Santander Profit Hit by Charges for Job Cuts, Restructuring
Santander Profit Hit by Charges for Job Cuts, Restructuring
(Bloomberg) -- It looks like Banco Santander SA picked the right time to grow in Latin America.
The Spanish lender’s surging businesses there delivered second-quarter profit growth that made up for a lackluster performance in Europe. Shareholders on Tuesday approved a capital increase to buy out the 25% of the bank’s Mexican unit that it doesn’t already own, continuing its expansion in the region.
As years of low interest rates weigh on the profits of European peers, Santander is leaning ever more on Latin America, where it seeks to benefit from growing populations, including many people who are using banking services for the first time. The results highlight the diverging fortunes of the bank’s business as North and South America account for a rising share of underlying earnings with Brazil, the bank’s main profit driver, rising 19%.
Underlying profit at the Madrid-based lender rose 5% to 2.1 billion euros ($2.4 billion) in the three months through June, the best quarterly performance in eight years, according to Chairman Ana Botin. The results would have been even better if Brazil’s real hadn’t fallen against the euro.
Meanwhile, the lender’s European business is marked by cost reductions, branch closures and a long struggle to improve profitability at its U.K. unit. Santander is cutting more than 3,000 jobs and shuttering duplicate branches in Spain as part of the integration of Banco Popular Espanol, contributing to a 706 million euro charge in the second quarter that caused net income to drop by 18%. The bank is also pulling back in the U.K. and Poland.
Sweet Spot
While Santander’s 658 billion euros of deposits in Europe are more than twice the total of the Americas, the latter accounts for 55% of the group’s underlying profit.
Santander rose as much as 3% in Madrid trading and was up 2.9% at 4.10 euros as of 11:38 a.m.
“The evolution of countries in Latin America continues to be a vital support,” said Nuria Alvarez, an analyst at Renta 4 Banco in Madrid. That’s “in spite of the complicated environment that they have in the U.K and in Spain.”
The bet on Latin America looks likely to continue and even increase. On Tuesday, the bank’s shareholders voted to approve a 2.6 billion euro capital increase to fund the purchase of the Mexican unit stake. The business had a 13% market share in Mexico at the end of 2018.
Santander is rolling out a digital-banking app, designed to capture low income customers who have never had an account, in Mexico and Chile after piloting the service in Brazil.
In Spain, underlying profit was virtually flat, held back by stagnant net interest income and fees. Santander’s U.K. unit continued to struggle with regulations that oblige the bank to separate its investment arms from retail banking. Net income at the British business fell to 327 million euros in the second quarter compared with 375 million euros a year ago.
The job reductions are part of a global plan to reduce annual costs by 1.2 billion euros, with most of the cutbacks coming in Europe.
Here are some highlights from Santander’s second-quarter report:
- Net income fell 18% year-on-year to 1.39 billion euros, beating the analyst consensus of 1.27 billion euros.
- The bank’s fully-loaded and phased in CET1 ratio was 11.3% , in line with its medium-term target
- Net interest income of 8.95 billion euros in the second quarter beat the consensus of 8.77 billion euros
To contact the reporter on this story: Charlie Devereux in Madrid at cdevereux3@bloomberg.net
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen
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