2nd Quarter Results

RNS Number : 4547W

Banco Santander S.A.

29 July 2009

 

Press Release

Banco Santander net attributable profit

EUR 4.519 billion in the first half, down 4%

• Profit was driven by growth in revenues (up 14%) almost double that of costs (up 8%). Excluding acquisitions and exchange rate effects, revenues were up 11% and costs flat. 

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

• Loans rose by 16% and deposits by 36%. Excluding the exchange rate effect and not including the contributions of the 2008 acquisitions, growth in loans was 3% and in deposits 19%.

• Continental Europe registered attributable profit of EUR 2,657 million, an increase of 13%. Loans grew by 1% and deposits by 17%. 

• In Latin America, attributable profit stood at $2,405 million or EUR 1,806 million (down 4%), with growth of 7% in loans and deposits, excluding the sale of Banco de Venezuela and the exchange rate effect. 

• Attributable profit in the U.K. totalled £790 million or EUR 885 million, up 41%. Loans grew by 43% and deposits by 66% in pounds following the integration of Alliance & Leicester and Bradford & Bingley. 

• The non-performing loan ratio was 2.82% and the coverage rate was 72%. NPLs in Spain stood at 2.72%. These rates compare very favourably with the average of the sector in the markets where the bank operates. 

• The efficiency ratio stands at 41.6%, improving 2.3 points 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 13.8% and core capital of 7.5%. 

• Acquisitions enhanced Santander's geographical diversification. The U.K. accounts for 33% of loans and 31% of resources, while Sovereign accounts for 5% and 6%, respectively. 

• Banco Santander expects to match in 2009 the ordinary net profit of EUR 8,876 million registered in 2008 and to maintain shareholder remuneration at EUR 4,812 million.

Madrid, July 29th, 2009 - Banco Santander registered net attributable profit of EUR 4,519 million in the first half of 2009, a decline of 4% from a year earlier but up 9% compared to the second half of 2008. Second quarter profit, which amounted to EUR 2,423 million, was the second highest in the Bank's history, only below the result achieved in the same period of last year, when profit totalled EUR 2,524 million. 

Banco Santander expects to match in 2009 the ordinary net profit of EUR 8,876 million registered in 2008 and to maintain shareholder remuneration at EUR 4,812 million.

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 161 million in the first half, as well as five months of Sovereign, which registered an attributable loss of EUR 26 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 six and seven percentage points in profit growth in euros. Excluding these effects, the Group's attributable profit would be practically the same as in the first half 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, leveraging synergies generated by their integration into the Group, which are starting to contribute to cost performance in U.K, Brazil and Germany. 

The P&L highlights the resilience of the underlying business and the management focus for the year…

Group results  EUR Mill.			Var. H1´09/H1´08
	H1´09	H1´08	%	% excl. fx / perimeter
Net interest income	12,656	10,192	+24.2	+18.1
Fees	4,538	4,539	0.0	-4.5
Trading gains, other *	2,174	2,206	-1.5	+6.5
Gross income	19,368	16,937	+14.3	+10.5
Operating expenses	-8,054	-7,436	+8.3	+0.3
Net operating income	11,314	9,502	+19.1	+18.5
Loan-loss provisions	-4,626	-2,880	+60.6	+51.2
Profit (excl. cap. gains)	4,519	4,730	-4.5	-2.1
Visanet capital gains**	262
Extraordinary allowances	-262
Attributable profit	4,519	4,730	-4.5	-2.1
EPS (in euros)	0.5318	0.6620	-19.7	n.s.

(*) Including dividends, equity method and other operating results. Trading gains change o/H1´08: +16.9%

(**) Sale of 5.67% stake in Visanet. Not including additional capital gains from the greenshoe sale (2%) in July (approx. EUR 95 million)

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 11% and costs to remain about flat, without the exchange rate effect and the impact of acquisitions. Including these, revenue grew by 14%, which is almost double the growth in costs (8%)

Performance in costs and revenues allowed Banco Santander's efficiency ratio to improve 2.3 points from a year earlier to 41.6%, 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 average. 

