid off and it kept a lid on bad debt provisioning.

The quality of Santander's earnings pleased investors, but dealers said there was concern about the outlook for crisis-hit Spain, which accounts for about a quarter of group income.

At 11:09 a.m. British time Santander's shares were down 3.2 percent at 9.88 euros, while the DJ Stoxx European banking sector index was down 2 pct and shares in BBVA, Spain's second-biggest bank, were down 4.4 percent at 10.29 euros.

"There are fears in general on Spain right now and as for Santander there are concerns it's not doing enough to address its property exposure" a Madrid-based trader said.

A healthy net interest margin and a tight leash on costs helped the bank, one of Europe's strongest in the downturn, to make a 2009 net profit of 8.9 billion euros (7.7 billion pounds) last year, up 0.7 percent from 2008.

It made further provisions for bad debts of 9.484 billion euros, which increased its bad debt ratio to 3.24 percent of total lending from 3.03 percent at the end of September. The bank said it is targeting a ratio below 4 percent for 2010.

However, in September Chief Executive Alfredo Saenz had said the bank was forecasting provisions of about 10 billion euros in 2009.

BBVA stunned investors last week with higher than expected provisions, including kitchen sinking its real estate loans in Spain, taking its bad loans ratio to 4.3 percent. 

As expected, Santander took 1.4 billion euros of capital gains on the partial flotation of its Brazil unit to offset provisions made mainly for sliding property values, including the write-down of its stake in real estate firm Metrovacesa.

"There is real quality in Santander's results and they are using their strength to manage their business. A clear distinction between Santander and BBVA" a bank analyst at a leading U.S. fund manager said.

Santander said it will pay a total dividend for 2009 of 0.60 euros per share, an increase of 2 percent.

Chief Executive Alfredo Saenz told analysts the bank will keep the 2010 dividend policy unchanged.

OVERSEAS EXPANSION GOOD BET

Santander has increased market share after a clutch of acquisitions in Britain, and has betted strongly on Latin America, particularly Brazil.

Latin America contributed 36 percent of Santander's net profit, but was hurt by the global recession and currency moves, rising 11 percent in local currency but 6 percent in euros.

Brazil contributed 20 percent of group net profit. Britain, where Santander owns Abbey as well as Alliance & Leicester and Bradford & Bingley, chipped in with 16 percent of net income, although the gain in euros was limited by the weak UK pound.

Santander said it plans to "grow selectively" in the United States, while also looking to exit non-core operations. 

"Santander's 2009 results are the best ever, if you take into account the difficult operating environment," Chairman Emilio Botin said in a statement.

The bank's core capital ratio rose to 8.6 percent by the end of December from 7.5 percent a year earlier and is seen as benefiting from the Basel III regulatory proposals on improving banks' capital reserves.

Santander, BBVA and Credit Suisse stand out as the best capitalised banks with surplus capital, analysts at JP Morgan said this week.