3rd Quarter Results
Banco Santander Central Hispano SA
26 October 2006
Press Release
Santander's net attributable income rose 28% to EUR 4.947 billion in the first
nine months of 2006
• Revenue rose by 17%, more than double the increase in costs, which grew by
7%, allowing net operating income to rise by 30%.
• Profit in the third quarter was EUR 1,731 million, up 30% compared to the
same quarter of 2005 and the highest quarterly profit ever registered by the
Group.
• Profit was underpinned by business strength in all units, in Europe as well
as in Latin America. Loans grew by 18% and customer funds by 9%.
• In Continental Europe, net attributable income rose by 16% to EUR 2,609
million, due to growth of 27% in loans and 15% in customer funds.
• In Latin America, net attributable income increased by 33% to EUR 1,799
million. In dollars, the region's operating currency, earnings rose by 31%,
with growth of 23% in loans and 21% in customer funds in local currencies.
• Abbey net attributable income rose 31%, to EUR 743 million, with increases of
4% in loans and 10% in customer funds in sterling, on a like-for-like basis.
• The non-performing loan rate was 0.83%, compared to 0.93% at the end of
September, 2005. NPL coverage rose to 186% from 174% a year earlier.
• The efficiency ratio improved by five points to 47.6% as revenues grew by
double the pace of costs.
• Return on equity (ROE) improved by two points and earnings per share (EPS)
for the three quarters amounted to 0.79 euros, up 27.4%.
Madrid, October 26th, 2006 - Grupo Santander registered net attributable profit
of EUR 4,947 million in the first nine months of 2006, an increase of 28% from
the same period in 2005. This result is in line with the goal of finishing the
year with an ordinary attributable profit of EUR 6,500 million announced by
Chairman Emilio Botin in the Shareholders Meeting of June 17th.
Attributable profit for the third quarter rose by 30% from the same year-earlier
period to a record EUR 1,731 million. This amount represents recurring
attributable profit greater than that obtained in all of 1999.
Earnings in the first nine months of 2006 were underpinned by strong growth in
business volumes (18% in loans and 9% in customer funds), in line with the
increase in revenues (17%), which was twice the rate of growth in costs (7%). As
a result, net operating income rose by 30%. After increased provisions to
reflect the rise in volumes in the most profitable segments, which also have
higher risk premiums, and in corporate banking in Spain, net attributable profit
rose 28%. The comparisons with 2005 are affected by the evolution of currencies
in Latin America, which added around three percentage points to the Group's
profit growth.
This growth has been achieved together with improvement in all business ratios.
Credit quality (through fewer NPLs and greater provisions), return on equity
(ROE rose by 2.2 points, to 18.6%), and efficiency (costs as a percentage of
income fell 5 points to 47.6%) all improved. At the same time, growth in profit
translated directly into growth in earnings per share (EPS), which rose by 27.4%.
Profit distribution in 2006
Main Segments
Attributable income
EUR Mill. % o/ 9M'05
Continental Europe 2,609 +16%
UK - Abbey 743 +31%
Latin America 1,799 +33%
Secondary Segments
Income before taxes
EUR Mill. % o/ 9M'05
Retail Banking 5,731 +24%
Wholesale Banking 1,084 +18%
Asset Mgmt. & Insurance 626 +18%
Financial Management & Equity Stakes has EUR - 204 million of attributable
income, versus EUR - 299 million in 9M'05
Group results 9M'06
28% increase in attributable income after a new record quarter of EUR 1,731
million (+30%)
Quarterly attributable income* - EUR million
Q1'05 1,185
Q2 1,366
Q3 1,327
Q4 1,334
Q1'06 1,493
Q2 1,723
Q3 1,731**
(*)Does not include extraordinary capital gains or allowances
(**)+30% as compared to Q3'05
YTD attributable income - EUR million
9M'05 3,878
9M'06 4,947*
(*) +28% as compared to 9M'05
In line with 2006 objectives (EUR 6,500 million of ordinary attributable income)
Results
Continental Europe generated 51% of Group profit, Latin America 35% and the
United Kingdom (Abbey) 14%. Group profit in Continental Europe rose by 16% to
EUR 2,609 million, with growth of 22% in net operating income. The largest
contribution came from the Santander branch network in Spain, with EUR 1,051
million (up 10%), followed by Banesto, EUR 448 million (up 16%), Santander
Consumer Finance, with EUR 423 million (up 20%) and Portugal, with EUR 327
million (up 22%).
