Santander buoyed by demand for US cars and UK houses

Banco Santander SA updates

Booming demand for used cars in the US and houses in the UK helped drive a sharp increase in second-quarter profits at Banco Santander, which said it was on track to beat one of its main targets for the year.

The Spanish banking group reported a net profit of €2bn for the three months to June, compared with a loss of more than €11bn in the same period last year when it took substantial writedowns on the value of several businesses.

Ana Botín, executive chair, said on Wednesday Santander had enjoyed “another very strong quarter”, and that after a similarly positive first quarter the bank expected to beat its original goal for an annual return on tangible equity of 9 per cent to 10 per cent.

Quarterly revenues climbed 6 per cent year on year to €11.3bn. Expenses were affected by higher inflation but still increased more slowly than revenues, growing 4 per cent.

“Most banks are growing their bottom line because of lower provisions” for potential loan losses, said José García Cantera, Santander’s chief financial officer. “But we are growing revenues too.”

Analysts and investors have long questioned Santander’s commitment to the US market, particularly as European rivals such as BBVA and HSBC scale back their operations there. However, the US generated the largest underlying profit among Santander’s key markets in the first half of 2021, and the bank strengthened its commitment in recent weeks with a series of acquisitions.

Santander’s US consumer finance arm is one of the country’s top 10 auto lenders, and surging prices for used cars pushed underlying net profit, the company’s preferred measure, up more than fivefold to €1.3bn. The group also operates a retail bank with more than 600 branches across the north-east US.

Cantera said the auto finance business “is a very good business to have because it’s countercyclical . . . we expect to see some normalisation of results in the coming quarters but the underlying performance in the business has been really strong, and we’ve also seen an improvement in the bank”.

The group said this month it would buy the remaining 20 per cent of the consumer finance business that it does not already own for $2.4bn, and also announced plans to acquire fixed-income broker Amherst Pierpont to strengthen its investment banking division.

The Spanish group, which is traditionally known for retail and business lending, has set its sights on becoming a key player in investment banking to offset pressure from low interest rates and diversify its business.

Weakness in its home market weighed on the second-quarter results. Provisions for potential future loan losses fell in most countries and the bank released some of the historic provisions it had made in the UK and US to reflect a brighter economic outlook. But it took a further £492m charge in Spain because of concerns that small businesses in the heavily tourism-reliant economy would continue to struggle.

Besides the US, Santander’s strongest growth in the second quarter came in the UK, where it is one of the country’s largest mortgage lenders, as it benefited from a booming property market.

The company is seeking a successor to long-serving UK chief Nathan Bostock, who is due to step down towards the end of this year to take on a new role overseeing Santander’s investment platforms.

Santander provided no formal update on his replacement on Wednesday but said Tony Prestedge, the UK deputy chief executive who had been considered the leading internal candidate, would leave the bank.

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