Santander sets aside another €2.5bn to cover potential losses

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
Santander
A Banco Santander branch in New York City, US. Photo: Alex Tai/SOPA Images/Sipa USA

Spanish bank Santander (SAN.MC) has set aside another €2.5bn (£2.2bn, $3bn) to cover potential losses, taking its total loss buffers to €9.5bn so far this year.

Santander’s third quarter loan loss provision was up 22% on the same quarter a year earlier when currency fluctuations are stripped out. The provisions include overlays for potential COVID-19 losses but are not all coronavirus related. Loss buffers at this point last year were €6.7bn, well before the pandemic struck.

The latest credit provision figures came as the bank reported what executive chair Ana Botin called a “significantly stronger” three month period, after a historic loss in the second quarter.

Income in the third quarter rose 1% on last year to €11bn, while pre-tax profit fell by 3% to €3.1bn. Underlying profit dipped by 4% to €1.75bn. The figures were ahead of forecasts.

Shares in Santander rose 4% in Madrid in early trade.

Santander shares jumped in Madrid after the bank reported better-than-expected results. Photo: Yahoo Finance UK
Santander shares jumped in Madrid after the bank reported better-than-expected results. Photo: Yahoo Finance UK

“The recovery of our business is progressing well, and the third quarter was significantly stronger than the second,” Botin said in a statement.

Santander lost €11.1bn in the second quarter of 2020, its biggest three-month loss in history. It came after the Spanish bank booked write-offs of €12.6bn (£11.4bn), blaming “the deterioration in economic outlook due to covid-19.”

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The bulk of the charge was linked to Santander’s UK business. Santander wrote down the value of its UK franchise by €6.1bn (£5.5bn).

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Botin on Tuesday said the UK business was “recovering strongly.” UK income rebounded by 15% between the second and third quarter, hitting £1bn. However, pre-tax profit is down 59% so far this year due to rising loss provisions, falling interest rates, payment holidays for customers, and changes to overdraft rules.

Botin said Santander was on track to deliver an underlying profit of €5bn for the year.

“Although the outlook for 2021 depends on how the pandemic evolves, we have proven that our strategy and business model position us well to continue supporting our customers and delivering results for our shareholders,” Botin said.

Santander said it was on track to cut costs by €1bn this year and planned to strip out another €1bn of costs over the next two years.

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Michael Hewson, chief market analyst at CMC Markets, said Santander’s results were “notable” for the large loss provision taken in the third quarter, which set it apart from European rivals.

“They appear to be one of the few European banks who are gearing up for huge loan losses in the coming months due to the pandemic,” Hewson said.

“The bank has set aside a total of €9.56bn in respect of bad loans so far year to date, while the rest of the big banks in the European banking sector appear to have set aside less than €20bn between them.”

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