Santander builds up capital

Madrid - Banco Santander built up capital in the fourth quarter, easing investor concern about its
ability to bolster buffers, as Spains largest lender booked charges that wiped out profit.

Net income fell to 25 million euros from 1.46 billion euros a

year earlier, after the bank posted 1.7 billion euros ($1.8
billion) in charges. Those included provisions for its role in
the UK banking scandal over wrongly sold payment
protection insurance, the lender said in a regulatory filing
Wednesday. The lenders capital ratio stood at 10.05 percent
at the end of the year, compared with 9.85 percent in
September.
Santander results have been good, with many positive aspects if we exclude the charges, Nuria
Alvarez, a bank analyst at Renta 4 Banco SA in Madrid, said by phone. The underlying business
evolution is positive, bad-loan ratios are down, and capital is above 10 percent. These results should
calm the doubts the market has over capital and Brazil.

Concerns over capital and over the outlook for

Brazil have weighed on Santander Chairman Ana
Botin seeks to expand consumer banking, its core
business, in its 10 largest countries. Its shares
have dropped more than one third in the past 12
months and were down 0.88 percent to 3.95
euros as of 9:50 a.m. in Madrid.
Although a low ratio versus the peer group, this
level of capital generation gives Santander some
breathing room in our view, Keefe Bruyette &
Woods analysts Daragh Quinn and Hari
Sivakumaran said in a note to clients.

The bank tapped shareholders for 7.5 billion euros and slashed its dividend at the start of 2015.
Botin is now looking to increase the banks capital ratio to more than 11 percent by 2018.
"We will not raise more capital," she said in a interview with Bloomberg TV in Madrid. "Given the
organic capital generation after paying dividends and funding growth, we feel comfortable we can
achieve the target of being above 11 percent.
Provisions
Quarterly profit was hit by a provision of 600 million euros to cover future UK loan protection claims
and of 1.1 billion euros for other charges, including covering the declining value of software and
other intangible assets.
"We have delivered on everything we said we would do a year ago when we raised capital, Botin
said. Besides building up its buffers, Santander has improved top-line results and increased its cash
earnings per share in 2015, she said.
Net interest income, or revenue generated from the difference between what banks charge for loans
and pay for funding, rose to 7.89 billion euros from 7.7 billion euros a year ago. It fell 1.2 percent
from the previous quarter.
Profit from the British unit, the main profit contributor, rose 22.7 percent in the fourth quarter from
a year earlier, while the Brazilian business dropped 12 percent as the economy contracted.
Brazil is going to be difficult we think for the next couple of years, but Brazil is much more than
commodities, is much more than exports to China, Botin said. I believe strongly that Brazil will come
out of this stronger. Its going to be difficult but I have confidence they will take the right steps.
Earnings dropped 67 percent at the Spanish banking unit, to 94 million euros. Net interest income
fell 16 percent from a year earlier due to low interest rates and strong competition, the lender said
in a presentation. The bank also had to pay a yearly contribution to the Spanish deposit insurance
scheme.
Our results under stress perform much better than other banks precisely because we have 10
countries in Europe and the Americas that tend to compensate each other, so we are a different
animal. We tend to do better when things get worse precisely because of that diversification, Botin
said in the interview.
Bad loans as a proportion of total lending at Santander dropped to 4.36 percent from 4.5 percent in
September, the company said.
BLOOMBERG
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