1st Quarter Results

RNS Number : 3410R

Banco Santander S.A.

29 April 2009

 

Press Release

Banco Santander net attributable profit

falls 5% to EUR 2.096 billion in the first quarter

• Profit was driven by growth in revenues (up 10%) almost five times more than costs (up 2%), excluding acquisitions and exchange rate effects. 

• Continental Europe contributed 50% of Group profit, Latin America 34% and U.K. 16%.  

• Loans rose by 7% and deposits by 15%, excluding the exchange rate effect and not including the contributions of the 2008 acquisitions. With the acquisitions, growth in loans was 26% and in deposits 47%.

• Continental Europe registered attributable profit of EUR 1,289 million, an increase of 6%. Loans grew by 4% and deposits by 19%. 

• In Latin America, attributable profit stood at $1,158 million or EUR 890 million (down 8%), with growth of 14% in loans and 17% in deposits in local currency. 

• Attributable profit in the U.K. totalled £372 million or EUR 409 million, up 31%. Loans grew by 51% and deposits by 63% following the integration of Alliance & Leicester and Bradford & Bingley. 

• The non-performing loan ratio was 2.49% and the coverage rate was 80%. NPLs in Spain stood at 2.40%. These rates compare very favourably with the average of the sector in the markets where the bank operates. 

• The efficiency ratio stands at 43.2%, improving 1.6 point from the year before, despite the integrations of A&L, B&B and Sovereign, with efficiency ratios worse than the Group average.  

• The capital ratios underline Banco Santander's solvency, with a BIS ratio of 13.5% and core capital of 7.3%. 

• Acquisitions enhanced Santander's geographical diversification. The U.K. accounts for 31% of both loans and deposits, while Sovereign accounts for 6% and 8%, respectively. 

Madrid, April 29th, 2009 - Banco Santander registered net attributable profit of EUR 2,096 million in the first quarter of 2009, a decline of 5% from a year earlier but up 8% compared to the fourth quarter of 2008. 

Year-on-year comparisons are affected by the integration of Alliance & Leicester and the deposits and distribution channels of Bradford & Bingley (B&B) in the U.K., which contributed EUR 66 million in the quarter, as well as two months of Sovereign, which registered an attributable loss of EUR 20 million. Moreover, the depreciation of the pound sterling and of the currencies in the main Latin American countries where the Bank operates has an impact of between seven and eight percentage points in profit growth in euros. Excluding these effects, the Group's attributable profit would be practically the same as in the first quarter of 2008. 

The quarter's earnings reflect the Group's management priorities, which are focused on growing revenues, properly managing growth and profitability, with flat costs and provisions according to expectations, but with a very active management of recoveries. At the same time, Santander is taking all steps needed to extract value from recent acquisitions, taking advantages of the synergies generated by their integration into the Group. 

The income statement highlights the resilience of the underlying business and the management focus for the year

Group results  EUR Mill.			Change
	Q1´09	Q1´08	%	% w/o f.x. / perimeter
Net interest income	6,234	5,101	+22.2	+18.8	A. Revenues increase in a low growth environment (assets spreads)
Fees	2,210	2,334	-5.3	-7.7
Trading gains, other *	1,010	1,003	+0.7	+10.4
Gross income	9,454	8,438	+12.0	+10.5
Operating expenses	-4,080	-3,780	+7.9	+1.8	B. Strict expenses control with further efficiency improvement
Net operating income	5,374	4,658	+15.4	+17.5
Loan-loss provisions	-2,234	-1,290	+73.2	+67.8	C. Active management of risks: slowdown in provisions
Attributable profit	2,096	2,206	-5.0	-0.5	D. Net operating income offsets the larger provisions
EPS (EUR)	0.2472	0.3086	-19.9	n.s.

(*) Including dividends, equity method and other operating results. Trading gains change o/Q1´08: +12.7%

Results 

The financial crisis and the economic slowdown have resulted in slower growth in activity and increased non-performing loans, which have required greater provisions. These effects have been offset by managing margins to adapt to the situation, enabling revenues to grow by 10% and costs by below 2%, without the exchange rate effect. Including the new acquisitions, which contribute more to costs than to revenue until their synergies are realized, revenue grew by 12% and costs by 8% from the first quarter of 2008.

Performance in costs and revenues allowed Banco Santander's efficiency ratio to improve 1.6 point from a year earlier to 43.2%, positioning the Bank among the best in the world. The improvement in efficiency was possible despite the integration in the first quarter of A&L, B&B and Sovereign, where the cost/income ratio is clearly worse than the Group's prior average. 