The Santander branch network is investing in further quality enhancements and
customer satisfaction, through its 'We Want to Be Your Bank' plan, its ambitious
programme for opening new branches, and the completion of the roll-out of the
Partenon core banking platform. Costs grew by just 1% despite the addition of
151 branches to the network since September of 2005. As a result, net operating
income rose 14%, against an increase of 8% in net operating revenue.
Europe: Main units - 9M'06
EUR million and % o/ 9M'05
Strong and diversified growth of net operating income and of attributable
income, absorbing generic LLPs
Gross operating income: 7,932 mill; +15%
Santander Network 3,066 +8%
Banesto 1,470 +10%
Santander Cons. Fin. 1,340 +16%
Portugal 821 +9%
Rest* 1,235 +55%
Net operating income: 4,881 mill; +22%
Santander Network 1,760 +14%
Banesto 992 +19%
Santander Cons. Fin. 877 +14%
Portugal 437 +15%
Rest* 815 +79%
Attributable income: 2,609 mill; +16%
Santander Network 1,051 +10%
Banesto 448 +16%
Santander Cons. Fin. 423 +20%
Portugal 327 +22%
Rest* 360 +23%
(*) Banif, Asset Management and Global Wholesale Banking
Latin America: Main units - 9M'06
US$ million and % change o/ 9M'05
Strong revenues growth with costs under control in all countries. Increase of
LLPs due to expansion and change in mix
Gross operating income: 7,936 mill; +26%
Brazil 3,055 +27%
Mexico 1,854 +28%
Chile 1,331 +32%
Rest of countries 1,445 +16%
S. Private Banking 250 +22%
Net operating income: 4,071 mill; +42%
Brazil 1,574 +45%
Mexico 944 +53%
Chile 795 +46%
Rest of countries 608 +21%
S. Private Banking 151 +28%
Attributable income: 2,237 mill; +31%
Brazil 745 +26%*
Mexico 487 +37%
Chile 448 +47%
Rest of countries 423 +20%
S. Private Banking 134 +24%
(*) Without impact of AES Tiete in 2005: +47%
In Latin America, revenues grew by 26% and costs by 12%, resulting in an
increase in net operating income of 42% in dollars. Provisions increased due to
the strong growth in volumes, focused on the most profitable loans, which in
general require higher provisions, resulting in an increase in profit of 31%, to
US$ 2,237 million. The largest contribution came from Brazil, with a profit of
US$ 745 million (up 26%), followed by Mexico, with US$ 487 million (up 37%) and
Chile with US$ 448 million (up 47%). In euros, profit for the region rose 33% to
EUR 1,799 million.
In the United Kingdom, Abbey registered attributable profit in the first nine
months of EUR 743 million, an increase of 31% from the same period of 2005. This
performance was driven by a 4% increase in revenue together with a 12% reduction
in costs, resulting in a 34% increase in net operating income.
By businesses' contribution to earnings, Retail Banking activities accounted for
77% of profit before tax, or EUR 5,731 million, a 24% increase. Global Wholesale
Banking, which represents 15% of the Group's pre-tax earnings, contributed EUR
1,084 million, up 18%. Asset Management and Insurance, with an 8% contribution
to the Group's profit, registered pre-tax profit of EUR 626 million, up 18%.
Business
Santander closed September, 2006, with EUR 961,093 million in funds under
management, an increase of 3%. Of this total, EUR 798,540 million is on the
balance sheet, which grew 2%, and the rest were off-balance sheet customer
funds, such as mutual funds and pensions. The balance sheet would have grown by
7%, without the sale of the life insurance unit of Abbey, which came off the
Group's books in the third quarter.
Group gross lending was EUR 505,156 million at the close of September, an
increase of 18%. The inclusion of Abbey in the balance sheet at the close of
2004 results in a greater diversification of risks, with 52% in Continental
Europe, 37% in the United Kingdom and the remaining 11% in Latin America.
Gross loans
EUR billion
Sep 05 430
Dec 05 443
Mar 06 459
Jun 06 484
Sep 06 505*
(*)+17.6% as compared to Sep 05. The increase is of 18.1%
excluding the effect of the exchange rate
Gross loans. September 2006
% o/ operating areas
Latin America 11%
Continental Europe 52%
United Kingdom - Abbey 37%
In Continental Europe, lending rose 27% to EUR 256,188 million, with growth in
all business units. The Santander branch network in Spain grew 19%, Banesto 23%,
Portugal 7% and Santander Consumer Finance 27%. The Santander branch network
registered diversified growth both by products - mortgages up 18%, personal
loans up 17% and leasing/renting up 20% - and by segments - individuals up 18%,
and SMEs and microcompanies up 24%. Growth in lending continued to accelerate on
a quarter-to-quarter basis.
