Santander Improves Provisions Outlook, Promises More Cost Cuts - Update
27 October 2020 - 7:15PM
Dow Jones News
--Santander's third-quarter net profit of EUR1.75 billion beat
analysts' expectations
--The Spanish bank said it now expects bad-loan provisions to be
lower than previously guided
--It also vowed to cut an extra EUR1 billion in costs in the
next two years
Adds chairman's comments, earnings and outlook details,
information on dividend, background
By Pietro Lombardi
Banco Santander SA vowed to cut an additional 1 billion euros
($1.18 billion) in costs from its European operations in the next
two years, and said it now expects to set aside less than
previously guided for potential loan losses this year.
The Spanish bank said Tuesday that its cost-savings plans are
advancing better than expected. By the end of the year, it will
achieve its goal to save EUR1 billion in Europe, and promised to
cut EUR1 billion more in costs in the region in coming years.
Cutting costs has become an important issue for European banks.
Lenders in the region have struggled with low interest rates eating
away at their profit margins for years. The coronavirus pandemic
has compounded these challenges, with banks setting aside billions
of dollars ahead of an expected wave of loan losses sparked by the
crisis.
Thanks to how customers reacted to the crisis, as well as better
macro forecasts, Santander on Tuesday improved its guidance for
bad-loans provisions for 2020. It now expects cost of credit of
around 1.3%, from a previous guidance of 1.4%-1.5%.
The lower expected provisions, coupled with Santander's cost
control measures, should allow the bank to achieve an underlying
profit of EUR5 billion this year.
In the second quarter, Santander posted a massive loss due to
writedowns related to the pandemic.
"The recovery of our business is progressing well, and the third
quarter was significantly stronger than the second," Executive
Chairman Ana Botin said. "Activity returned close to pre-pandemic
levels."
The bank's quarterly results beat analysts expectations, after
better-than-expected provisions and revenue propelled profits above
the level analysts had expected, according to a FactSet
consensus.
Santander has set aside EUR2.54 billion in the third quarter for
potential loan losses, taking such provisions so far this year to
EUR9.56 billion.
Spain has been hit hard by a second wave of coronavirus cases,
and analysts fear this will translate into higher loan-loss
provisions for lenders. Santander said cost of credit is expected
to "remain stable or trend downwards in 2021, before normalizing in
2022."
Quarterly net profit rose to EUR1.75 billion. This compares with
EUR501 million a year earlier, when Santander was hit by charges
related to its U.K. business. On an underlying basis, profit fell
18%.
Revenue was EUR11.09 billion, an 11% decline on an underlying
basis.
Analysts had expected a quarterly profit of EUR971.5 million, on
revenue of EUR10.59 billion and provisions of EUR3.12 billion.
Santander's diversification "has been a key driver of our
recovery, with South America performing well and the UK recovering
strongly in the third quarter," Ms. Botin said.
Santander's core Tier 1 ratio rose to 11.98% at the end of
September, from 11.84% at the end of June. The ratio is expected to
remain at the top end of Santander's guided 11%-12% range this
year.
The bank is asking its shareholders to approve a EUR0.10 a share
dividend for 2020 at an extraordinary general meeting on Tuesday.
The dividend will be paid in 2021, when regulators allow it.
Write to Pietro Lombardi at pietro.lombardi@dowjones.com;
@pietrolombard10
(END) Dow Jones Newswires
October 27, 2020 04:00 ET (08:00 GMT)
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