In Spain, the Santander branch network's efficiency ratio stood at 38% and Banesto's at 40.6%. Latin America's stood at 38.3%, while U.K. continued its progress, to 42.1%. Abbey's costs came to more than 70% of revenues in 2004, the year Santander acquired the bank, similar to Sovereign's situation, with an efficiency ratio of 74.5%, showing significant potential for enhancement. Improving efficiency enabled net operating income to grow 15% from 2008's first quarter to EUR 5,374 million. 

… continuing to improve the track-record of efficiency of the Group and the areas

Group efficiency ratio*
	In percentage
1999	66.1
2000	64.1
2001	61.4
2002	59.7
2003	56.3
2004	54.7
2005	54.1	Abbey's entry
2006	49.7
2007	45.4
2008	44.6	B. Real's entry
Q1'09	43.2	SOV, A&L and GE's entry (constant permiter: 41.5)

Efficiency ratio* by principal segments
		Change o/ Q1'08
Continental Europe	36.0%	-2.3 p.p.
United Kingdom	42.1%	-5.1 p.p.
Latin America	38.3%	-4.3 p.p.
Sovereign	74.5%

(*) Efficiency ratio with amortisations.

Provisions increased by 73%, linked to the deterioration in credit quality. However, growth in provisions is slowing. Insolvency provisions grew by 25% in the second quarter of 2008 and the growth rate slowed down in the following quarters. In the first quarter of 2009, provisions increased 2% compared to the fourth quarter of 2008 excluding acquisitions. The Group has reserves for loan losses of EUR 15,166 million, of which EUR 6,261 million are generic provisions that continue to grow. 

The Group's NPL rate stood at 2.49%, up 1.25 point from the year before. Coverage was 80%, compared to 134% in March 2008. Santander's NPL rate is well below the average of all markets in which it operates. In Spain, Santander's NPL rate amounted to 2.35% and Banesto's to 1.96%. NPLs in the U.K. came to 1.25% (including A&L y B&B) and 3.27% in Latin America. 

Balance sheet strength: credit quality

In a sharp slowdown scenario, Santander maintains good levels of credit quality in all areas …

NPLs and coverage ratios. Grupo SAN
NPL (%)
Mar 08	1.24
Jun 08	1.43
Sep 08	1.71
Dec 08	2.04
Mar 09	2.49

Non-performing loans (%). Grupo SAN
Mar.´09
Spain	2.40
UK	1.25
Latam	3.27

Coverage ratios (%). Grupo SAN
Mar 08	134
Jun 08	120
Sep 08	105
Dec 08	91
Mar 09	80

Coverage ratios (%). Grupo SAN
Mar.´09
Spain	81
UK	56
Latam	107

… furthermore, mortgage guarantees placed our coverage ratio at 115%

The increase in the NPL rate and provisions bring net attributable profit to EUR 2,096 million, falling 5% from the year earlier period, when it amounted to EUR 2,206 million. Excluding the contribution of acquisitions and the impact of the depreciation of certain currencies, results would be practically the same as in the year before, with a slight 0.5% fall. In any event, first quarter profit is 8% higher than in the fourth quarter of 2008. 

By geographical areas, Continental Europe recorded attributable profit of EUR 1,289 million (up 6%), with Santander's branch network, which registered EUR 546 million (up 7%), as the main engine of growth. U.K. profit grew 58% in sterling pounds, to £372 million (EUR 409 million, up 31%) backed by a 67% increase in revenues and costs growing at 49% in pounds. These increases would stand at 27% and 2% excluding acquisitions. Banco Santander's profit in Europe amounted to EUR 1,698 million, 66% of total Group profit. 

In Latin America, attributable profit stood at $1,158 million in dollars, its operating currency. In euros, attributable profit was EUR 890 million, down 8%. The greatest contribution came from Brazil, which generated a profit of EUR 436 million, down 13%, with a slight increase of 1% excluding the exchange rate effect. Mexico contributed EUR 111 million, down by 41% in euros and 32% without the exchange rate effect. Chile contributed EUR 117 million, down 12% in euros and about unchanged in local currency. 

These results highlight the advantages of geographical and business diversification, the recurrence of revenues and profit and their contribution to the strength of the balance sheet, including reserves. This was accomplished in a very difficult environment in international banking, owing to economic contraction, market volatility and the scarcity and high cost of liquidity. 

