3rd Quarter Results

RNS Number : 8160G

Banco Santander S.A.

28 October 2008

 



Press Release                    

Banco Santander profit rose 16% to EUR 6.935 billion in the first nine months, excluding capital gains

• Profit was driven by growth in revenues (13%) at a rate of growth 4 times higher than costs (3%), enabling net operating income to grow 21%.

• The increase in revenue was underpinned by spread management and strong sales, despite a more difficult environment. Loans grew by 8% and deposits by 20%, excluding exchange rate effects.

• Continental Europe registered attributable profit of EUR 3,530 million, with an increase of 9% in commercial units. Loans grew by 7% and deposits by 11%.

• In Latin America, attributable profit increased by 20% in dollars to $3,294 million, with growth of 21% in loans and 15% in deposits, measured in local currencies. In euros, attributable profit amounted to EUR 2,167 million (+6%).

• Abbey's attributable profit in pounds sterling amounted to £737 million (+20%), with growth of 11% in retail loans and 31% in deposits in pounds following the acquisition of Bradford & Bingley. In euros, attributable profit amounted to EUR 943 million (+4%).

• The stake in ABN Amro contributed EUR 725 million to results in the first nine months, nearly all generated by Banco Real in Brazil.

• The efficiency ratio stands at 40.7%, improving 3.5 points from a year earlier.

• The non-performing loan rate was 1.63% and the coverage rate was 104%. NPLs in Spain stood at 1.5%. These rates compare very favourably with the average of the sector in the markets where the bank operates.

• The capital ratios underline Banco Santander's solvency, with a BIS ratio of 11.42% and core capital of 6.31%.

• In September, the Group sold Santander's Financial City headquarters, with capital gains of EUR 586 million which are not included in third quarter profit.

  Madrid, October 28th, 2008 - Banco Santander registered attributable profit of EUR 6,935 million in the first nine months of 2008, an increase of 6% from the year-earlier period. The increase was 16% excluding the impact of last year's extraordinary capital gains. In 2008's third quarter, Santander obtained extraordinary capital gains of EUR 586 million from the sale of the Santander Financial City headquarters, which are not included in third quarter profit. In the same period of 2007, attributable profit included EUR 582 million in capital gains obtained from the sale of stakes in Intesa San Paolo of Italy and BPI of Portugal.

These results were obtained against a very difficult economic and financial backdrop, during which a large number of global financial institutions, with which Banco Santander is compared, have registered losses and required public support. In this environment, Banco Santander has realized important acquisitions, such as that of Alliance & Leicester (A&L) and Bradford and Bingley's (B&B) deposits and distribution channels in the UK. The Group has also launched an offer for the remaining capital of Sovereign Bancorp. Of these, the first nine months' results only include B&B's balance sheet.

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 prices to adapt to the situation and by stepped-up cost control, as revenues rose by 13%, 4 times higher the 3% rate of growth in costs.

Commercial revenues continue growing at a good pace …

Net interest income (w/o dividends) + commissions + insurance activity
EUR billion
	Q1'05	Q2	Q3	Q4	Q1'06	Q2	Q3	Q4	Q1'07	Q2	Q3	Q4	Q1'08*	Q2*	Q3*
Total	3.8	4.0	4.4	4.6	4.6	4.7	4.9	5.1	5.6	5.8	5.9	6.1	6.3	6.5	6.7
Commissions + insuran. activity	1.4	1.5	1.7	1.8	1.7	1.8	1.8	1.9	2.1	2.1	2.0	2.1	2.2	2.2	2.2
Net interest inc. (w/o dividends)	2.4	2.5	2.7	2.8	2.9	2.9	3.1	3.2	3.5	3.7	3.9	4.0	4.1	4.3	4.5
(*) Net interest income does not include financing cost of ABN - Real, as it excludes revenues (accounted for by the equity method)

Europe
EUR million
Q1'07	Q2	Q3	Q4	Q1'08	Q2	Q3
2,970	2,982	2,986	3,049	3,225	3,327	3,479