In Spain, the Santander branch network's efficiency ratio stood at 38% and Banesto's at 39.9%. Latin America's stood at 37.3%, while U.K. continued its progress, to 41%. Abbey's costs came to more than 70% of revenues in 2004, the year Santander acquired the bank. Sovereign's efficiency ratio improved 8.4 points in a single quarter, bringing the ratio at the end of the first half to 66.1%, showing significant potential for enhancement. Improving efficiency enabled net operating income to grow 19% from 2008's first half to EUR 11,314 million. 

Santander's earnings capacity enabled it to contribute EUR 4,626 million to its provisions for insolvencies, while obtaining a very similar figure for ordinary net attributable profit, EUR 4,519 million. These provisions increased by 61%, reflecting a significant slowdown in their growth. Provisions for insolvencies grew 73% in the first quarter of 2009 compared to the same period of 2008 and increased 51% in the second quarter. The Group has reserves for loan losses of EUR 15,727 million, of which EUR 6,163 million are generic provisions. 

Balance sheet strength: credit quality

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

NPLs and coverage ratios: Group
NPL (%)
Mar 08	1.24
Jun 08	1.43
Sep 08	1.71
Dec 08	2.04
Mar 09	2.49
Jun 09	2.82

NPL ratio. Group
June´09
Spain	2.72%
UK	1.54%
Latam	3.97%

Coverage ratios (%). Group
Mar 08	134
Jun 08	120
Sep 08	105
Dec 08	91
Mar 09	80
Jun 09	72

Coverage ratio. Group
June´09
Spain	71%
UK	45%
Latam	97%

The Group's NPL rate stood at 2.82%, up 1.39 point from the year before. Coverage was 72%, compared to 120% in June 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 2.59% and Banesto's to 2.32%. Moreover, the net increase in NPLs in the second quarter was 29% less than that of the first quarter. NPLs in the U.K. came to 1.54% (including A&L y B&B) and 3.97% in Latin America. 

In the second quarter, Santander Brazil had a capital gain of EUR 262 million from the sale of a 5.67% stake in Visanet Brazil which has been fully used to strengthen the balance sheet. In July, Santander Brazil sold an additional 2%, with a capital gain of around EUR 95 million, which will also be used for provisions. 

By geographical areas, Continental Europe recorded attributable profit of EUR 2,657 million (up 13%), while Santander's branch network, the main unit, registered EUR 1,070 million (up 9%). U.K. profit grew 63% in pounds sterling, to £790 million (EUR 885 million, up 41%) backed by a 68% increase in revenues and costs growing at 48% in pounds. These increases would stand at 27% and 1% excluding acquisitions. 

In Latin America, attributable profit stood at $2,405 million in dollars, its operating currency. In euros, attributable profit was EUR 1,806 million, down 4%. The greatest contribution came from Brazil, which generated a profit of EUR 961 million, followed by Chile, which contributed EUR 257 million and Mexico, with EUR 250 million. These amounts represent 12% growth in Brazil, 9% in Chile and a 29% fall in Mexico, measured in their respective currencies. Mexico is affected by the economic crisis and the so-called A-type flu. 

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, anticipating provisions. This was accomplished in a very difficult environment in international banking, owing to economic contraction and market volatility. 

Continental Europe accounts for 50% of Grupo Santander's profits, Latin America 34% and U.K 16%.  

The Santander branch network's profit was above EUR 1,000 million for the first time in a half, while Brazil and UK are close to this amount.

Attributable profit by operating geographic segments

H1'09

Continental Europe		50%
	Spain Retail	27%
	Global businesses Europe	12%
	Other Retail Europe	11%
Brazil		18%
United Kingdom		16%
Other Latam		16%

Business

Growth continued to be more focused on deposits than loans, whose growth was affected by by lower demand resulting from the global crisis. Deposits grew by 36% and loans by 16%, driven by the incorporation of A&L, B&B and Sovereign, and excluding the Banco de Venezuela portfolio, which in June was temporarily accounted for as assets available for sale until its exit from the balance, following the completion of the transaction in July. Without these movements, and excluding the impact of exchange rates, growth in business continues to be strong, with 19% in deposits and 3% in loans, despite the situation facing the world economy. 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 June, 2009, with managed funds of EUR 1.272 trillion, an increase of 14%. Of this amount, EUR 1.148 trillion are on the balance sheet, an increase of 19%. 