Business

Growth in business was focused more on deposits than loans, where demand slackened as a result of the global crisis. Deposits grew by 47% and loans by 26%, driven by the integration of Banco Real, A&L and B&B, without taking exchange rate fluctuations into account. Without these acquisitions, growth remained strong, with deposits up by 15% and loans by 7%. The greater growth in deposits allows for greater internal funding of loans, of particular value in the current environment of scarce liquidity. 

Banco Santander closed March, 2009 with managed funds of EUR 1.232 trillion, an increase of 15%. Of this amount, EUR 1.115 trillion are on the balance sheet, an increase of 21%. 

Gross customer loans

EUR billion and % variation Mar 09 / Mar 08

+19.3%*

Mar 08	587
Jun 08	610
Sep 08	616
Dec 08	639
Mar 09	700
(*) W/o exchange rate impact: +24.9%

Gross customer loans. March 2009

% o/ operating areas

Continental Europe	48%
United Kingdom	31%
Latin America	15%
Sovereign	6%

Santander net lending came to EUR 685,497 million at the end of the first quarter, an increase of 19% in euros or 26% before the exchange rate effect. 

In Continental Europe, customer lending grew by 4% to EUR 331,184 million, with increases in all countries and units. In Spain, lending by the Santander branch network and Banesto grew by 3% and 2%, respectively. In Portugal, Santander Totta rose by 6%. Santander Consumer increased lending by 23%, including the EUR 2,200 million consumer loan portfolio in Germany, the Netherlands, Belgium and Austria acquired from the Royal Bank of Scotland, as well as the consumer finance business acquired by GE Money.

In Latin America, loan volume increased to EUR 99,963 million, growth of 7% in euros and 14% in local currencies. Lending in Brazil grew by 30%, in Chile by 11% and fell in Mexico by 6%, affected by the slowdown in the cards business, in local currencies. 

The United Kingdom closed the quarter with loan volume of EUR 212,624 million, an increase of euros 29% in euros and 51% in pounds. Mortgage business grew 8% to EUR £122,900 million, while A&L's mortgage portfolio fell by 11% to £37,100 million, for total mortgage lending of £160,000 million. Total personal loans, not considered a strategic business, fell by 18% to £ 5,400 million. 

Customer funds under management

EUR billion and % variation Mar 09 / Mar 08

	Mar 08	Jun 08	Sep 08	Dec 08	Mar 09
Total	792	809	829	827	875	+10.5%*
Other	162	158	151	131	129	-20.0%
Other on-balance sheet	326	322	314	318	319	-2.2%
Customer deposits w/o REPOS	304	329	364	378	427	+40.4%

(*) W/o exchange rate impact, total: +14.5%

Customer funds under management. March 2009

% o/ operating areas

Continental Europe	40%
United Kingdom	30%
Latin America	23%
Sovereign	7%

In savings, customer funds under management rose by 10% in euros to EUR 874,989 million at the close of March, 2009, an increase of 14% without the exchange rate effect. Customer deposits rose by 33% to EUR 477,015 million, an increase of 15% if the impact of the new acquisitions and securities repurchase agreements are excluded. 

Customer deposits in Continental Europe rose by 19% to EUR 175,325 million. In Spain, the Santander branch network increased deposits by 19% and Banesto by 12%. Deposits in Portugal rose by 22% and in Santander Consumer Finance by 50%.

Deposits in Latin America rose to EUR 112,495 million, growth of 8% in euros and 17% without the exchange rate effect. In Brazil, deposits rose by 25%, in Chile by 8% and in Mexico by 5%, in local currencies. 

In the United Kingdom, deposits were increased by 40% in euros and by 63% in pounds, to EUR 148,338 million. Deposits and funds grew by 15% at Abbey and by 12% at A&L. 

Acquisitions boost diversification 

In 2008, Santander acquired Alliance & Leicester (October 10) and the deposits and distribution channels of Bradford & Bingley (September 29). Following these acquisitions, Santander had a market share of 10% in deposits and 13% in mortgages in the U.K. The Group has become the second largest mortgage bank in the market and the third largest in retail deposits, with 1,328 branches and 25 million customers. 

Banco Santander also completed on January 30, 2009, the acquisition of 100% of Sovereign Bancorp, in which the Bank already had a 24.35% stake. Sovereign was incorporated into Group accounts from February 1. Sovereign contributes $55,183 million in loans (EUR 41,466 million) and customer deposits of $50,715 million (EUR 38,108 million). Since the acquisition of Sovereign was announced, the outflow of deposits has been staunched. At the end of March, deposits were $1,500 million higher than a year earlier, driven by time deposits. 