United Kingdom
Sterling million
Q1'07	Q2	Q3	Q4	Q1'08	Q2	Q3
552	571	573	591	621	625	674

Latin America (ex-Real)
USD million
Q1'07	Q2	Q3	Q4	Q1'08	Q2	Q3
2,835	3,126	3,497	3,752	3,929	4,154	4,184

Results

The performance in the first nine months of 2008 confirms the trend in growth in recurrent earnings, typical of commercial and retail banking, in which net interest revenue (excluding dividends), fees and commissions and insurance premiums have increased on a quarter-byquarter basis for four consecutive years, in spite of changes in the business environment. Recurrent commercial revenue was EUR 6,700 million in the third quarter, the fourth consecutive quarter in which it exceeded EUR 6,000 million.

Growth continues to focus on deposits, which increased 11% on a like-for-like basis and 20% following the acquisition of Bradford & Bingley's deposits. Loans grew 8%. A year ago, loans grew 13% and deposits by 7%. At the same time, businesses have focused on spread management, widening spreads on business to 4.17 points in the last quarter compared to 3.85 points a year ago.

This combination of growth in business and active management of asset and liabilities prices enabled Banco Santander to increase income in the first nine months of the year to EUR 22,534 million, up 13% from the same period of 2007. At the same time, strict cost control kept growth in costs slightly above 3%, lower than the average inflation in the markets where the Group operates. Costs came to EUR 9,303 million in the first nine months.

The differential between growth of income and costs enabled net operating income to grow 21% to EUR 13,147 million. The revenue and cost performance drove a significant improvement in efficiency. At the close of September, costs amounted to 40.7% of total income, an improvement of 3.5 points from a year earlier and 12 points since the close of 2005, when the efficiency ratio was still above 50%. In Spain, the Santander branch network's efficiency ratio stood at 35.3% and Banesto's at 39.7%. Latin America improved to 38.2% whilst UK (Abbey) continued its progress, standing at 46%. Abbey's costs came to 70% of revenues in 2004, the year Santander acquired the bank.

Continental Europe Main Units 9M'08

EUR Million and % o/ 9M'07

The combined retail units registered double digit increases in revenues and net operating income. Moreover, good quarter in GBM.

Gross operating income:   10,654 mill.; +10 %
SAN Branch Network	4,035	+14%
Banesto	1,856	+10%
Santander Consumer Finance	2,366	+20%
Portugal	932	+2%
Other **	1,465 (GBM: 957)	-6%
Growth of SAN Branch Network, Banesto, Santander Consumer Finance and Portugal: 13%.
(**) Global Wholesale Banking, Asset Management and Insurance and Banif.

Net operating income: 6,712 mill.; +13 %
SAN Branch Network	2,581	+21%
Banesto	1,090	+14%
Santander Consumer Finance	1,725	+23%
Portugal	520	+1%
Other **	795 (GBM: 591)	-16%
Growth of SAN Branch Network, Banesto, Santander Consumer Finance and Portugal: +18 %.
(**) Global Wholesale Banking, Asset Management and Insurance and Banif.

Attributable profit: 3,530 mill.; 0.4%*
SAN Branch Network	1,503	+11%
Banesto	584	+15%
Santander Consumer Finance	561	+2%
Portugal	411	+5%*
Other **	471 (GBM: 375)	-34%
Growth of SAN Branch Network, Banesto, Santander Consumer Finance and Portugal: +9%.
(*) Excluding 2007 extraordinary capital gains and allowances. (**) Global Wholesale Banking, Asset Management and Insurance and Banif.

