Santander Delivers Earnings Beat Fired by Rates, Currencies
(Bloomberg) -- Banco Santander SA’s earnings beat estimates, with the retail banking giant’s geographical reach providing a buffer against growing economic risks in Europe from the war in Ukraine.
Spain’s biggest lender posted net income of 2.54 billion euros ($2.72 billion) in the first quarter, exceeding the analyst consensus of 2.26 billion euros, as rising lending revenue offset increased costs spurred by inflation, especially in South America. Shares rose as much as 3.6% in early trading in Madrid.
With a loan book that topped 1 trillion euros for the first time during the quarter, Santander is poised to boost margins as interest rates rise in the U.K., Poland, the U.S. and potentially also the euro area this year. Another tailwind is currency strength, with the Brazilian real turning in a stellar rally against the euro amid booming commodity prices.
“Our geographic and business diversification continues to provide a cornerstone for growth,” Chairman Ana Botin said in a statement. “While inflation will affect the pace of global economic growth, with specific impacts varying across our regions and businesses, we are reiterating our 2022 targets.”
Operating costs rose 8% from a year earlier. An 11% salary increase approved in Brazil in September helped drive a 14% increase in costs in the market that contributed most to Santander’s earnings in the quarter.
Central bank policies in key markets helped the lender overcome the effect of higher costs. Net interest income gained 15% in the U.K., 7% in Brazil and Mexico and 78% in Poland.
“We are a commercial bank, highly geared towards higher rates so we are quite optimistic even beyond 2022, 2023, 2024 on the back of these much higher rates,” Chief Financial Officer Jose Antonio Garcia Cantera said in an interview with Bloomberg TV.
Botin had sounded a bullish note to investors at Santander’s shareholders’ meeting at the start of the month when she said business remained resilient with high profitability expected from its banks in the Americas.
Underlying earnings from Europe rose 30% on higher revenues and the results of a cost-cutting drive, with the U.K. growing 26%. Underlying profit from South America increased 8%.
In February, Santander said it was targeting mid-single digit revenue growth in 2022, a return on underlying tangible equity of above 13% and a cost-to-income ratio of about 45%. The lender aims to keep its key capital ratio at around 12% as it aspires to raise shareholder remuneration in the longer term.
Santander shares are up 6.4% so far this year, compared with an 11% decline for the EURO Stoxx Banks index.
- ROTE: 14.21% vs 13.10% in 4q
- CET1 FL capital ratio 12.12%, compared with 12.12% in 4q
- Net interest income rose to EU8.86b from EU8.72b in 4q
- Operating expenses EU5.54b vs EU5.12b a year earlier
- Divisional underlying earnings:
- Spain profit rose 21% yoy
- U.K. profit rose 26%
- U.S. profit fell 9%
- Brazil profit slipped 1%
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