Banco Santander has reported results for the first nine months of the year and revealed that recurring profits remain strong, allowing it to set aside large sums in provision.
The Spanish banking giant posted a 66% drop in attributable profit from the year-ago period to €1.804bn. Ordinary profit came to €4.25bn after including a €1.029bn capital gain, mainly from the sale of the business in Colombia and the reinsurance transaction covering the life insurance portfolio in Spain and Portugal. A €3.475bn charge was taken as provisions to cover risks in the Spanish real-estate sector.
"The bank's capacity to generate profit enables us to set aside hefty real estate provisions in Spain in 2012 and significantly increase non-performing loan coverage. In the first nine months we generated pre-provision profit of €18,184m," said Banco Santander President Emilio Botin.
As Botin pointed out, pre-provision profit remained strong at €18,184m, 3.0% more than the first nine months of 2011, showing the bank's capacity to generate strong recurring results. The efficiency ratio was 30 basis points higher than at the close of 2011 at 45.4%. Provisions for non-performing losses were 30% higher at €9.533bn and provisions for real-estate exposure in Spain amounted to €5.01bn, covering more than 90% of Spain's requirements passed in two royal decrees earlier in the year.
Provisions for loan losses allowed the bank to increase its coverage of insolvencies for the group overall and for Spain's operations for a third consecutive quarter. As such, for the nine months, coverage for the group's non-performing loans rose by nine percentage points to 70%.
Santander explained that its diversification continues to be a key factor behind its resistance to the complex situation in Europe, where a significant part of its business takes place. Latin American contributes 50% of earnings (Brazil 26%, Mexico 13%, and Chile 5%), Europe contributes 28% (Spain 16%, Poland 5%, and Germany 4%), the United Kingdom contributed 13% and the United States 9%.
Technical analysis: a reason to be bullish
Analysts at Digital Look have taken a look at the stock and deemed that there is reason to be bullish on the stock although they prefer to monitor today's price reaction to the earnings presentation.
"The declines of the last week may be part of a throwback move to the support level, which acted as resistance for practically a month. Additionally, Wednesday's low was enough to fill in the bullish gap at €5.66 before starting a gradual recovery," they explain.
"A close below €5.66 would cancel out that gap and may drive the stock towards a steeper correction to €5.47. If Wednesday's rebound picked up enough strength then the stock may slowly head back to last week's high of €6.14."