Latin America main units 9M´08 (ex ABN-Real)

US$ mill. and % o/ 9M'07

Strong growth of revenues in all countries with costs under control. Increased LLPs due to greater lending, change of mix and slightly higher risk premiums

Gross operating income: 13,629 mill.; +34%
Brazil (ex-Real)	5,631	+33%
Mexico	3,276	+31%
Chile	2,016	+35%
Other countries	2,315	+41%
Santander Private Banking	391	+23%

Net operating income: 8,123 mill.; +42%
Brazil	3,385	+37%
Mexico	2,129	+39%
Chile	1,286	+44%
Other countries	1,087	+68%
Santander Private Banking	236	+25%

Attributable profit: 3,294 mill.; +20%
Brazil	1,138	+21%
Mexico	827	+21% [+22%]
Chile	635	+10% [+17 %]
Other countries	497	+30% [+49%]
Santander Private Banking	196	+19%
Note: In brackets, profit before discontinued operations (sale of pension fund businesses)

Strong growth in net operating income was accompanied by an increase of 67% in loan-loss provisions, which amounted to EUR 3,992 million. This increase is linked to the worsening of the environment, growth in business, and a change in the business mix to more profitable sectors. Even with these provisions, attributable profit amounted to EUR 6,935 million, growing 16% excluding extraordinary capital gains.

By geographical areas, Continental Europe recorded net income of EUR 3,530 million, practically the same as in the previous year. This performance is due mainly to the smaller contribution of wholesale banking as a result of the reduction in corporate transactions in Spain. Retail units grew 9%, to EUR 3,059 million.

Abbey's profit increased 20% in pounds, to £737 million (EUR 943 million, up 4%) thanks to a 13% rise in revenues whilst costs grew 4%, the same rate as the Group. Thus, Banco Santander's profit in Europe amounted to EUR 4,473 million, 64% of total Group profit. 

In Latin America, attributable profit grew 20% in dollars, its operating currency, to US$3,294 million. In euros, attributable profit rose 6% to EUR 2,167 million. The greatest contribution was made by Brazil, where profit rose by 21%, to US$1,138 million (EUR 749 million), excluding Banco Real. Mexico followed with an increase of 22% to US$827 million (EUR 544 million) and Chile, where attributable profit increased by 17% to US$635 million (EUR 418 million).

By businesses, retail banking registered ordinary pretax profit of EUR 7,109 million, up 5%. Growth was affected by the depreciation of the pound and the dollar against the euro. Global Wholesale Banking registered a pretax profit of EUR 1,740 million, down 5%, reflecting exceptional revenues generated by large corporate transactions during last year's first quarter. Second and third quarter pretax profit sums up to EUR 1,148 million compared to EUR 954 million in the same period of last year. Asset management and Insurance pretax profit amounted to EUR 416 million, down 5%, with a positive performance of insurance in all markets, while mutual funds were affected by flows into deposits as well as the market situation.

Business

Banco Santander ended September 2008 with EUR 1,079,723 million in funds under management. Of this amount, EUR 953,035 million are on the balance sheet, up 7%. Excluding the effect of the depreciation of certain currencies against the euro, Santander increased loans by 8% and deposits by 11% (or 20% if Bradford & Bingley is included).

Customer loans

Gross customer loans

EUR billion

Sep 07	560
Dec 07	574
Mar 08	554
Jun 08	573
Sep 08 (*)	581
(*) +3.8 % as compared to September 2007. The increase is of 8.4% without exchange rate impact.

Gross customer loans. September 2008

% o/ operating areas

Continental Europe	56%
United Kingdom - Abbey	31%
Latin America	13%

Group gross lending came to EUR 580,913 million at the end of September 2008, up 4% in euros or 8% excluding the impact of the fluctuations in the dollar and the pound. Continental Europe accounted for 56% of gross lending, the United Kingdom (Abbey) 31% and Latin America 13%. 

Loans grew by 7% in Continental Europe to EUR 316,585 million, with increases in all countries and units. In Spain, the Santander branch network and Banesto both increased loans by 3%. Lending to residents, which basically reflects overall lending in Spain, grew by 5%. Collateralized lending, basically mortgages, grew by 3%. In Portugal, Santander Totta lending grew by 11%.

Customer funds under management

EUR billion

	Sep 07	Dec 07	Mar 08	Jun 08	Sep 08
Total	780	785	750	759	782	+0.2%*
Others	169	160	148	143	138	- 18.4%
On-balance sheet	611	625	602	616	644	+5.3% *
(*) W/o exchange rate impact, total: +3.4; on-balance sheet: +9.3%. Note: Adjusted with the impact of the sale of pension funds management institutions in Latin America and the placement of 'Valores Santander'.