These acquisitions and that of Banco Real in 2007, together with smaller purchases in consumer finance, have contributed to enhancing Santander's geographical and exchange rate diversification. This geographical diversification, always focused on retail and commercial banking, is one of the hallmarks of Banco Santander.

At the end of March, Continental Europe accounted for 48% of lending and 37% of deposits; the United Kingdom 31% of lending and deposits; Latin America 15% of lending and 24% of deposits and Sovereign 6% and 8%, respectively. 

Sovereign: integration in Grupo Santander.

SOV's Group share of 5-6%, increasing its diversification

Group's share: Balance sheet / Structure
US$ Bill.	SOV	% o/ Group
Total assets	76	+5%
Gross loans	57	+6%
Customer funds	70	+6%
- Deposits	51	+8%
Branches (#)	750	5%
Headcount ('000)	10.2	6%

Geographic distribution

Loans
Continental Europe	48%
United Kingdom	31%
Latam	15%
USA (SOV)	6%

Deposits
Continental Europe	37%
United Kingdom	31%
Latam	24%
USA (SOV)	8%

Data as of March 2009 under Spain's criteria.

The share and the dividend

At the close of the first quarter, Banco Santander's eligible capital came to EUR 73,980 million, with a surplus of EUR 30,293 million above the required regulatory minimum. With this capital base, the BIS ratio, using Basel II criteria, comes to 13.5%, Tier I to 8.9% and core capital to 7.3%. These ratios underline Santander's capital strength.

Strong capital base

'Best in class' thanks to solid core capital …

Core capital
2005	6.1%
2006	5.9%
2007	6.3%
Dec'08	7.5%
Mar'09	7.3%
Note: 2008 and 2009 under BIS II rules, previous years under BIS I

Core capital
Current target	7%
Previous target	6%

In Q1'09:
Capital generation:	+20 bp
Acquisitions impact:	-40 bp

The Santander share ended March at EUR 5.19 euros (and has since risen to more than EUR 6.60), resulting in a market capitalization of EUR 54,000 million, making Santander the seventh largest bank in the world by stock market value. The Board of Directors approved a total dividend of EUR 0.65 against 2008 results, the same per share payout as in 2007. Still pending is the payment to shareholders of the fourth dividend, for EUR 0.257, from May 1. 

At the close of the first quarter, Santander has 3,195,622 shareholders. Total employment in the Group was 181,166, serving 91 million customers in 14,196 branches, making Santander the international financial group with the most shareholders and the largest branch network. 

More information at:  www.santander.com

Income statement
Million euros
			Variation
	Q1 '09	Q1' 08	Amount	%
Net interest income	6,234	5,101	1,133	22.2
Dividends	87	62	25	40.9
Income from equity-accounted method	(11)	102	(113)	-
Net fees	2,210	2,334	(123)	(5.3)
Gains (losses) on financial transactions	869	771	98	12.7
Other operating income/expense	65	69	(5)	(6.6)
Gross income	9,454	8,438	1,016	12.0
Operating expenses	(4,080)	(3,780)	(300)	7.9
General administrative expenses	(3,691)	(3,430)	(261)	7.6
Personnel	(2,111)	(1,983)	(128)	6.5
Other administrative expenses	(1,580)	(1,447)	(133)	9.2
Depreciation and amortisation	(389)	(351)	(39)	11.0
Net operating income	5,374	4,658	716	15.4
Net loan-loss provisions	(2,234)	(1,290)	(944)	73.2
Impairment losses on other assets	(25)	(13)	(12)	95.4
Other income	(283)	(301)	19	(6.2)
Profit before taxes (w/o capital gains)	2,832	3,054	(222)	7.3
Tax on profit	(622)	(712)	90	(12.6)
Profit from continuing operations (w/o capital gains)	2,210	2,341	(132)	5.6
Net profit from discontinued operations	(14)	1	(15)	-
Consolidated profit (w/o capital gains)	2,195	2,342	(147)	(6.3)
Minority interests	99	136	(36)	(26.8)
Attributable profit to the Group (w/o capital gains)	2,096	2,206	(110)	(5.0)
Net extraordinary capital gains and allowances	-	-	-	-
Attributable profit to the Group	2,096	2,206	(110)	(5.0)
EPS (euros) (1)	0.2472	0.3086	(0.0614)	(19.9)
Diluted EPS (euros) (1)	0.2460	0.3066	(0.0606)	(19.8)
Pro memoria:
Average	1,076,112	924,553	151,559	16.4
Average shareholders' equity	63,272	50,721	12,551	24.7

(1).- Q1'08 data have been adjusted to the capital increase with preemptive rights at the end of 2008.

