Santander profits dive 18 per cent as UK mortgage margins squeezed
Santander posted an 18 per cent plunge in second quarter profits due to one-off acquisition costs and rising pressure on mortgage margins in the UK.
Read more: Santander ‘offered Andrea Orcel 52m euros’ in botched CEO plan
The figures
Profit before tax fell 18 per cent year on year to €1.39bn (£1.25bn) between April and June, after a €706m hit from the UK, PPI claims and its takeover of embattled rival Banco Popular.
That still beat analysts’ expectations of €1.29bn, according to a Reuters poll.
It also consolidated its position as the Eurozone’s biggest bank by attracting 1m new customers over the quarter, bringing the total it serves to 142m.
Over its half year, net interest income rose four per cent year on year to €17.6bn as lending climbed four per cent and customer funds expanded six per cent in constant currency.
The bank’s non-performing loan ratio fell 11 basis points to 3.5 per cent while the cost of credit was steady at 0.98 per cent.
Santander’s CET 1 ratio is now 11.3 per cent, 50 basis points higher than this time a year ago.
The bank took a €600m hit in Spain after its takeover of Banco Popular. In the UK Santander booked a €26m charge for weak performance, where profits dropped 13 per cent due to pressure on mortgage margins.
It also set aside another €80m set aside for payment protection insurance (PPI) claims.
Why it’s interesting
Santander bought Banco Popular two years ago but it is still running up costs associated to the acquisition.
The €600m charge related to a recently agreed deal with unions to close 1,150 branches and to lay off around a 10th of its Spanish workforce.
It racked up losses of €262m in Spain.
UK profits fell 41 per cent in the weak housing market, as mortgage margins were squeezed by increased competition.
However, Santander posted robust performances in Brazil and Mexico as the bank’s long-term expansion into Latin America bolstered its results.
Santander’s share price rose 1.6 per cent this morning as net interest income rose four per cent compared to this time last year.
Santander is reportedly preparing to fight a €100m lawsuit from Andrea Orcel, the UBS investment banker it offered to make its CEO before aborting the move over remuneration concerns.
Orcel is set to file the lawsuit in Madrid, claiming damages or else the role of chief executive, saying the multinational bank violated a contract with him.
The deal would have seen Orcel earn €52m in cash and shares, according to the Financial Times.
What Santander said
Banco Santander group executive chairman, Ana Botin, said:
“The bank has delivered its strongest underlying quarterly performance in eight years, reflecting the progress we have made in our commercial and digital transformation.
“All our businesses continue to deliver solid results, with particularly good growth in North America, which now represents 17 per cent of group profits.
“During the quarter we have taken a further step forward in our digital transformation with the creation of the Santander Global Platform area, which aligns our reporting structure with our organisation and strategy.
“We have a strong foundation on which we can continue to grow profitably, and I am confident we will achieve the targets outlined at our investor day, including reaching a RoTE of 13-15 per cent in the medium term.”