Customer funds under management. September 2008

% o/ operating areas

Continental Europe	46%
United Kingdom - Abbey	32%
Latin America	22%

Santander Consumer increased lending by 20%, including the acquisition of the Royal Bank of Scotland's loan portfolio of EUR 2,200 million in Germany, the Netherlands, Belgium and Austria.

Lending in Latin America grew by 15% in euros and 21% in local currencies to EUR 74,216 million. Brazil grew by 34%, Chile 21% and Mexico 16%.

Abbey ended the period with loans of EUR 173,553 million. Mortgage loans grew by 12% to £121,200 million. Net mortgage production during the first none months came to £10,800 million, compared to £6,700 million in the same period last year.

At the end of September, Group non-performing loans close came to 1.63%, up from 0.89% a year earlier. Coverage was 104%, down 0.54 point from a year earlier. The Group has reserves for loan losses of EUR 11,035 million, of which EUR 6,296 million are generic provisions, a slight increase during the period which reflects the growth in business.

The NPL rate continued to be below one percent in the U.K. (0.76%). In Spain, the NPL for the Santander group units (Santander branch network, Banesto, Santander Consumer Finance, Open Bank y Banif) was 1.5%. NPLs in Latin America were 2.37%. The nonperforming loan rates for the Group are well below those of the financial sector in the markets in which it operates.

Customer funds under management by the Group came to EUR 781,803 million at the end of September. This figure was affected by the depreciation of the dollar and the pound, as well as the placement in October of 2007 of EUR 7,000 million of Valores Santander bonds, which are accounted for as equity rather than customer funds. Also included are the £20,000 million in deposits acquired from Bradford & Bingley. On a like-for-like basis, customer funds were nearly unchanged, with an increase of 0.2%, with deposits increasing by 11% while mutual funds and pensions declined.

Continental Europe accounted for 47% of Group customer funds, or EUR 300,353 million. In Spain, which made up 82% of this area, customer funds grew by 11%, in Portugal by 18% and in Santander Consumer Finance by 16%.

In Latin America, customer funds grew by 9% to EUR 139,917 million. Deposits in the region increased by 15% to EUR 85,439 million. In Brazil, deposits rose by 29%, in Chile by 16% and in Mexico by 2%. 

Customer funds at Abbey came to EUR 205,651 million. Customer deposits grew by 31% due to the addition of Bradord & Bingley accounts and by 5% on a like-by-like basis in local currency.

Acquisition of new businesses

Last July 14th, Banco Santander and Alliance & Leicester reached an agreement on the terms of a recommended offer by Santander to acquire the entire share capital of Alliance & Leicester. As a consequence of this agreement, Banco Santander issued 140.9 million new shares and on Oct. 10th shareholders in Alliance & Leicester received one Santander share for each three shares of Alliance & Leicester.

A&L, which will be incorporated into the Group accounts during the fourth quarter of this year, has assets of £79,000 million, £30,800 million in deposits and £42,800 million in mortgages. A&L has 5.5 million customers and 254 branches.

On Sept. 29th, Abbey acquired the deposits and distribution channels of Bradford & Bingley, which increased deposits in the Group accounts by £20,000 million from some 2.7 million customers in a network of 197 branches and 141 points of sale in third-party premises. The acquisition came to £612 million, which included £208 million in capital B&B contributed to Abbey through certain subsidiaries. B&B has been consolidated into the Group's balance sheet for the period ended Sept. 30 but not into the income statement.

Following these acquisitions, Santander has a market share of 10% of U.K. deposits and 13% of mortgages in the U.K. Abbey has become the U.K. second largest mortgage lender and third in deposits, with 1,300 branches and 25 million customers.