Gross customer loans

EUR billion and % change Jun 09 / Jun 08

+16.3%*

Jun 08	610
Sep 08	616
Dec 08	639
Mar 09	700
Jun 09	709
(*) Excluding exchange rate impact: +19.2%

Gross customer loans. June 2009

% over operating areas

Spain	36%
United Kingdom	33%
Other Europe	12%
Brazil	8%
Other Latam	6%
Sovereign	5%

Santander net lending came to EUR 694,068 million at the end of the first half, an increase of 16% in euros or 3% before the exchange rate effect and excluding the incorporation of new units and exit of others. 

In Continental Europe, customer lending grew by 1% to EUR 330,430 million. In Spain, lending by the Santander branch network and Banesto was unchanged. In Portugal, Santander Totta rose by 2%. Santander Consumer increased lending by 17%, with an increase of nine percentage points from the acquired businesses. 

In Latin America, loan volume was EUR 97,305 million, a decline of 2% in euros but an increase of 7% if the sale of Banco de Venezuela and exchange rate effects are excluded. In local currencies, lending in Brazil grew by 16%, in Chile by 2%, while Mexico fell by 6%, affected by the slowdown in the cards business.

The United Kingdom closed the first half with loan volume of EUR 227,793 million, an increase of 33% in euros and 43% in pounds. Abbey's mortgage business grew by 5% to EUR £124,100 million, while A&L's mortgage portfolio fell by 8% to £37,100 million, for total mortgage lending of £161,200 million. Business lending, a priority area for the Group, grew by 3% to £19,700 million.

Customer funds under management

EUR billion and % change Jun 09 / Jun 08

	Jun 08	Sep 08	Dec 08	Mar 09	Jun 09
Total	809	829	827	875	884	+9.3*%
Other custumer funds	158	151	131	129	137	-13.1%
Other on-balance sheet funds	327	314	318	319	305	-6.6%
Deposits excl.repos	324	364	378	427	442	+36.1%

(*) Excluding exchange rate impact, total: +11.5%

Customer funds under management. June 2009

% over operating areas

Spain	32%
United Kingdom	31%
Brazil	12%
Other Latam	11%
Other Europe	8%
Sovereign	6%

In savings, customer funds under management rose by 9% in euros to EUR 884,425 million at the close of June, 2009, with no significant variation if exchange rate impact and changes in the accounting perimeter are excluded. Customer deposits, excluding securities repurchase agreements, rose by 36%, or by 19% if the impact of the new acquisitions and currency fluctuations are excluded. 

Customer deposits in Continental Europe rose by 17% to EUR 177,118 million. In Spain, the Santander branch network increased deposits by 13% and Banesto by 9%. Deposits in Portugal rose by 15% and in Santander Consumer Finance by 42%.

Deposits in Latin America came to EUR 107,619 million, a decline of 6%, caused by the sale of Banco de Venezuela and depreciation of local currencies against the euro. Without these factors and excluding repos, deposits grew by 7%. In Brazil, deposits rose by 6%, in Mexico by 2% and in Chile fell by 3%, all in local currencies. 

In the United Kingdom, deposits were increased by 54% in euros and by 66% in pounds, to EUR 162,882 million. 

Improved 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 1,329 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 contributed $53,093 million in loans (EUR 37,564 million) and customer deposits of $49,376 million (EUR 34,934 million). Since the acquisition of Sovereign was announced, the outflow of deposits has been staunched. At the end of June, deposits were $6,200 million higher than in September, 2008, driven by time deposits. 

These acquisitions, in addition to that of Banco Real in 2007 and smaller parchases in consumer finance, have contributed to enhance Santander's geographic and currency diversification. This geographic diversification, always with a focus on commercial and retail banking, is one of the hallmarks of Banco Santander's identity. 

On July 3rd, the sale of Banco de Venezuela to Banco de Desarrollo Económico y Social, a Venezuelan state entity, was completed for the amount of US$1.050 million.  

