Santander reassured investors about its capital strength on Wednesday, reporting stronger than expected results and predicting an acceleration in earnings growth that lifted the Spanish bank’s share price.
Ana Botín, Santander executive chairman, said the bank’s capital position had improved to such a degree that by the end of 2020 “we will not need to keep accumulating capital and will [have] additional strategic flexibility” to invest in growth or increase dividend payouts.
Its common equity tier one ratio — a key measure of balance sheet strength — was 11.65 per cent at the end of 2019, compared with 11.3 per cent in the previous quarter, and the bank said it expected to be close to 12 per cent by the end of this year.
Analysts and investors have persistently raised concerns about Santander’s capital levels because they are lower than many peers, though the Spanish bank has argued that its requirements differ because its diversification makes it more resistant to economic shocks.
The bank also provided optimistic new profit forecasts, predicting average earnings per share increases in the “high single digits” over the next three years, and Ms Botín said the company was “well on track to achieve our medium-term goals”.
Shares in Santander climbed 4.6 per cent by early afternoon, to €3.72 per share, putting them on track for their best one-day performance since June 2017.
Solid fourth-quarter results continued a recent pattern of relying on rapid growth in Latin America and the US to offset weakness in Europe.
Total revenue of €12.3bn was 2 per cent lower than the same quarter last year, but in line with forecasts. Net profit, however, increased by 35 per cent to €2.8bn, compared with consensus forecasts of €2.6bn.
However, the solid performance was not enough to offset the impact of one-off charges taken earlier in the year, particularly a writedown in the value of its UK business. As a result, net income for the year fell 17 per cent, to €6.5bn.
The UK was Santander’s only market where profits fell on an underlying basis, reflecting intense pressure on profit margins in the mortgage market. In contrast, profits in the US jumped 24 per cent, while Mexico and Brazil climbed 19 per cent and 16 per cent respectively.
Santander has responded to difficulties in the UK and Spain — where the bank suffers from the impact of negative interest rates — by planning a major cost-cutting exercise in Europe while allocating more capital to higher-growth regions.
Nathan Bostock, Santander UK chief executive, said the UK market “remains challenging with ongoing competitive pressures and a demanding regulatory agenda”, but said its “focus on cost efficiency is starting to deliver tangible benefits”.
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