On October 14th, Banco Santander and Sovereign Bancorp announced an agreement for Santander to acquire the 75.65% of Sovereign Bank it doesn't already own through an exchange of shares consisting of one Santander share for every 3.42 Sovereign shares. The transaction is expected to be completed during the first quarter of 2009.

Investments related to these three acquisitions - A&L, B&B and Sovereign - amount to EUR 5,000 million. They are expected to generate an average return on investment (ROI) of around 20% in the third year.

The share and the dividend

Banco Santander's eligible capital came to EUR 53,981 million at Sept. 30th, 2008, with a surplus of EUR 16,150 million above the required minimum. With this capital base, according to Basel II criteria, the BIS ratio stood at 11.42%, Tier I at 7.89% and Core Capital at 6.31%. These ratios underline Grupo Santander's financial strength.

The Santander share was quoted at EUR 10.5 at Sept. 30, 2008, providing market capitalization of EUR 65,670 million. The Board of Directors has approved this year the distribution of two dividends against 2008 earnings of EUR 0.135234 each per share, a 10% increase from the same dividends paid last year against 2007's earnings. The first dividend was paid on Aug. 1 and the second will be distributed from Nov. 1.

Santander had 2,251,033 shareholders at Sept. 30. Some 133,178 persons work in the Group, servicing 68 million customers in 11,685 branches. These figures will be increased in the fourth quarter to reflect the integration of A&L and B&B.

For more information, see: www.santander.com

Income Statement
Million euros
			Variation
	9M '08	9M '07	Amount	%
Net interest income (w/o dividends)	12,528	11,016	1,512	13.7
Dividends	397	357	40	11.1
Net interest income	12,925	11,378	1,552	13.6
Income from companies accounted for by the equity method	800	248	552	222.2
Net fees	6,229	6,022	208	3.5
Insurance activity	262	250	12	4.9
Commercial revenue	20,216	17,893	2,324	13.0
Gains (losses) on financial transactions	2,318	2,053	265	12.9
Gross operating income	22,534	19,946	2,588	13.0
Income from non-financial services	95	110	(16)	(14.2)
Non-financial expenses	(55)	(56)	1	(2.5)
Other operating income	(124)	(111)	(13)	-
Operating expenses	(9,303)	(8,989)	(314)	3.5
General administrative expenses	(8,384)	(8,033)	(351)	4.4
Personnel	(4,994)	(4,761)	(233)	4.9
Other administrative expenses	(3,390)	(3,272)	(118)	3.6
Depreciation and amortisation	(919)	(956)	37	(3.8)
Net operating income	13,147	10,900	2,247	20.6
Impairment loss on assets	(4,079)	(2,419)	(1,660)	68.6
Loans	(3,992)	(2,387)	(1,605)	67.2
Goodwill	-	-	-	-
Other assets	(86)	(32)	(55)	172.8
Other income	(166)	(375)	210	-
Profit before taxes (w/o capital gains)	8,903	8,105	797	9.8
Tax on profit	(1,587)	(1,803)	216	(12.0)
Net profit before ordinary activity	7,316	6,302	1,013	16.1
Net profit from discontinued operations	4	99	(95)	(95.8)
Net consolidated profit (w/o capital gains)	7,320	6,401	918	14.3
Minority interests	384	412	(27)	(6.6)
Attributable profit to the Group (w/o capital gains)	6,935	5,990	946	(15.8)
Net extraordinary capital gains and allowances	-	582	(582)	(100.0)
Attributable profit to the Group	6,935	6,572	363	5.5

Customer loans
Million euros
			Variation
	30.09.08	30.09.07	Amount	%	31.12.07
Public sector	6,073	5,213	860	16.5	5,633
Other residents	229,545	218,672	10,874	5.0	227,512
Commercial bills	14,733	17,114	(2,381)	(13.9)	18,248
Secured loans	124,274	120,750	3,524	2.9	123,371
Other loans	90,538	80,807	9,731	12.0	85,893
Non-resident sector	345,294	335,892	9,403	2.8	341,027
Secured loans	204,898	201,795	3,102	1.5	199,316
Other loans	140,397	134,097	6,300	4.7	141,711
Gross customer loans	580,913	559,776	21,137	3.8	574,172
Loan-loss allowances	10,211	8,561	1,649	19.3	8,695
Net customer loans	570,703	551,215	19,488	3.5	565,477
Pro memoria: Doubtful loans	10,373	5,669	4,703	83.0	6,070
Public sector	1	2	(1)	(66.7)	1
Other residents	4,636	1,512	3,123	206.6	1,812
Non-resident sector	5,737	4,156	1,581	38.0	4,257

