So it was disappointing that the lender fell short of its own guidance by more
than a third when it reported €5.4bn of net profit for 2011 yesterday. That
was after €3.2bn of self-flagellation, mostly the result of pre-empting
impending government rules requiring extraordinary provisions on dud
property assets. To shore up confidence, Madrid wants Spain’s banks to
increase bad property loan coverage from 30 per cent to 50 per cent. Even
without the one-offs, Santander would have fallen €1.2bn short of Mr Botín’s
guidance.
But to seasoned Spain hands, who doubt that the country’s banks have revealed
the true extent of their lousy property exposures, Santander’s profit
shortfall did not come as a surprise, given the lacklustre results from
domestic rivals. Its shares, already down by more than a third in the past
12 months, fell by just 0.6 per cent. The trend in Spain is hardly
encouraging: bad loans as a percentage of the bank’s domestic book rose to
5.5 per cent from 4.2 per cent. Deleveraging explains some of that –
Santander’s loan book contracted by 4.6 per cent last year. Nor is the pain
just in Spain. UK earnings fell by 11 per cent and in Brazil by 15 per cent.
Solid
Never mind. Santander still delivers solid pre-provision profit which, at
€24bn, was up slightly on 2010. At the earnings level, the pace of
generation was not enough on its own to carry the bank past the European
Banking Authority’s 9 per cent minimum core tier one capital ratio. Hence
its recent fire sale of assets and Basel tweaks. But Mr Botín signalled an
end to disposals for now, and said that in Spain the bank had reached a
turning point. Investors should wait a bit longer to find out which
direction it is facing.
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