Santander Group 2011 Q3 Results

Banco Santander registered net attributable profit of EUR 5,303 million in the first nine months of 2011. This profit includes the EUR 620 million fund created in the second quarter to cover potential claims that could arise from the sale of payment protection insurance in the U.K. Excluding this provision, profit in the first half would stand at EUR 5,923 million, down 3% from the first three quarters of 2010.

Banco Santander Chairman Emilio Botín said: “Our strong capacity to generate profit and the soundness of our balance sheet will enable us to exceed new capital requirements without the need to issue capital while maintaining our remuneration at EUR 0.60 per share in 2011.”

This year the Group has carried out two transactions which will generate capital gains of approximately EUR 1.5 billion. These will be incorporated in the fourth quarter and will be fully used to strengthen the balance sheet. These capital gains come from the alliance with Zurich Financial for the insurance business in Latin America, with a capital gain of EUR 750 million, and the entrance of new shareholders in Santander Consumer USA’s capital. They will provide US$ 1,150 million of capital in a transaction that generates another capital gain of EUR 750 million for the Group.

Results

The third quarter of 2011 was marked by a deterioration of the macroeconomic environment and the sovereign debt crisis, which has generated volatility in equity and currency markets as well as tension in wholesale funding markets.

In this context, Grupo Santander has focused on growing its basic revenues, which are the main lever of profit generation, strengthening its liquidity and capital position. Diversification continues to be the driver enabling the Bank to achieve quarterly revenues of more than EUR 11,000 million for a second quarter in a row, an increase of 6% in the first nine months of the year. Total revenues are set for a record amount of EUR 44,000 million for the full year, of which more than half will come from emerging markets for the first time.

The performance of net interest income in Spain was of particular note in the context of a slowdown in activity. The Santander branch network and Banesto have focused on profitability, enabling an improvement in the spread between the cost of deposits and the yield of loans for a fourth consecutive quarter. As a result, revenues grew for a third quarter in a row from the floor set in the fourth quarter of 2010. Total revenues in both units amounted to EUR 4,985 million, representing 15% of the Group’s total revenues (EUR 33,254 million) and10% of profit.

Performance of costs, which grew 9%, clearly reflects the different economic cycles the Group’s units are going through. The main units in Spain – Santander and Banesto – registered a decline in costs of around 1%. Costs in Portugal decreased 2% and are down 1% in the U.K. On the other hand, the Group’s main units in Latin America increased costs by around 11% due to the expansion of their commercial infrastructure in view of strong growth in business.

As a result, net operating income stood at EUR 18,529 million, up 3%. Loan-loss provisions were down 1%, to EUR 7,777 million in the first nine months of the year. The Group’s NPL ratio came to 3.86%, compared to 3.78% in the previous quarter. NPLs fell in Latin America, Santander Consumer Finance and Sovereign, remained stable in the U.K., and grew 0.34 point in Spain to 5.15%, influenced both by credit deterioration and a slowdown in loans. However, these ratios continue to be below the sector average in the markets where Santander operates.

The results of the first nine months underline Grupo Santander’s capacity to generate recurring ordinary profit of nearly EUR 6,000 million (attributed profit including the charges in the U.K.), after setting aside loan-loss provisions of about EUR 7,800 million. This capacity to generate recurrent earnings was highlighted by the stress tests carried out in July by the European Banking Authority (EBA), which showed Santander to be the European bank which, under the most adverse scenario, would generate the highest profit, distribute the largest dividend and retain the most earnings.

Emerging markets (Latin American and Poland), with high levels of growth, accounted for 47% of Group results, while 53% came from mature markets such as Spain, the U.K., Germany, the U.S. and Portugal.

Source: Santander Group 2011 Third Quarter Results – Press Release

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