At the end of June, Continental Europe represented 48% of lending and 40% of deposits; the United Kingdom 33% and 31%, respectively; Latin America 14% of loans and 23% of deposits and Sovereign 5% and 6%, respectively. 

The share and the dividend

At the close of the first half, Banco Santander's eligible capital came to EUR 77,165 million, with a surplus of EUR 32,411 million above the required regulatory minimum. With this capital base, the BIS ratio, using Basel II criteria, comes to 13.8%, Tier I to 9.4% and core capital to 7.5%. These ratios underline Santander's capital strength.

Strong capital base

Solvency 'best in class' thanks to solid core capital and high capacity to generate free capital

Core capital performance
2005	6.1%
2006	5.9%
2007	6.3%
Dec'08	7.5%
Mar'09	7.3%
Jun'09	7.5%
Note: 2008 and 2009 according to BIS II, previous data according to BIS I

Core capital
Current target	7%
Previous target	6%

The Santander share ended June at EUR 8.560, a rise of 26.8% during 2009's first half. During July, the share price continued to improve, approaching EUR 10 a share, for a market capitalization of EUR 80,000 million, making Santander the world's sixth largest bank by stock market value. The Board of Directors approved in June the first dividend against 2009 results of EUR 0.135234 a share, unchanged from the year-earlier dividend. The dividend will be paid from Aug. 1. 

At the close of the first quarter, Santander had 3,061,966 shareholders. Total employment in the Group was 177,781, serving around 90 million customers in 14,108 branches, making Santander the international financial group with the most shareholders and the largest branch network. 

Más información en:  www.santander.com

Income statement
Million euros
			Variation
	H1 '09	H1' 08	Amount	%
Net interest income	12,656	10,192	2,464	24.2
Dividends	241	319	(78)	(24.5)
Income from equity-accounted method	(3)	152	(154)	-
Net fees	4,538	4,539	(1)	(0.0)
Gains (losses) on financial transactions	1,840	1,574	266	16.9
Other operating income/expense	96	163	(66)	(40.7)
Gross income	19,368	16,937	2,430	14.3
Operating expenses	(8,054)	(7,436)	(618)	8.3
General administrative expenses	(7,269)	(6,749)	(520)	7.7
Personnel	(4,165)	(3,922)	(243)	6.2
Other administrative expenses	(3,104)	(2,827)	(277)	9.8
Depreciation and amortisation	(785)	(686)	(98)	14.4
Net operating income	11,314	9,502	1.812	19.1
Net loan-loss provisions	(4,626)	(2,880)	(1.746)	60.6
Impairment losses on other assets	(265)	(28)	(237)	830.8
Other income	(510)	(351)	(159)	45.3
Profit before taxes (w/o capital gains)	5,913	6,243	(330)	(5.3)
Tax on profit	(1,243)	(1,357)	114	(8.4)
Profit from continuing operations (w/o capital gains)	4,670	4,886	(215)	(4.4)
Net profit from discontinued operations	61	118	(58)	(48.7)
Consolidated profit (w/o capital gains)	4,731	5,004	(273)	(5.4)
Minority interests	212	274	(61)	(22.5)
Attributable profit to the Group (w/o capital gains)	4,519	4,730	(211)	(4.5)
Net extraordinary capital gains and allowances	-	-	-	-
Attributable profit to the Group	4,519	4,730	(211)	(4.5)
EPS (euros) (1)	0.5318	0.6620	(0.1301)	(19.7)
Diluted EPS (euros) (1)	0.5291	0.6588	(0.1298)	(19.7)
Pro memoria:
Average total assets	1,099,651	935,426	164,225	17.6
Average shareholders' equity	63,875	50,850	13,024	25.6

(1).- H1'08 data have been adjusted to the capital increase with preemptive rights at the end of 2008.

(2).- H1'09 results include the capital gains from the disposal of Visanet for EUR 262 million and an extraordinary allowance for the same amount.