The Santander branch network this year launched the 'We Want To Be Your Bank'
plan, which aims to improve service quality and customer satisfaction,
eliminating service commissions to customers linked to the bank through products
such as payroll deposits, pensions, pension plans or mortgages. It is meeting
its targets.
Banesto grew by 19% in individuals, 22% in small business and 27% in
medium-sized business, strategic segments it has targeted and which are enabling
it to grow its market share. Santander Consumer Finance continued to grow
organically and through new projects. Its loan portfolio rose by 20%, with
direct loans up 34% and revolving cards 40%.
Santander Totta has a loan portfolio of EUR 27,471 million. Business with
individuals grew by 10%, consumer finance by 21% and SMEs and corporate business
by more than 20%.
Loan volume in Latin America came to US$ 71,399 million, an increase of 23%
without the exchange rate effect and of 17% in euros. Lending increased by 29%
in Brazil in local currency, with 33% growth in lending to individuals and 20%
to SMEs, which enabled it to grow market share to 5.9%. Mexico grew 34%, with
increases of 82% in lending to individuals and of 62% in loans to SMEs. In
Chile, loan volume grew by 18%, with an increase of 22% in lending to
individuals - where its market share amounts to 25.9% - and growth of 26% in
lending to SMEs.
Abbey's loan volume at the end of September stood at EUR 183,818 million, with
growth of 4% in pounds. Gross mortgage production grew 23%, from £19,600 million
in the first nine months of 2005 to £24,200 million in the same period of this
year. The improvement in Abbey's performance can be seen in growth in
outstanding mortgages, which rose by £6,100 million in the first nine months of
2006, compared with an increase of just £1,600 million in the same period of
2005, owing to strong growth in new production and a stabilizing of redemptions
from a year earlier. This has allowed Abbey to improve its share of the new
mortgage business, while it has also increased its share of personal loans.
Total customer funds under management came to EUR 719,629 million at the close
of September, up 9% from a year earlier, or 14% without the impact of the sale
of Abbey's life insurance unit. Balance sheet resources rose 9% to EUR 557,076
million, whilst off-balance sheet items (mainly mutual funds and pensions) rose
8% to EUR 162,553 million. Mutual funds increased by 7% and pensions were nearly
unchanged, owing to the sale of Union Vida in Peru. Continental Europe accounted
for 47% of managed customer funds, Abbey 32% and Latin America 21%.
Customer funds under management
Billion EUR
Sep 05 662
Dec 05 681
Mar 06 699
Jun 06 709
Sep 06 720*
(*)+8.7% as compared to Sep 05. The increase is of 9.8% excluding
the effect of the exchange rate.
Customer funds under management. September 2006
% o/ operating areas
Latin America 21%
Continental Europe 47%
United Kingdom - Abbey 32%
In Continental Europe, customer funds under management amounted to EUR 292,798
million, up 15%. Spain, which represents more than 83% of the total, grew by 20%
in balance sheet resources and 8% in off-balance sheet funds. The Group
maintained its leadership in mutual funds in Spain, with market share of 24.6%,
and continues to be second in Portugal.
In Latin America, customer funds were US$ 171,254 million, up 21% excluding the
exchange rate effect and by 13% in euros. In deposits less repos and
securitisations, all countries grew at double-digit rates. Brazil and Mexico
grew by 17%; Chile by 15% and Argentina and Venezuela by 30% and 43%,
respectively. Mutual funds increased by 28%. Pensions were nearly unchanged
because of the sale of the business in Peru; without the sale, there would have
been a 15% increase.
In Abbey, customer funds under management fell by 9%, owing to the sale of the
life insurance business, to EUR 200,929 million. Excluding that transaction,
resources rose 10%, with growth of 2% in deposits. The net savings flow (the
difference between new savings inflows and outflows) was a positive £911
million, down from the same year-earlier period due to the focus on improving
margins more than volumes.
Management and capital ratios
Efficiency
Strong improvement in EFFICIENCY* in all operating areas, which places the
Group's ratio below 48%...
