Banco Santander SA’s shares slumped with a drop in earnings from Brazil and outflows of Spanish deposits in the spotlight, even as tailwinds from rate hikes helped the Spanish lender turn in its best result since 2019.
(Bloomberg) — Banco Santander SA’s shares slumped with a drop in earnings from Brazil and outflows of Spanish deposits in the spotlight, even as tailwinds from rate hikes helped the Spanish lender turn in its best result since 2019.
The retail-banking giant posted net income of €2.57 billion ($2.84 billion) in the first quarter, exceeding the analyst consensus. Earnings from the lender’s European businesses and corporate and investment banking division helped to offset a year-on-year drop in profit in Brazil and the US.
Shares fell as much as 4.6% in early trading, falling for a fourth day, and traded down 3.7% to €3.4115 as of 11:28 a.m. in Madrid.
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Santander continues to post robust returns from its loan book of more than €1 trillion as interest rates rise while pressure to pay more for deposits in its key domestic market remains subdued. In late February Chairman Ana Botin unveiled a higher profitability goal and a pledge to dole out a bigger share of earnings to investors in what she termed “a new phase of value creation for shareholders.”
“Despite recent volatility, we are on track to meet our 2023 targets,” Botin said in an earnings statement filed with regulators.
Even so, steeper deposit outflows in Spain and a miss to consensus for Brazilian profit “may raise some questions,” Benjie Creelan-Sandford, an analyst at Jefferies, said in a research note.
Santander’s Spanish business suffered a 5.6% quarter-on-quarter drop in deposits, while profit from Brazil fell 29% on an annual basis. The bank booked a €224 million charge for the full-year impact of the levy imposed by the Spanish government to help fund measures to alleviate the cost of living crisis.
Santander delivered a “low quality beat” with underlying results somewhat mixed, Citigroup Inc. analyst Marta Sanchez Romero said in a research note.
“The environment remains too uncertain to drive significant changes in costs or risk in places such as Brazil and US,” she said.
Santander saw a drop of as much as €22 billion in Spanish corporate deposits in the quarter linked to seasonal drawdowns, while retail funds were flat or slightly down, Chief Financial Officer Jose Garcia Cantera told analysts on a conference call. “If we look at February and March, positive trends both in retail and corporate deposits,” can be seen, he said.
Auto Provisions
Net interest income climbed 17% from a year earlier, boosted by the performance of its Spanish business where revenue climbed.
Earnings from Santander’s corporate and investment bank also gained, helping to offset declines in profit from Brazil and the US, where higher funding costs hit its auto business loan loss provisions surged.
Loans grew 3% year on year and deposits rose more than 6% as the bank added nine million customers.
“I think our model is working very, very well,” Garcia Cantera told Bloomberg Television in an interview. “We are adding customers, and that is good for profitability.”
The lender, burdened with higher costs linked to inflation, said operating expenses climbed 11% in the quarter from a year earlier. Even so, its cost-to-income ratio, a metric that gages the efficiency of its operations, fell to 44.1% from 46.6% in the fourth quarter as revenues grew faster than expenses.
Cost-of-risk, a metric that tracks the ratio of provisions to expected loan losses, ticked up to 1.05% from 0.99% in the previous quarter.
Botin reaffirmed targets for this year including double-digit income growth, RoTE above 15%; cost-to-income ratio of 44-45%; fully-loaded CET1 above 12%, and cost of risk below 1.2%.
Key Numbers
- ROTE: 14.38% vs 12.76% in 4q
- CET1 fully-loaded capital ratio 12.2% vs 12% in December
- Net interest income rose to €10.4b from €10.16b in 4q
- NPL ratio 3.05% vs 3.08% in 4q
- Efficiency ratio 44.1% vs 46.6% in 4q
(Updates with share move and CFO and analyst comment from third paragraph.)
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