Santander profits boosted by Europe, costs rise in Brazil

MADRID, April 26 (Reuters) – Santander (SAN.MC) reported an increase in first-quarter earnings on Tuesday and reiterated its financial targets for 2022, supported by higher revenues in Europe, although rising costs and lending pressure in Brazil weighed on its shares.

Net profit at Spain’s biggest bank jumped 58% in the quarter to 2.54 billion euros ($2.72 billion), beating a Reuters poll forecast of 2.26 billion euros.

Net profit also exceeded the €1.84 billion recorded in the first quarter of 2019, before COVID-19 hit Spain, although it was lower than the €2.78 billion recorded in the fourth quarter. 2019.

For 2022, the bank maintained an underlying return on equity ratio target, a measure of profitability, of 13%, and a cost/income ratio of 45%.

Santander shares were down 6.1% at 2:26 p.m. GMT, underperforming a 0.4% drop in the European banking index (.SX7P)given that the bank’s annual objectives had been taken into account.

Santander shares had risen 6% in the past 12 months.

JP Morgan hailed a solid build-up of solvency in the quarter, although Jefferies was more cautious given lower lending revenue in Brazil, the bank’s main market.

Inflationary effects, particularly in South America, led to an 8% increase in costs in constant euros at group level.

Net interest income (NII) in Brazil, which accounts for about a quarter of the bank’s overall underlying earnings, rose 20.5% from the same quarter a year ago. But at constant euros, the NII fell by around 6% compared to the previous quarter.

Swiss broker UBS said Brazil was “disappointed” in terms of NII on slowing volumes and lower margins, while costs there rose 14% year-on-year in constant euros.

Santander’s net profit on an underlying basis rose 19% overall, with Europe up 30% on strong lending revenue growth.

Efficiency measures implemented in Europe, combined with continued interest rate increases in Great Britain and Poland, also supported quarterly results and contributed to lowering the group’s cost/income ratio to 45%, compared to 47.9% in the previous quarter.

Santander’s diversification, particularly in Latin America, has helped the bank weather tough conditions for lenders in Europe since the financial crisis, where it cut costs to cope with rock-bottom interest rates.

Overall, net interest income, a measure of loan income less deposit costs, rose 11.3% to 8.86 billion euros in the first quarter, in line with forecasts.

In terms of solvency, Santander’s Tier 1 fully loaded capital ratio, the most stringent measure of solvency, rose to 12.05% on a proforma level from 11.96% in December, in line with its target of capital of 12%.

The pro forma capital ratio took into account the acquisition of a minority stake in its US consumer unit and transactions, such as fixed income broker Amherst Pierpont, which closed in April. Read more

The bank also reiterated its policy of distributing 40% of underlying earnings to shareholders, split equally between a cash dividend and share buybacks.

($1 = 0.8282 euros)

Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro, Edmund Blair, Susan Fenton and Jane Merriman

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