Santander Tops Forecast as Strong Europe Offsets Weaker US in Q3

Spanish bank Santander beat forecasts on Wednesday with a 20% rise in third quarter net profit as a strong performance in Europe offset weaker trade in the United States and higher provisions.

The euro zone's second-biggest lender by market value booked a net profit of 2.9 billion euros ($3 billion), beating analysts' mean forecast of 2.77 billion euros in a Reuters poll.

Santander has relied on Latin America in the past to cope with tough conditions in Europe, but is now benefiting - like European rivals - from higher interest rates on its home continent.

In Europe, net profit jumped 64% year-on-year in the quarter, while in South America it fell 7%.

"While the external environment is increasingly uncertain, I am confident that we will achieve our 2023 targets given the positive momentum which we also expect to carry into 2024," Chair Ana Botin said in a statement.

Santander's 2023 targets include double-digit income growth and a return on tangible equity ratio (ROTE) - a measure of profitability - of more than 15%.

Revenues rose 10% year-on-year in the quarter, above market forecasts, helping the bank improve its ROTE to 15.49% from 14.61% at the end of the second quarter.

But loan loss provisions jumped 19% to 3.27 billion euros.

Santander's net interest income (NII), or earnings on loans minus deposit costs, rose 11.6% year-on-year in the quarter to 11.22 billion euros, above analysts' estimate of 11 billion.

In Spain, the bank's biggest market, net profit surged almost 60%, while NII jumped 56%. Results at home were boosted by higher returns on loans, driven by predominantly floating rate credit, while deposit costs grew at a slower pace.

Earnings were also lifted by a strong performance in Portugal and Poland. In the UK, net profit rose 5.7% year-on-year in the quarter.

In Brazil, its second-biggest market, net profit fell 8.9%, though NII rose 3.3%, reflecting an improvement in trends.

Net profit in the United States fell 50.4% on higher funding costs in the auto business while provisions rose 49%.

Santander's Tier-1 fully loaded capital ratio, the strictest measure of solvency, rose to 12.3% in September from 12.2% in June, as strong capital generation offset accruals for future cash dividend payments and the current share buyback programme.

(Source: Reuters)