Santander restructuring costs cause 18% dip in profit

Spanish lender Santander reported an 18 per cent fall in second-quarter net profit on Tuesday hurt by one-off restructuring costs from its acquisition of Banco Popular and a weak performance in Britain.

It reported a net profit of €1.39 billion for the three months to the end of June, topping the €1.29 billion expected by analysts in a Reuters poll.

The euro zone's largest bank by market capitalisation, which took over Banco Popular two years ago, recently agreed with unions on the closure of around 1,150 branches and layoffs in Spain - around a tenth of its Spanish workforce.

It said it would take charges of €706 million, mainly in Spain, where it booked a loss of €262 million. Excluding restructuring costs, underlying net profit in the quarter was up 5 per cent.

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In Britain, its third-largest region, profit fell 41 per cent, due to a continued pressure on mortgage margins and to restructuring costs of €26 million and provisions of €80 million.

It had a solid performance in Brazil and Mexico in the second quarter and chairman Ana Botin told an extraordinary general meeting that Mexico was an important part of its plan to invest and grow in Latin America.

Santander's diversification overseas, especially in Latin America, has helped the bank to cope with tough conditions for banks in Europe in the years since the financial crisis.

Net interest income, a measure of earnings on loans minus deposit costs, was €8.95 billion, up 5.6 per cent from the second quarter of last year and 3.1 per cent higher against the previous quarter due to a solid lending growth in Latin America.

Analysts had forecast a net interest income of €8.76 billion.

Mexico deal

On Tuesday, investors are expected to sign off at an extraordinary shareholder meeting on a capital increase of €2.6 billion to finance the acquisition of a 25 per cent stake they don’t own of its Mexican subsidiary.

The move is part of efforts to increase focus on emerging economies while cutting costs to counter squeezed margins in mature European markets.

While record-low interest rates have prevailed in the euro zone for the past 10 years, rates in Mexico stand at 8.25 per cent, the highest since the 2008 global financial crisis.

In Mexico, where it aims to make around a tenth of its profits after the deal, profit rose 20 per cent in the quarter.

“We believe in Mexico, it economy and its financial sector, and we think this is an appropriate time to continue to invest in Mexico and our Mexican subsidiary,” Ms Botin said.

In Brazil, where the bank makes more than a quarter of its profits, core profit rose 18 per cent from a year ago, boosted by solid growth in business volumes.

Profits in the United States rose 36 per cent.

Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank’s strength, of 11.3 per cent, compared with 11.23 per cent in the previous quarter, in line with its medium-term target of 11-12 per cent. – Reuters