Santander Profit Declines on Loan Provisioning Costs

Banco Santander SA, Spain’s biggest bank, said second-quarter profit fell 4 percent, a smaller decline than analysts estimated, as higher profit from the U.K. cushioned the impact of a jump in loan-loss provisions.

Net income fell to 2.42 billion euros ($3.42 billion) from 2.52 billion euros a year earlier, the Santander, Spain-based bank said in a filing to regulators today. Earnings exceeded the 2.15 billion-euro median estimate of 11 analysts surveyed by Bloomberg. Profit from Britain rose by 50 percent.

Santander said it’s sticking with a target to match last year’s profit of 8.88 billion euros in 2009, as it integrates purchases in the U.K. and Brazil. Banco Bilbao Vizcaya Argentaria SA, Spain’s No. 2 bank, posted a 34 percent jump in net income yesterday. Both are positioned to ride out recessions buffeting their main markets, said Andrea Williams at Royal London Asset Management, which oversees about $63 billion.

“The results look good at first glance -- absolutely resilient,” said Williams. “My only worry would be whether they may be deferring some pain for the future.”

Santander rose 9 cents, or 0.9 percent, to 10.07 euros by 10:45 a.m. in Madrid trading, bringing this year’s gain to 49 percent. The Bloomberg index of 63 European financial companies advanced 28 percent over the same period, and BBVA 24 percent.

Santander has a market value of 82 billion euros, the largest in Europe after London-based HSBC Holdings Plc.

Growing Loan Losses

The 152-year-old lender, headed by Chairman Emilio Botin since 1986, dodged most credit-related losses from the U.S. subprime mortgage market collapse and purchased damaged lenders such as Alliance & Leicester in the U.K.

The bank hasn’t been able to sidestep the impact of slumping economies. Bad loans as a proportion of total loans climbed to 2.82 percent from 1.43 percent a year ago and 2.49 percent at the end of March.

Non-performing loans on Santander’s books leapt to 21.8 billion euros from 9.7 billion euros a year ago. Costs from provisioning bad loans climbed to 2.42 billion euros in the second quarter from 1.6 billion euros a year ago.

“We’re pretty confident that they’ll be very resilient,” said Stuart Fraser, who oversees 2 billion pounds ($3.3 billion) as head of European equities at Aegon Asset Management in Edinburgh. “As we look forward to 2010 and a more stable economic situation, then one bank that can look to benefit is Santander.”

Santander’s core capital ratio, a gauge of its ability to absorb losses, rose to 7.5 percent from 7.3 percent in March.

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