Santander's Profit Slips on Currency Turbulence -- 3rd Update

By Jeannette Neumann 

MADRID-- Banco Santander SA on Wednesday reported a 5% decline in first-quarter net profit on weaker lending and fee income as currency turmoil from the U.K. to recession-hit Brazil squeezed profits.

Net profit fell to EUR1.63 billion ($1.84 billion), while net interest income--the difference between what lenders pay clients for deposits and charge for loans--was EUR7.62 billion, compared with EUR8.04 billion in the first quarter of 2015.

Both net profit and net interest income were roughly in line with analyst expectations, according to a poll by data provider FactSet. Santander shares were up around 2% around noon trading in Madrid.

"We continue to deliver on all our commitments," Executive Chairman Ana Botín said in a statement, including an uptick in the bank's closely watched capital ratio.

The decline in net profit, the bank said, was triggered by the depreciation of various currencies against the euro. A drop in the value of the Brazilian and Mexican currencies, for instance, chipped away at Santander's earnings, which are reported in euros.

Currency volatility in the bank's Latin American units is nothing new for Santander.

What isn't as common for the bank is notable turmoil in the British pound against the euro.

The currency has fallen against the euro since the beginning of the year as investors weigh the possibility that U.K. voters cast their ballots in favor of an exit from the European Union, known as "Brexit."

The pound, however, has rallied in recent days. Further market moves could come ahead of the June 23 vote, analysts say.

Santander has a major bank in the U.K., which Ms. Botín ran before taking the helm of the eurozone's largest lender by market value.

Santander said net profit was roughly flat in the U.K. in the first quarter compared with a year earlier when accounted for in sterling, while it fell around 4% when accounted for in euros.

In Brazil, despite a recession and political upheaval, loan loss provisions in the first quarter of this year fell from the fourth quarter of last year when measured in the local currency.

"The lack of a deterioration in Brazil and good capital generation should be supportive of performance in the short term," Keefe, Bruyette & Woods analyst Daragh Quinn wrote in a research report. "Longer term, given the uncertainties in the outlook for Brazil, we continue to remain relatively cautious on Santander," he added.

Still, the exact performance of Santander's units can be difficult to parse, given the losses the bank reports in what is called its corporate center, a vaguely defined area set up as a catchall category for shared costs like headquarters staff.

Santander booked EUR311 million of losses in the corporate center in the first quarter of this year.

Ms. Botín has said she is working to ensure that investors and analysts have a clear understanding of what charges or gains are included in the corporate center.

Overall, fees at Santander fell 5% from a year earlier to EUR2.4 billion. They were also down compared with the fourth quarter.

Santander reported a capital ratio of 10.27% as of March 31, under international regulations known as "fully loaded" Basel III criteria. The bank said it was on track for its capital ratio to exceed 11% in 2018.

Investors and analysts have been keeping a close eye on the pace at which Santander is able to generate capital. The lender's financial cushion remains below that of its European banking peers.

Santander's ratio of bad loans to total loans fell slightly to 4.33% in the first quarter of this year. Provisions for bad loans also fell.

Write to Jeannette Neumann at [e-mail]

(END) Dow Jones Newswires

April 27, 2016 06:11 ET (10:11 GMT)

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