(*) including depreciation and amortisations
Group's efficiency ratio
%
Q1'05 54.8%
H1'06 53.0%
9M'05 52.6%
12M'05 52.5%
Q1'06 50.3%
H1'06 48.6%
9M'06 47.6%**
(**) -5.0 pp as compared to 9M'05
... and in Q3'06 at 45,9%
Efficiency ratios by areas (%)
Continental Europe
%
9M'05 42.9%
9M'06 39.4%
Abbey
%
9M'05 64.4%
9M'06 54.3%
Latin America
%
9M'05 52.3%
9M'06 46.46%
Balance sheet soundness
NPL and coverage
Sep'05 Sep'06
Coverage 174% 186%
NPL 0.93% 0.83%
Doubtful loans and loan-loss allowances Sep'06
Doubtful loans 4,647
Loan-loss allowances 8,629*
(*) 3,131 - Specific
5,498 - Loan-loss allowances includes EUR 5,500 million generic funds
Capital ratios
Jun'06 Sep'06
BIS Ratio 12,40% 12.54%
Tier I 7,41% 7.49%
Core Capital 5,75% 5.88%*
(*) + 13 b.p. as compared to Jun'06
Capital management
• Divesting non core business (Sale of Abbey's Life Insurance: +7 bp in core
capital)
• Managing RWA: slowing growth rates quarter on quarter (Q3'06: +3% o/Q2)
Efficiency: Growth in revenues more than doubled growth in costs, leading to a
significant improvement in the efficiency ratio. At the close of September,
2006, overall costs and amortizations amounted to 47.6% revenues, an improvement
of five percentage points from 52.6% in September, 2005. Abbey led the
improvements among business units, improving its efficiency by 10 points to
54.3%. In Continental Europe, the efficiency ratio improved for the first time
to below 40%, with an improvement of almost six points in Latin America.
NPLs: The expansion of the Group's lending came with a drop in the NPL ratio,
resulting in all-time lows in the ratios of NPLs and doubtful loans at the end
of September. The Group's NPL rate was 0.83%, with coverage of 186%. The Group's
generic funds, which can be considered as reserves for the future, came to EUR
5,498 million.
Capital: The Group's eligible capital amounted to EUR 57,289 million at the end
of the quarter, with a surplus of EUR 20,749 million above the minimum required.
With this capital base, the BIS ratio is 12.5%, Tier I 7.5% and core capital
5.9%. The acquisition of the 24.89% stake in Sovereign Bancorp this year, with
an investment of EUR 2,297 million, didn't affect the soundness of the capital
ratios.
During the year, rating agencies Standard & Poor's and Fitch Ratings upgraded
the ratings of the Group and its subsidiaries, whilst Moody's confirmed them.
This places us as one of the best rated banks in Europe in its long-term rating.
The share and the dividend
The Santander share closed September at EUR 12.47, an 11.8% rise in nine months
and 14.1% from a year earlier. On October 25th, the Santander share reached its
all-time closing high of 13.55 euros per share, with a market capitalisation of
over EUR 84,000 million and broadly over US$ 100,000 million, making the Group
the largest company in Spain and the biggest bank in the euro zone.
The second dividend charged against 2006 will be paid on November 1st. As the
first one, it amounts to EUR 0.106904 per share, up 15% compared to the second
dividend of 2005.
Santander has 2,350,276 shareholders. 128,719 persons work in the Group, serving
67 million customers in 10,583 branches.
Income statement
Million euros
Variation
Jan.-Sep. 06 Jan.-Sep. Amount %
05
Net interest income (w/o dividends) 8.801 7.354 1.447 19,7
Dividends 335 279 56 20,2
Net interest income 9.136 7.633 1.503 19,7
Income from companies accounted for by 386 483 (97) (20,1)
the equity method
Net fees 5.365 4.593 771 16,8
Insurance activity 551 612 (61) (10,0)
Commercial revenue 15.438 13.322 2.116 15,9
Gains (losses) on financial 1.561 1.182 380 32,1
transactions
Gross operating income 16.999 14.503 2.495 17,2
Income from non-financial services 344 299 45 14,9
Non-financial expenses (83) (92) 9 (9,9)
Other operating income (68) (67) (1) 0,8
Operating costs (8.367) (7.842) (525) 6,7
General administrative expenses (7.524) (7.133) (391) 5,5
Personnel (4.501) (4.228) (273) 6,5
