MADRID-- Banco Santander SA, the euro zone's largest bank by
market value, on Thursday reported a rise in second-quarter profit,
boosted by gains at its U.K. and Spanish units.
The Spanish lender said net profit came in at EUR1.45 billion
($1.94 billion) for the three months to June 30, compared with
EUR1.05 billion in the same period last year, and beating analysts'
expectations of a EUR1.35 billion profit.
Santander said its second-quarter net interest income totaled
EUR7.37 billion, roughly flat compared with the EUR7.34 billion the
bank reported a year earlier. Analysts polled by FactSet predicted
net interest income of EUR7.19 billion.
Net profit from Santander's U.K. unit was EUR775 million in the
six months to June 30, up 59% from a year earlier. The unit is run
by Chairman Emilio Botín's daughter, Ana Patricia Botín, and is
among the biggest contributors to the bank's overall results. The
unit also posted gains from the first quarter to the second
quarter.
Santander's Brazil unit, which vies with the U.K. subsidiary for
top-profit driver, posted net profit of EUR758 million in the first
six months of this year, a decline of 18% compared with the same
period a year ago.
Brazil, once a counterweight to Santander's crisis-stricken
Spanish market, has seen sluggish growth in recent quarters. The
International Monetary Fund on July 24 cut its 2014 forecast for
Brazil's annual growth to 1.3% from 1.9%.
Santander in April offered to buy out the 25% of its Brazil unit
that it doesn't currently own, a deal that could be worth EUR4.7
billion.
Santander's results show its Spanish unit is on the upswing, in
line with second-quarter earnings reported by domestic peers.
"The earnings profile of the company will also be changing over
the next three years," Exane BNP Paribas analyst Santiago López
Díaz wrote in a recent research note. "While areas outside of Spain
represented most of the growth in the recent past, Spain will now
be the driver of growth."
Santander's bank in Spain, the largest in the country by market
value, posted net profit of EUR513 million in the first six months
to June 30, a surge of 79% from a year earlier. The unit also
posted gains from the first quarter to the second.
The gains come as Spain on Wednesday said its economic growth
was 0.6% in the second quarter from the previous quarter. The
increase beat economists' forecasts and makes Spain one of the
strongest performers in the euro zone. The growth-rate, an estimate
by Spain's National Statistics Institute, was the country's fastest
in six years.
At the same time, consumer prices fell slightly in July from a
year earlier, strengthening the specter of deflation in the
country.
The IMF expects Spain's economy to grow by 1.2% this year,
roughly on par with Brazil.
Investors and analysts will be paying close attention to
Santander's capital levels this quarter before exams of banks'
balance sheet by European regulators known as asset-quality reviews
and stress tests.
Santander said when it reported first-quarter earnings in April
that it plans to have a core capital ratio of 9% by the end of this
year under the Basel 3 "fully loaded" criteria. The bank doesn't
disclose that ratio quarterly.
Mr. López Díaz expects Santander's "fully loaded" ratio to be
8.9% at year-end, below the 11.2% he expects for European banks on
average.
A lower capital level means a bank has less of a buffer against
losses.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
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