SAN Banco Santander SA

--Santander's third-quarter net profit of EUR1.75 billion beat analysts' expectations

--The Spanish bank said it now expects bad-loan provisions to be lower than previously guided

--It also vowed to cut an extra EUR1 billion in costs in the next two years

Adds chairman's comments, earnings and outlook details, information on dividend, background

 
    By Pietro Lombardi 
 

Banco Santander SA vowed to cut an additional 1 billion euros ($1.18 billion) in costs from its European operations in the next two years, and said it now expects to set aside less than previously guided for potential loan losses this year.

The Spanish bank said Tuesday that its cost-savings plans are advancing better than expected. By the end of the year, it will achieve its goal to save EUR1 billion in Europe, and promised to cut EUR1 billion more in costs in the region in coming years.

Cutting costs has become an important issue for European banks. Lenders in the region have struggled with low interest rates eating away at their profit margins for years. The coronavirus pandemic has compounded these challenges, with banks setting aside billions of dollars ahead of an expected wave of loan losses sparked by the crisis.

Thanks to how customers reacted to the crisis, as well as better macro forecasts, Santander on Tuesday improved its guidance for bad-loans provisions for 2020. It now expects cost of credit of around 1.3%, from a previous guidance of 1.4%-1.5%.

The lower expected provisions, coupled with Santander's cost control measures, should allow the bank to achieve an underlying profit of EUR5 billion this year.

In the second quarter, Santander posted a massive loss due to writedowns related to the pandemic.

"The recovery of our business is progressing well, and the third quarter was significantly stronger than the second," Executive Chairman Ana Botin said. "Activity returned close to pre-pandemic levels."

The bank's quarterly results beat analysts expectations, after better-than-expected provisions and revenue propelled profits above the level analysts had expected, according to a FactSet consensus.

Santander has set aside EUR2.54 billion in the third quarter for potential loan losses, taking such provisions so far this year to EUR9.56 billion.

Spain has been hit hard by a second wave of coronavirus cases, and analysts fear this will translate into higher loan-loss provisions for lenders. Santander said cost of credit is expected to "remain stable or trend downwards in 2021, before normalizing in 2022."

Quarterly net profit rose to EUR1.75 billion. This compares with EUR501 million a year earlier, when Santander was hit by charges related to its U.K. business. On an underlying basis, profit fell 18%.

Revenue was EUR11.09 billion, an 11% decline on an underlying basis.

Analysts had expected a quarterly profit of EUR971.5 million, on revenue of EUR10.59 billion and provisions of EUR3.12 billion.

Santander's diversification "has been a key driver of our recovery, with South America performing well and the UK recovering strongly in the third quarter," Ms. Botin said.

Santander's core Tier 1 ratio rose to 11.98% at the end of September, from 11.84% at the end of June. The ratio is expected to remain at the top end of Santander's guided 11%-12% range this year.

The bank is asking its shareholders to approve a EUR0.10 a share dividend for 2020 at an extraordinary general meeting on Tuesday. The dividend will be paid in 2021, when regulators allow it.

Write to Pietro Lombardi at pietro.lombardi@dowjones.com; @pietrolombard10

(END) Dow Jones Newswires

October 27, 2020 04:00 ET (08:00 GMT)

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