Spanish costs and weak UK push Santander profit 18% lower

Santander’s diversification in Latin America has been a major help. (Reuters)
Updated 23 July 2019

Spanish costs and weak UK push Santander profit 18% lower

  • Profits in Britain tumble amid pressure on mortgage margins

MADRID: Spanish lender Santander reported an 18% fall in quarterly net profit hurt by one-off restructuring costs from its acquisition of Banco Popular and a weak performance in Britain despite a solid performance in Latin America.
It reported a net profit of 1.39 billion euros ($1.56 billion) for the three months to the end of June, topping the 1.29 billion euros 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 euros, 600 million euros alone in Spain, where it booked a loss of 262 million euros. Excluding one-off costs, underlying net profit in the quarter was up 5%.
In Britain, its third-largest regional market after Spain and Brazil, profit fell 41%, due to a continued pressure on mortgage margins and to restructuring costs of 26 million euros and provisions of 80 million euros.
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.
Santander confirmed at the meeting that it would fight a 100 million euro ($112 million) lawsuit being brought by Italian banker Andrea Orcel after it withdrew an offer to make him its chief executive earlier this year.
MEXICO DEAL
Shares in Santander were up 3%, against a 1% rise on the Spanish blue chip market, the Ibex.
On Tuesday, investors signed off at an extraordinary shareholder meeting on a capital increase of 2.6 billion euros to finance the acquisition of a 25% stake they don't own of its Mexican subsidiary.
The move in Mexico 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%, 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% 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," Botin said, adding that this country offered higher profitability than other markets.
Analysts highlighted a good set of underlying trends mostly driven by Brazil and stronger than anticipated net interest income and lower provisions.
Net interest income, a measure of earnings on loans minus deposit costs, was 8.95 billion euros, up 5.6% from the second quarter of last year and 3.1% higher against the previous quarter due to a solid lending growth in Latin America.
Analysts had forecast a NII of 8.76 billion euros.
In Brazil, where the bank makes more than a quarter of its profits, profit rose 18% from a year ago, boosted by solid growth in business volumes, while profits in the United States rose 36%.
Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank's strength, of 11.3%, compared with 11.23% in the previous quarter, in line with its medium-term target of 11-12%.
Santander's chief financial officer Jose Garcia Cantera told analysts the bank expected another 20 to 30 basis points of regulatory headwinds in the second half of 2019.
"But at the same time we would expect our capital to grow from here until the end of the year (...) our target is to get to 11.5 percent as soon as possible," Cantera said.


Crown prince highlights key ways Saudi budget 2020 will contribute to Vision 2030

Updated 20 min 18 sec ago

Crown prince highlights key ways Saudi budget 2020 will contribute to Vision 2030

  • The budget for the coming year reflects and reinforces the commitment to implement the reforms

RIYADH: After King Salman announced Saudi Arabia’s budget for 2020 on Monday, Crown Prince Mohammed bin Salman highlighted some of its key elements and their implications, along with his thoughts on the ongoing implementation of economic reforms in the Kingdom.

He said that the government’s economic transformation of the country is progressing steadily in accordance with Vision 2030. The budget for the coming year reflects and reinforces the commitment to implement the reforms, plans and programs designed to help achieve this, he noted, and sets specific goals in a number of areas to help create a vibrant society, a prosperous economy and an ambitious homeland.

The crown prince added that the government is working to improve the quality of life in the Kingdom by developing and diversifying the economy, improving job opportunities and enhancing government services in terms of financial and economic stability, which is the main pillar of sustainable economic growth.

He also pointed out that the economic and structural reforms implemented during the past three years are having positive effects on the country’s financial and economic performance. The Kingdom has recently achieved remarkable increases in real GDP growth rates in the non-oil sector, and the government has encouraged the private sector play an important role in the economy, the positive results of which include significant growth in the business sector, the crown prince added. The government has also implemented a number major projects in vital sectors and launched activities that will help to achieve economic growth goals and create job opportunities, he said.

Crown Prince Mohammed stressed the importance of engaging with the private sector as a major and vital partner for the development of the Kingdom. He also noted the continuing program of reforms by the government designed to develop the business sector and create an attractive environment for investors to contribute to economic growth. This has helped to greatly boost the Kingdom’s ranking on international indexes that measure competitiveness and ease of doing business, he added.

“We aim to create an attractive investment environment that contributes to directing the national economy toward broad prospects of diversification, growth and prosperity,” the crown prince said. “The government will continue to move forward with implementing the stages of economic transformation and will progress with diversifying the economy’s productive base while maintaining financial sustainability and providing wider opportunities for a better future for the current and future generations.”

He stated that the government has a clear vision, fixed goals and explicit plans, and is working on implementing them while maintaining financial and economic stability as an essential pillar of sustainable economic growth.

“Financial and economic results and indicators confirm that we are progressing positively,” he said. “We constantly review and update the policies, procedures and programs implemented to ensure their effectiveness and to rectify their course whenever the need arises, in order to achieve the goals of the Kingdom’s Vision 2030, taking into account the global financial and economic conditions and what is in the interest of our homeland and citizens.”

The 2020 Saudi budget has been prepared in light of a global economic atmosphere characterized by challenges, risks and protectionist policies, said Crown Prince Mohammed, which require flexibility in the management of public finances and strengthening the ability of the economy to face the challenges and risks.

“We aim, through this budget, to benefit from the programs that were achieved and rely on them to maintain a balance between economic growth and the sustainable financial stability that guarantees this growth,” he said.

The crown prince noted that financial-control policies and the development of public financial management and its efficiency have contributed to the continued reduction of the budget deficit. This is expected to fall to about 4.7 percent of GDP in 2019, compared with 5.9 percent in 2018 and 9.3 percent in 2017. This confirms the success of ongoing efforts to ensure financial sustainability, and progress in implementing projects to improve the private sector, he added.

He also confirmed that the 2020 budget continues to support programs that contribute to achieving Vision 2030. This includes the financing of major projects, helping to develop medium, small and micro enterprises, and supporting entrepreneurs. These are some of the most important engines for economic growth, which will help to diversify the economy and open up new fields for investment and employment, he added

The budget includes reviews of some of these programs and schedules to ensure they reach their goals, Crown Prince Mohammed said, and the continued development and modernization of government infrastructure and services. He also stressed the government’s focus on improving the efficiency and quality of spending, to make the best use of state resources to achieve the highest possible social and economic income.

He highlighted the recent launch of oil company Saudi Aramco as a major step forward for the Kingdom, and his support for enhancing the role and participation of the private sector in the nation’s economy. He noted that opportunities for the private sector will continue to increase, enhancing its role in the growth and diversification of the economy and in creating job opportunities in the medium and long terms.

The crown prince also pointed out the part played by the Public Investment Fund and the National Development Fund in achieving Vision 2030, as the local and external investment mechanisms and the growth arm of the local economy, which are also contributing to the diversification of the economy and income sources. These are among the most important strategic goals of Vision 2030, he said.