Santander reports its first annual loss

Final loss of €8.8bn exacerbated by new costs related to restructuring in its Spanish businesses

Santander, the euro zone’s largest retail bank, has reported its first ever annual loss following provisions for bad loans during the pandemic and writedowns in the value of some of its businesses.

It was already expected to report a loss due to the writedowns and provisions, which had been announced in the first half of the year, but the final loss of €8.8 billion was exacerbated by new costs related mainly to restructuring in its Spanish businesses in the fourth quarter.

However, Santander’s preferred underlying measure of profitability was slightly above its own forecast, at €5.1 billion, and the bank predicted a rebound in profitability in 2021.

Shares in the company rose almost 3 per cent in early trading after the results were published.

“We will not let down our guard, but I define my view as one of realistic optimism,” said Ana Botín, Santander executive chairman.

The group said it expected to generate an underlying return on tangible equity of between 9 and 10 per cent this year, compared with 7.4 per cent in 2020.

Jose Garcia Cantera, chief financial officer, said the group had seen a “great improvement” in the rate of loan-loss provisions in the final months of the year, which it expected to continue into 2021.

The bank set aside €2.6 billion for potential future defaults in the fourth quarter. This was 19 per cent higher than the same period the previous year after accounting for currency movements, but was the second consecutive quarter of improvements.

“There remain uncertainties in 2021, and much will depend on the success of the vaccination programme. We believe, however, that we have been sufficiently conservative to take that into account in our models” said Mr Cantera.

Revenues in the fourth quarter held up better than expected, rising 1 per cent year-on-year after excluding the impact of currency movements. Benjie Creelan-Sandford, analyst at Jefferies, said this would be welcomed by investors.

Lower costs

Santander’s Latin American and North American business showed the strongest performance, offsetting weakness in Spain and the UK. However, Santander UK showed signs of recovery toward the end of the year as it benefited from lower costs and higher margins in the mortgage market.

“Although the crisis is global our geographic and business diversification have once again served us well and underscored the strength of our team and model,” said Ms Botín.

Santander said it would pay a dividend of 2.75 cent per share, the maximum allowed under the limits introduced by the European Central Bank in December.

The capital saved through the reduced dividend pushed Santander’s common equity tier one ratio, a key measure of balance-sheet strength, above the top of its 11 to 12 per cent target range to 12.34 per cent. – Copyright The Financial Times Limited 2021