UPDATE: Santander 1Q Net Profit Rises On Brazil; Beats Views

Banco Santander SA (STD) said Thursday its first quarter net profit rose 6%, driven by strong growth at the bank's Brazilian unit and, to a lesser extent, in the U.K.

The second-largest bank in Europe by market value, behind HSBC Holdings PLC (HBC), said quarterly net profit rose to EUR2.22 billion from EUR2.10 billion a year earlier.

Analysts were expecting net profit of EUR2.16 billion.

Net interest income--or the profit made from taking deposits and writing loans--soared almost 18% on the year to EUR7.12 billion in the first quarter, above analyst expectations of EUR6.85 billion.

Santander said it had focused on growing its deposit base in the first quarter by taking market share from rivals. Deposits grew by 13% on the year, while loans were flat. The bank was particularly cautious with lending in its Spanish home market, where total loans were down 5% on the year. Santander said the drop in Spain was due to lack of demand for credit.

Santander earnings got an extra boost from purchases it made in the last few years in the U.K. and Brazil.

Brazil contributed a fifth of the group's profit with EUR603 million in three months, an increase of 38% on the year. U.K. profit totaled EUR480 million, up 17%.

Santander said it had made progress turning around its U.S. unit Sovereign, allowing the Philadelphia lender to swing to a EUR69 million profit from a EUR20 million loss a year earlier.

Strong profit generation allowed Santander to bolster its capital ratios as well. Core capital grew to 8.8% in March from 8.6% in December, and from 7.3% in March last year.

"Santander is demonstrating the benefits of being a diversified bank, both in terms of geography and business lines. Despite reduced economic growth, we have maintained our ability to generate recurrent profit and have improved our liquidity, efficiency and solvency," Chairman Emilio Botin said.

Non-performing loans rose to 3.34% of total lending from 3.24% a year earlier, its slowest rate of growth in six quarters. The bank set aside EUR2.44 billion to cover loan losses, up 10% from a year earlier.

At 0746 GMT, Santander's shares were up 2.3%, or EUR0.21, at EUR9.30, making it one of Spain's best performing stocks. Rival Banco Bilbao Vizcaya Argentaria SA (BBVA), which Wednesday reported flat first-quarter profit of EUR1.24 billion, was trading up 0.1% while the Spanish market was up 1%.

Santander and BBVA shares were hammered recently on fears that the Greek debt crisis will spill over to other weak European economies, including Spain, and on the back of Standard & Poor's downgrade Wednesday of Spain's sovereign debt rating.

Company Web site: www.santander.com

-By Christopher Bjork, Dow Jones Newswires, +34 91 395 81 23, christopher.bjork@dowjones.com

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