Customer loans
Million euros
			Variation
	30.06.09	30.06.08	Amount	%	31.12.08
Public sector	9,665	6,574	3,091	47.0	7,668
Other residents	228,776	233,521	(4,745)	(2.0)	230,783
Commercial bills	10,622	15,954	(5,332)	(33.4)	14,874
Secured loans	123,471	125,889	(2,418)	(1.9)	123,566
Other loans	94,684	91,678	3,006	3.3	92,343
Non-resident sector	470,816	369,781	101,035	27.3	400,903
Secured loans	285,771	206,931	78,840	38.1	229,761
Other loans	185,045	162,849	22,196	13.6	171,142
Gross customer loans	709,257	609,876	99,381	16.3	639,354
Loan-loss allowances	15,189	10,955	4,234	38.6	12,466
Net customer loans	694,068	598,920	95,148	15.9	626,888
Pro memoria: Doubtful loans	21,504	9,525	11,979	125.8	13,968
Public sector	14	1	13	-	1
Other residents	8,407	3,439	4,968	144.4	6,208
Non-resident sector	13,083	6,085	6,999	115.0	7,759

Customer funds under management
Million euros
			Variation
	30.06.09	30.06.08	Amount	%	31.12.08
Public sector	14,089	11,742	2,347	20.0	13,720
Other residents	118,401	109,456	8,945	8.2	117,776
Demand deposits	55,873	51,123	4,749	9.3	51,300
Time deposits	44,748	40,420	4,327	10.7	46,783
REPOs	17,781	17,913	(132)	(0.7)	19,693
Non-resident sector	351,284	253,383	97,900	38.6	288,734
Demand deposits	188,329	119,105	69,224	58.1	151,774
Time deposits	137,586	103,415	34,171	33.0	115,620
REPOs	17,201	27,517	(10,316)	(37.5)	17,187
Public Sector	8,167	3,345	4,822	144.2	4,153
Customer deposits	483,774	374,582	109,192	29.2	420,229
Debt securities	221,454	240,825	(19,370)	(8.0)	236,403
Subordinated debt	41,687	35,788	5,900	16.5	38,873
On-balance sheet customer funds	746,916	651,194	95,722	14.7	695,506
Mutual funds	94,630	119,348	(24,718)	(20.7)	90,306
Pension funds	10,706	11,324	(618)	(5.5)	11,128
Managed portfolios	17,950	17,062	888	5.2	17,289
Savings-insurance    policies	14,223	10,484	3,739	35.7	12,338
Other customer funds under management	137,509	158,218	(20,709)	(13.1)	131,061
Customer funds under management	884,425	809,412	75,012	9.3	826,567

Shareholders' equity and minority interests
Million euros
			Variation
	30.06.09	30.06.08	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	32,113	28,212	3,901	13.8	28,024
Treasury stock	(320)	(50)	(270)	538.5	(421)
Shareholders' equity (before profit and dividends)	65,180	51,660	13,520	26.2	59,704
Attributable profit	4,519	4,730	(211)	(4.5)	8,876
Interim dividend distributed	--	--	--	--	(1,711)
Interim dividend not distributed	(1,103)	(846)	(257)	30.4	(3,102)
Shareholders' equity (after retained profit)	68,596	55,544	13,052	23.5	63,768
Valuation adjustments	(4,433)	(2,126)	(2,307)	108.5	(8,300)
Minority interests	2,683	2,490	193	7.8	2,415
Total equity (after retained profit)	66,845	55,908	10,938	19.6	57,883
Preferred shares and securities in subordinated debt	10,054	7,384	2,671	36.2	8,673
Total equity and capital with the nature of financial liabilities	76,900	63,292	13,608	21.5	66,555

Computable capital and BIS II ratio
Million euros
	30.06.09	31.12.08
Core capital	41,983	38,968
Basic capital	52,563	46,894
Supplementary capital	27,038	25,225
Deductions	(2,436)	(3,816)
Computable capital	77,165	68,302
Risk-weighted assets	559,421	514,003
BIS II ratio	13.8	13.3
Tier I (before deductions)	9.4	9.1
Core capital	7.5	7.5
Shareholders' equity surplus (BIS II ratio)	32,411	27,182

 

END

 

 

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