Santander beats profit forecast as European revenue surges

Spain’s biggest bank Santander (SAN.MC) reported a surge in first-quarter profit on Tuesday and reiterated financial targets for 2022, buoyed by higher revenues in Europe which offset rising costs in South America.

Net profit jumped 58per cent in the quarter to 2.54 billion euros ($2.72 billion), beating a Reuters poll forecast of 2.26 billion euros.

At 0814 GMT, Santander shares were up 0.2per cent, underperforming a 0.8per cent rise in the European banking index (.SX7P), as the bank’s full year targets had been factored in.

Santander shares have risen 6per cent in the last 12 months.

Net profit also topped the 1.84 billion euros recorded in the first quarter of 2019, before COVID-19 hit Spain, although it was lower than the 2.78 billion euros booked in the fourth quarter of 2019.

For 2022, the bank maintained an underlying return-on-equity ratio target (ROTE), a measure of profitability, of 13per cent, a cost-to-income ratio of 45per cent.

On an underlying basis, net profit rose overall by 19per cent, with Europe rising 30per cent thanks to strong growth in lending income.

Efficiency measures implemented in Europe, coupled with ongoing interest rates hikes in Britain and Poland also buoyed quarterly earnings and helped bring down the group’s cost-to-income ratio down to 45per cent, from 47.9per cent in the previous quarter.

Santander’s diversification, especially in Latin America, has helped the bank cope with tough conditions for lenders in Europe since the financial crisis, where it has been cutting costs to cope with ultra-low interest rates.

Overall, net interest income, a measure of earnings on loans minus deposit costs, rose 11.3per cent to 8.86 billion euros in the first quarter, in line with forecasts.

JP Morgan welcomed a solid build-up in solvency in the quarter though Jefferies was more cautious given weaker lending income in Brazil.

Inflationary effects, particularly in South America led to an increase of 8per cent in costs in constant euros at a group level.

Though net interest income (NII) in Brazil, which accounts for around a quarter of the bank’s overall underlying profits.