Customer funds under management
Million euros
			Variation
	30.09.08	30.09.07	Amount	%	31.12.07
Public sector	15,016	14,257	759	5.3	15,239
Other residents	110,156	101,914	8,242	8.1	103,772
Demand deposits	51,056	55,900	(4,884)	(8.7)	53,779
Time deposits	43,355	28,497	14,857	52.1	31,007
REPOs	15,785	17,517	(1,732)	(9.9)	18,986
Non-resident sector	247,122	232,138	14,985	6.5	236,693
Demand deposits	128,482	121,131	7,351	6.1	117,699
Time deposits	96,832	76,410	20,422	26.7	78,287
REPOs	19,098	32,160	(13,062)	(40.6)	37,538
Public Sector	2,710	2,437	274	11.2	3,168
Customer deposits	372,294	348,309	23,985	6.9	355,704
Debt securities	236,986	237,963	(978)	(0.4)	233,634
Subordinated debt	34,575	31,918	2,657	8.3	35,670
On-balance sheet customer funds	643,855	618,190	25,664	4.2	625,009
Mutual funds	97,256	128,190	(30,935)	(24.1)	119,211
Pension funds	11,172	30,707	(19,535)	(63.6)*	11,952
Managed portfolios	18,260	20,489	(2,229)	(10.9)	19,814
Savings-insurance policies	11,260	8,910	2,350	26.4	9,009
Other customer funds under management	137,948	188,297	(50,349)	(26.7)	159,986
Customer funds under management	781,803	806,487	(24,684)	(3.1)*	784,995

(*) Without impact of the sale of pension funds management institutions in Latin America, pension funds: -3.4%; customer funds under managament: -0.7%

Shareholders' equity and minority interests
Million euros
			Variation
	30.09.08	30.09.07	Amount	%	31.12.07
Capital stock	3,127	3,127	-	-	3,127
Additional paid-in surplus	20,370	20,370	-	-	20,370
Reserves	28,069	16,689	11,380	68.2	23,458
Treasury stock	(77)	(207)	130	(63.0)	(0)
On-balance sheet shareholders' equity	51,490	39,979	11,511	28.8	46,955
Attributable profit	6,935	6,572	363	5.5	9,060
Interim dividend distributed	(846)	(769)	(77)	10.0	(1,538)
Shareholders' equity at period-end	57,579	45,782	11,797	25.8	54,478
Interim dividend not distributed	-	(769)	769	(100.0)	(2,532)
Shareholders' equity	57,579	45,013	12,566	27.9	51,945
Valuation adjustments	(3,779)	980	(4,760)	-	722
Minority interests	2,527	2,332	196	8.4	2,358
Preferred securities	498	558	(60)	(10.7)	523
Preferred securities in subordinated debt	7,151	7,320	(169)	(2.3)	7,261
Shareholders' equity and minority interests	63,976	56,203	7,773	13.8	62,810

Computable capital and BIS II ratio
Million euros
	30.09.08
Core capital	29,836
Basic capital	37,300
Supplementary capital	22,639
Deductions *	(5,957)
Computable capital	53,981
Risk-weighted assets	472,895
BIS II ratio	11.42
Tier 1 (before deductions)	7.89
Core capital	6.31
Shareholders' equity surplus (BIS II ratio)	16,150

(*).-Mainly corresponding to the stake in RFS Holdings, recorded by the equity method. This company holds the businesses acquired from ABN AMRO until their definitive separation and subsequent incorporation into the Group by global integration.

 

END

 

 

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