Banco Santander SA rebounded from its worst-ever quarter with a profit that beat estimates and improved capital as it seeks to convince regulators that its balance sheet is strong enough to resume dividend payments.
Net income totalled 1.75 billion euros ($2.1 billion) in the third quarter, beating estimates of about 1 billion euros, the bank said on Tuesday. The CET1 ratio, a key measure of capital strength, improved to 11.98% from 11.84% at end-June.
The results strengthen Spanish bank’s push to overturn European Central Bank’s de-facto ban on paying dividends, which has driven down share prices. Santander Chairman Ana Botin argued the measure is harmful not only to bank stocks but also to economy as a whole because it restricts the flow of capital and increases the cost of equity.
“Given the group’s current performance, the strength of our balance sheet, our liquidity profile and mix of businesses, I am confident that we will be able to resume cash dividends once regulatory conditions allow,” Botin said in a statement.
Santander held back 2.5 billion euros for loan losses in the quarter after setting aside 7 billion euros in the first half. Santander, which posted its first loss in 163 years in the second quarter, expects underlying profit for the full year to reach 5 billion euros, compared with
estimates of 3.66 billion euros.
Santander rises as much as 4.8% in Madrid trading and was up 4.3% as of 9:19 am That cuts the decline this year to 52%, compared with a 39% slump by the Stoxx Europe Banks Index.
The earnings once again highlighted diverging fortunes between Santanders business in Europe and the bank’s more successful operations in the Americas. In Brazil, lending grew 20% from a year earlier with gains in both mortgages and credit cards.
The bank earlier this year named Antonio Simoes, the former CEO of HSBC Holdings Plc’s private-banking unit, as head of Europe to turn around the group’s lagging business in the region and accelerate cost cuts.
Santander generated 500 million euros of savings in the first nine months of the year and expects to reach a medium-term target of 1 billion euros by the end of 2020, ahead of schedule. It said it will achieve a further 1 billion euros of savings by the end of 2022.
Santander plans to cut 3,000 jobs from its 27,000-strong workforce in Spain, Expansion reported on Tuesday. The bank will be making reductions, but that figure is “highly speculative,” Chief Financial Officer Jose Garcia Cantera said in a Bloomberg TV interview on Tuesday. “Clearly we will sit down with the unions over the next few days and start discussing adjustments,” he said.
More than two thirds of the 114 billion euros in loan holidays that the bank awarded have expired with just 2% classified as impaired. That’s better than the bank expected and allowed Santander to lower its cost of risk to 1.3% from 1.4%-1.5%. The bank expects provisions to remain stable or slightly lower in 2021 and return to normal in 2022.
US and European banks have been reporting stronger-than-expected profit in the quarter thanks to a trading boom and lower provisions, with some indicating that their economic outlook is improving.
Still, uncertainty over a second wave of the Covid-19 virus persists, with Spain once again one of the hardest-hit countries.
Bank of Spain Governor Pablo Hernandez de Cos has warned that what has so far been a health and economic crisis could spill over into the financial sector.
“It is a question of when, not if, banks’ asset quality will deteriorate in this crisis,” he said. “A resurgence in Covid-19 cases coupled with the unwinding of support measures could further magnify the crystallisation of bank losses.”