Customer loans
Million euros
			Variation
	31.03.09	31.03.08	Amount	%	31.12.08
Public sector	7,514	5,460	2,054	37.6	7,668
Other residents	231,211	229,778	1,434	0.6	230,783
Commercial bills	11,390	16,430	(5,040)	(30.7)	14,874
Secured loans	124,421	124,441	(20)	(0.0)	123,566
Other loans	95,400	88,906	6,494	7.3	92,343
Non-resident sector	461,581	351,899	109,682	31.2	400,903
Secured loans	270,826	197,389	73,438	37.2	229,761
Other loans	190,754	154,510	36,244	23.5	171,142
Gross customer loans	700,306	587,136	113,169	19.3	639,354
Loan-loss allowances	14,809	10,351	4,458	43.1	12,466
Net customer loans	685,497	576,786	108,712	18.8	626,888
Pro memoria: Doubtful loans	18,683	7,936	10,747	135.4	13,968
Public sector	15	1	14	-	1
Other residents	7,748	2,461	5,287	214.8	6,208
Non-resident sector	10,921	5,474	5,446	99.5	7,759

Customer funds under management
Million euros
			Variation
	31.03.09	31.03.08	Amount	%	31.12.08
Public sector	17,080	13,752	3,328	24.2	13,720
Other residents	119,755	104,601	15,153	14.5	117,776
Demand deposits	52,918	51,179	1,739	3.4	51,300
Time deposits	48,374	32,680	15,693	48.0	46,783
REPOs	18,463	20,742	(2,279)	(11.0)	19,693
Non-resident sector	340,180	239,814	100,366	41.9	288,734
Demand deposits	178,147	116,551	61,596	52.8	151,774
Time deposits	132,412	93,176	39,236	42.1	115,620
REPOs	23,338	27,991	(4,652)	(16.6)	17,187
Public Sector	6,282	2,096	4,186	199.7	4,153
Customer deposits	477,015	358,168	118,847	33.2	420,229
Debt securities	228,891	235,703	(6,812)	(2.9)	236,403
Subordinated debt	39,818	36,194	3,624	10.0	38,873
On-balance sheet customer funds	745,724	630,065	115,659	18.4	695,506
Mutual funds	89,116	122,812	(33,696)	(27.4)	90,306
Pension funds	10,567	11,537	(970)	(8.4)	11,128
Managed portfolios	16,612	17,381	(769)	(4.4)	17,289
Savings-insurance    policies	12,970	9,821	3,150	32.1	12,338
Other customer funds under management	129,265	161,550	(32,286)	(20.0)	131,061
Customer funds under management	874,989	791,615	83,374	10.5	826,567

Shareholders' equity and minority interests
Million euros
			Variation
	31.03.09	31.03.08	Amount	%	31.12.08
Capital stock	4,078	3,127	951	30.4	3,997
Additional paid-in surplus	29,309	20,370	8,939	43.9	28,104
Reserves	36,723	32,363	4,360	13.5	28,024
Treasury stock	(662)	(374)	(288)	76.8	(421)
Shareholders' equity (before profit and dividends)	69,447	55,486	13,961	25.2	59,704
Attributable profit	2,096	2,206	(110)	(5.0)	8,876
Interim dividend distributed	(2,713)	(2,307)	(407)	17.6	(1,711)
Interim dividend not distributed	(2,099)	(1,763)	(336)	19.0	(3,102)
Shareholders' equity (after retained profit)	66,731	53,622	13,109	24.4	63,768
Valuation adjustments	(7,487)	(1,955)	(5,532)	282.9	(8,300)
Minority interests	2,620	2,446	174	7.1	2,415
Total equity (after retained profit)	61,864	54,113	7,751	14.3	57,883
Preferred shares and securities in subordinated debt	7,856	7,432	424	5.7	8,673
Total equity and capital with the nature of financial liabilities	69,720	61,544	8,175	13.3	66,555

Computable capital and BIS II ratio
Million euros
	31.03.09	31.12.08
Core capital	40,030	38,968
Basic capital	48,727	46,894
Supplementary capital	26,968	25,225
Deductions	(1,715)	(3,816)
Computable capital	73,980	68,302
Risk-weighted assets	546,088	514,003
BIS II ratio	13.5	13.3
Tier I (before deductions)	8.9	9.1
Core capital	7.3	7.5
Shareholders' equity surplus (BIS II ratio)	30,293	27,182

 

END

 

 

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