Other administrative expenses (3.023) (2.904) (118) 4,1
Depreciation and amortisation (843) (709) (134) 18,9
Net operating income 8.824 6.801 2.024 29,8
Impairment loss on assets (1.843) (1.115) (728) 65,3
Loans (1.792) (1.075) (717) 66,7
Goodwill (5) - (5) -
Other assets (47) (40) (7) 16,3
Other income 49 (382) 431 -
Income before taxes 7.030 5.303 1.727 32,6
Corporate income tax (1.637) (1.034) (603) 58,3
Net income from ordinary activity 5.393 4.269 1.124 26,3
Net income from discontinued operations (7) (14) 7 (50,0)
Net consolidated income 5.386 4.255 1.131 26,6
Minority interests 439 377 62 16,4
Attributable income to the Group 4.947 3.878 1.069 27,6
Customer loans
Million euros
Variation
30.09.06 30.09.05 Amount % 31.12.05
Public sector 5.419 5.803 (384) (6,6) 5.243
Other residents 188.710 142.028 46.683 32,9 153.727
Secured loans 100.228 74.830 25.399 33,9 81.343
Other loans 88.482 67.198 21.284 31,7 72.384
Non-resident sector 311.026 281.844 29.183 10,4 284.468
Secured loans 186.849 168.223 18.627 11,1 174.117
Other loans 124.177 113.621 10.556 9,3 110.352
Gross loans and credits 505.156 429.674 75.482 17,6 443.439
Credit loss allowance 8.163 7.475 688 9,2 7.610
Net loans and credits 496.993 422.200 74.794 17,7 435.829
Pro memoria: Doubtful loans 4.638 4.371 267 6,1 4.356
Public sector 18 1 17 - 3
Other residents 1.175 1.001 174 17,4 1.027
Non-resident sector 3.445 3.369 75 2,2 3.326
Customer funds under management
Million euros
Variation
30.09.06 30.09.05 Amount % 31.12.05
Public sector 13.956 17.613 (3.658) (20,8) 14.366
Other residents 93.532 80.531 13.001 16,1 83.392
Demand deposits 53.706 47.536 6.171 13,0 50.124
Time deposits 23.216 18.140 5.077 28,0 18.799
REPOs 16.609 14.856 1.753 11,8 14.470
Non-resident sector 218.036 207.711 10.325 5,0 208.008
Demand deposits 117.766 111.402 6.364 5,7 113.603
Time deposits 76.312 77.870 (1.558) (2,0) 77.195
REPOs 21.680 15.246 6.434 42,2 14.366
Public Sector 2.278 3.193 (915) (28,7) 2.844
Customer deposits 325.524 305.856 19.667 6,4 305.765
Debt securities 190.655 132.765 57.890 43,6 148.840
Subordinated debt 31.154 29.304 1.850 6,3 28.763
Insurance liabilities 9.743 44.099 (34.356) (77,9) 44.672
On-balance-sheet customer funds 557.076 512.024 45.052 8,8 528.041
Mutual funds 117.102 109.248 7.854 7,2 109.480
Pension funds 27.442 27.380 62 0,2 28.619
Managed portfolios 18.009 13.292 4.717 35,5 14.746
Off-balance-sheet customer funds 162.553 149.920 12.633 8,4 152.846
Customer funds under management 719.629 661.945 57.685 8,7 680.887
Shareholders' equity and minority
interests
Million euros
Variation
30.09.06 30.09.05 Amount % 31.12.05
Capital stock 3.127 3.127 - - 3.127
Additional paid-in surplus 20.370 20.370 - - 20.370
Reserves 12.355 8.737 3.618 41,4 8.781
Treasury stock (22) (33) 11 (34,0) (53)
On-balance-sheet shareholders' equity 35.831 32.201 3.629 11,3 32.225
Net attributable income 4.947 3.878 1.069 27,6 6.220
Interim dividend distributed (669) (581) (87) 15,0 (1.163)
Shareholders' equity at period-end 40.109 35.498 4.611 13,0 37.283
Interim dividend not distributed - - - - (1.442)
Shareholders' equity 40.109 35.498 4.611 13,0 35.841
Valuation adjustments 3.668 3.089 579 18,8 3.077
Minority interests 2.457 2.628 (171) (6,5) 2.848
Preferred securities 1.183 1.589 (406) (25,6) 1.309
Preferred securities in subordinated 6.427 6.535 (108) (1,7) 6.773
debt
Shareholders' equity and
minority interests 53.845 49.339 4.506 9,1 49.848
Computable capital and BIS ratio
Million euros
Variation
30.09.06 30.09.05 Amount % 31.12.05
Computable basic capital 34.232 30.049 4.183 13,9 32.532
Computable supplementary capital 23.057 20.951 2.106 10,1 20.894
Computable capital 57.289 51.000 6.289 12,3 53.426
Risk-weighted assets 456.745 401.171 55.574 13,9 412.734
BIS ratio 12,54 12,71 (0,17) 12,94
Tier 1 7,49 7,49 - 7,88
Core capital 5,88 5,54 0,34 6,05
Cushion 20.749 18.906 1.843 9,7 20.407
This information is provided by RNS
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