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Santander’s Q3 profit beats forecasts on solid UK and U.S. markets provisions

Santander (SAN.MC) beat forecasts with a 24% rise in third-quarter net profit on lower loan loss provisions, an increase in UK mortgage lending and a strong performance in its United States consumer business.

The Spanish bank, the euro zone’s second-biggest in terms of market value, reported a net profit of 2.174 billion euros ($2.53 billion).

Chairman Ana Botin said that she was “confident” of reaching the bank’s 13-15% medium-term profitability target thanks also to an improved outlook.

The result topped the 1.97 billion euros forecast by analysts polled by Reuters and the 2.14 billion euros underlying profit recorded in the third quarter in 2019, before the outbreak of the coronavirus pandemic.

Third quarter’s net and underlying profit remained the same as the bank did not book any one-off gains or charges.

Its profitability gauge – return on tangible equity ratio (ROTE) – rose to 12.56% at the end of September from 12.29% in June, staying above Santander’s year-end target of around 10%.

Santander shares fell 2% compared to a 0.5% drop in the Dow Jones European banking index (.SX7) and after having risen more than 30% this year.

Analysts such as Keefe, Bruyette, Woods broadly welcomed a “decent outperformance” across all key metrics and divisions but JP Morgan and Jefferies highlighted strong cost growth in some divisions, such as Brazil and Mexico.

At the end of September, the bank’s cost of risk, which acts as an indicator for potential losses in the future, fell to 90 basis points from 94 points, below its around 100 basis points guidance for the whole year.

Santander also managed to improve its core tier-1 fully loaded capital ratio, the strictest measures of solvency, to 11.85% from 11.7% in June, boosted by a cut in the dividend pay-out accrual to 40% from 50%. read more

MARKETS IN BRITAIN AND U.S.

In Britain, which accounted for 21% of Santander’s earnings, underlying net profit more than trebled from a year ago and was up 13% compared to the previous quarter.

Results were also driven by higher lending income and revenue and an acceleration in cost reduction.

In the U.S. market, which also makes up more than a fifth of Santander’s underlying earnings, profit on underlying terms almost doubled against the same quarter last year as the bank continued to benefit from a strong U.S. economic recovery.

But it fell 26% after a previous strong quarter and higher provisions in the July to September period.

Overall, net interest income, a measure of earnings on loans minus deposit costs, rose 8.8% against the same quarter 2020 to 8.46 billion euros.

Analysts expected NII to come in at 8.33 billion euros.

In Brazil, which accounts for more than quarter of its underlying profit, net interest income rose 18.6% year on year in the quarter on higher lending volumes, while in Spain, NII was down 5.7%, as it is still grappling with the effects of ultra low interests.

($1 = 0.8593 euros)

Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Jane Merriman and Jason Neely

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