Santander 2Q18 results: Good and bad figures confirmed
2Q18 net profit amounted to €1.7bn
Santander has released a decent set of results in which the positive operating performance in most of the regions has been shadowed by currencies’ depreciation although with a lower impact than in 1Q18. In addition, the increase in the bond yields has reduced the unrealised capital gains of the AFS portfolio and eroded c. 12bp the CET 1 fully loaded, now at 10.80bp.
The main figures: Aligned with the consensus
Net interest income increased by +0.3% qoq, to €8.5bn, fees declined –0.7% qoq, to €2.9bn and gross income declined –1.1% qoq, to €12.0bn once deducted the €187mn of the SRF. Costs came down –0.8% leading to a pre–provision profit of €6.3bn (–1.5%), +3.1% higher than the consensus figure. Cost of risk is the most remarkable figure: it fell to 0.99% of loans from 1.04% in 1Q18 (and a guidance of 1.1%) with the NPL ratio improving to 3.92% (4.02% in 1Q18) and the coverage ratio declining to 68.6% (70.0% in 4Q17). The group charged €300mn of restructuring costs for Popular, leading to a 2Q18 net attributable profit of €1.7bn (–17.3% qoq). 1H18 net profit amounted to €3.8bn (+3.8%). The impact of forex was –2.3pp in 2Q18 earnings and –12.1pp in 1H18. The TBV per share stands at €4.10, down from €4.12 in 1Q18 and €4.15 in 4Q17.
The capital ratios, the Achilles heel
The poor evolution that we were expecting for the CET 1 fully loaded has been confirmed: the mark to market of the bond portfolio (mainly the Spanish and Brazilian sovereigns) may has eroded –12bp that add to –18bp of SCUSA minorities. The organic generation was 18bp, above the 10bp indication. The management is confident to comply with the 11% target. However, we fear that the impact of markets may introduce an undesired volatility in this ratio.
Forecasts and target price unchanged
We have fine–tuned our estimates for 2018e onwards, with negligible changes. Therefore, we maintain our December 2018e target price at €6.45 which suggest a c. 40% upside potential. In the event of a new bank levy in Spain (each €100mn reduces our target value by 1%), our recommendation will be still a Buy.
Banco Santander is a holding company, providing a range of financial products. Co.'s products and services include: retail banking business that covers all customer banking businesses; wholesale banking business; as well as asset management and insurance business. Co.'s principal operations are in Spain, the U.K., Portugal, Germany, Italy and Latin America. As of Dec 31 2014, Co.'s total assets amounted to Euro1,266,296,000,000 and total customer deposits amounted to Euro647,627,000,000.
Bankinter S.A. is a Spanish brokerage firm established in 1989. The company's line of business includes the provision of market research and trading services for Equity and Fixed Income products.
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