Ay, caramba - Santander earnings drop by a third

Until now, Santander has breezed through the debt crisis. But struggling property markets in Spain mean that's all changed.

by Emma Haslett
Last Updated: 31 Jan 2012
It may be based in one of the worst of the eurozone’s struggling economies, but up until recently, Santander has had a relatively easy time of it. That changed last year, though, when net profit for the bank fell by just over a third to €5.35bn (£4.48bn), down from €8.18bn the year before, according to figures by the bank. This was largely driven by the near-collapse of prices on Spain’s decidedly dodgy property market. Has the eurozone crisis finally taken its toll on Europe’s biggest lender?

By far the worst period for Santander was its fourth quarter, when profits dropped from €2.1bn in 2010 to a measly €47m. But the bank pointed out that it was because of a €1.8bn charge it had set aside during the final three months of the year to help it prepare for defaults on bad property loans in Spain.

And there’s more to come: the bank added that it’s made ‘total net extraordinary provisions’ of €3.18bn – in this case, money set aside to cover the devaluing of its property assets. That’s partly because of expectations that the new Spanish government will announce on Friday that banks should raise their provisioning for bad property assets from 30% of their value to 50%.

Despite its fall in profits, Santander has done a lot better than many of its Spanish rivals, largely because of its exposure to markets overseas. Admittedly, profits in European countries like Portugal and the UK fell (particularly in the UK, where pre-tax profits fell 42% to €1.57bn, partially because it was forced to shell out £538m for payment protection insurance compensation). But that gave countries in Latin America the chance to shine: the region now accounts for more than half of group profits.

So we doubt Santander CEO Alfredo Saenz Abad is one of the three anonymous banking executives who are, according to the FT, preparing to approach the European Central Bank’s emergency funding scheme for extra help. Apparently, the three bankers could ask for up to three times the amount the ECB had originally said it was prepared to lend during its three-year money auction at the end of February.

The ECB last did a money auction, designed to avert the chance of a new credit crunch by easing liquidity with banks, in December, when banks raised €489bn. This time, though, indications are that it could be up to €1tn. Although we doubt that’ll do much more than put a plaster over the problem…

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