Santander Meets Capital Goal Amid Surge in Quarterly Profit

(Bloomberg) -- Banco Santander SA’s third-quarter profit grew by 36 percent to 1.99 billion euros ($2.26 billion) in the third quarter, allowing Spain’s biggest lender to exceed its 2018 target for capital.

Key Highlights

  • A positive surprise was the building of capital with 31 basis points added to fully-loaded core equity Tier 1 in the quarter, taking the measure to 11.11 percent. That will raise investor expectations about larger dividends or buybacks.
  • Profit in Spain almost tripled from a year ago to 526 million euros, helped by commissions and gains on financial transactions, and as a charge a year earlier wasn’t repeated. That mirrors a strong performance at home by local rival BBVA, which reported earnings Tuesday.
  • Brazil profit was down but mainly due to currency volatility. The election of Jair Bolsonaro has raised hopes he’ll implement reforms that will boost Santander’s largest market, and the real has recently pared losses.
  • The U.K. showed signs of stabilizing after a tough regulatory environment and uncertainty surrounding Brexit weighed on the business in prior quarters. Santander has had to invest money in projects such as ring-fencing, which obliges banks to separate investment arms from retail banking.

Digging Deeper

  • Profit beat the analyst consensus of 1.93 billion euros.
  • Net interest income fell 4.3 percent from a year ago to 8.3 billion euros
  • It’s the last time Chief Executive Officer Jose Antonio Alvarez will present results as he steps down at the end of the year to be replaced by Andrea Orcel, former head of UBS Group AG’s investment bank. The hiring of Orcel, a dealmaker for the late Chairman Emilio Botin, has fueled speculation Santander may look more into acquisitions again.

Market Reaction

  • Spain’s IBEX 35 opens at 9am. Santander shares have declined 25 percent this year through Tuesday.

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