The Santander it obtained a net profit of 5,742 million euros in the first nine months of the year, 13% more than in the same period of 2017. All the margins of the income statement decrease, but profits increase by reducing the provisions for defaults, since the group's delinquency rate has fallen. Low interest rates punish business margins, but improve customers' ability to pay, which is reflected in the fall of doubtful loans after 10 years of crisis.
In addition, in the first nine months of 2018, Santander has had to face lower restructuring and sanitation expenses, 300 million, than it did a year ago, when he bought the Popular and It allocated 500 million to the reduction of staff and offices. The bank explains that this year it has charged 280 million net of tax impacts for the restructuring in Spain, another 40 million in the corporate center and 20 million in the subsidiary of Portugal.
The account has also been affected by the drop in currencies: without the effect of the exchange rate, net profit would have increased by 28%. However, the bank says it maintains its forecast to increase earnings per share (EPS), more than 10% in 2018, after raising it by 5% until September. The results were well received by investors: by midmorning it was close to 4%.
The bank explained that the growth of revenues in several markets such as Brazil, Spain, Mexico and Portugal, and the improvement in the quality of credit has "more than compensated" the impact of currencies, such as the Argentine peso, with respect to the euro.
New strategic plan
"We have again achieved very good results in a responsible and sustainable manner, increasing the number of linked and digital customers thanks to our investment in digital transformation, and achieving to be among the first three in customer satisfaction in most of our markets," he underlined. President Ana Botín.
"The leadership in Europe and America, with 142 million customers, allows us to have great potential for organic growth, profitably and responsibly," he explained. And he added that, at the beginning of 2019, the entity will announce its new plan in the medium term, which will coincide with the incorporation of Andrea Orcel, now senior manager of the UBS investment bank, as Santander's second executive. The current CEO, José Antonio Álvarez, will become executive vice president and president of the Spanish subsidiary.
In the first nine months of the year, America contributed 48% to the result of the group; and Europe, 52%. Brazil was the country that contributed most to the results, with 26%, followed by Spain, with 17%, and the United Kingdom, with 14% of the total ordinary profit.
Decreases in the United Kingdom
Until a few quarters ago, the British subsidiary was the second most profitable, while the Spanish subsidiary cleaned its toxic brick from the financial crisis. Now, the entity based in London does not provide joys: it has earned 1,077 million, 10.4% less and, on this occasion, it is not due to the effect of the depreciation of the pound, because it also decreases its result in the British currency. All the margins of the account fall, beginning with the financial, which falls by 6.2%, despite the fact that the volume of loans rises by 3.5%. Expenses rise 5.4%, delinquency remains low, 1.1%, with an adjusted coverage of 33%.
Although Brazil still has a lot of weight in the group's accounts, it has only raised the benefit by 2%, due to the depreciation of the real. Without this effect, the result goes up by 24%. The Spanish income statement shows improvement in all margins, with great weight of the incorporation of Popular. Endowments rise 40% and earn 1,026 million, 27%.
In Spain, the volume of credit continues to fall, 4% until September, while deposits rise by 1.7%. The higher costs of restructuring cause that the efficiency (what the entity spends for every 100 euros that it enters) worsens up to 56%. The delinquency continues in high ratios, 6.23%, after the integration of the Popular. Santander has reduced its workforce by 2.8% in Spain to 32,425 employees.
The consumer credit division continues to be a lung of the group; it raised its profits to 1 billion, 16.6% more, with a default of 2.45% and coverage of 106.4%. A total of 14,861 employees work in this unit.
The problems of hyperinflation in Argentina, which represents 1% of the group's profit, have fallen 38%, and earn 67 million, after a negative impact of 169 million. It has also meant a positive annotation in the capital of two basic points for the revaluation of the assets.
Other important subsidiaries that did not give displeasure were Mexico, which won 554 million, 13% more, with a new design of the offices; Chile, which achieved 461 million, 5% more; and the United States, which contributed 460 million, 36% more.
The efficiency ratio of the Santander group remains at 46.9%, one of the best among its competitors. Return on equity (ROE) has improved from 7.54% to 8.2% in the last year, although it is still below the cost of capital, which, according to bankers, is close to 10%.
Regarding the type of business developed by the Santander Group, 36% of its loans are mortgages to households, 17% loans to companies, 16% consumer loans, 11% for SMEs and the rest for individuals and others, according to the bank.
More digital clients
The number of customers using digital services increased by 24% in the last 12 months, to 29.9 million, thanks to the fact that investments in technology have allowed an increase in the use of these services.
The credit quality of the group improved and the default rate decreased by 37 basis points in the last year, to 3.87%. The cost of credit fell to 0.98%, 14 basis points less than a year earlier and the lowest level since 2008.
Santander generated 31 basis points of capital in the third quarter, bringing the CET1 ratio fully loaded it stood at 11.11% as of September 2018, in line with its objective for the end of the year.
This ratio does not include the estimated positive impact of nine basis points for the sale of WiZink, which is expected to be registered in the coming weeks, nor the impact of the full application of the NIIF9 standard (-27 basis points), for which there is a transitory five-year calendar before it comes into force in full in 2022.
Álvarez does not want mortgage reforms
José Antonio Álvarez, CEO, asked about the next ruling of the Supreme Court on payment of mortgage tax, said: "The Spanish mortgage market works well, with the cheapest loans in Europe; I do not think he has many flaws to fix. "
When there are two working days to start the Supreme Court plenary session, which will analyze whether it is up to the client or the bank to pay the tax on documented legal acts (and if the money can be claimed retroactively), the largest Spanish bank is clear about it . I would leave everything as it is.
"In Spain, 80% of families own their homes and mortgages are the cheapest in Europe. They are proof that the market does not need many improvements, "said Alvarez. And he issued a warning to the high court: "When you lend to 25 years can not be subject to permanent revisions backwards, because this becomes too high a risk that could be transferred to the ability to do business, both in volume and price " He summarized what he expects from the Supreme Court: "That this Monday we have a clear and safe framework" on mortgages. He ruled out that the tax can be retroactive: "If we have not collected it, we can not return it".
Álvarez will be replaced in January as CEO of the group. He ruled out that this change implies modifying Santander's strategy "because I will continue as executive vice president," he recalled. He also denied that future number two, Andrea Orcel, plans a capital increase: "Absolutely not, unless some operation is proposed."
"We do not need more capital"
In the same line, he rejected that Santander needs more capital: "We have an 11.1% of CET 1 fully loaded time", the capital of maximum quality, "with a high solvency recognized by the supervisors", he said. Álvarez said he was "happy to change his position" after 16 years in the group; "Now I will focus on more strategic issues," he said. He did not rule out presenting the 2018 results in January in case Orcel failed to obtain ECB authorizations.
The number two of the largest bank in the euro zone praised the draft Government Budget and argued that Brazil "is and will remain the group's first subsidiary in the future," despite the political situation.
Spain, including losses from the real estate business, gained 1,303 million, 20% more. Much of the result is due to lower provisions. The account 1,2, 3, that its retribution has fallen has been criticized by clients (due to this reduction in price) and by analysts due to its high financial cost. Álvarez ruled out removing this account: "It is a central part of our strategy and works well, although we lower its profitability to adapt it to the market".