Santander – 4Q15 Results: 24% underlying miss on higher provisions

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BARCLAYS | Santander was just above breakeven in the quarter due to one offs and underlying earnings 25% light as a result of higher provisions and weaker costs.  Negative one offs of €1,435m include €600m for PPI and €683m for intangible asset write offs. Even before this Santander’s Q4 earnings were 24% below expectations mainly due to higher provisions but also costs. Divisionally, Continental Europe and the US were particularly weak. The NPL ratio fell 10bp QoQ to 4.4% and the CET1 ratio came in on target at 10.0% despite weak earnings.

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Provisions and costs weak: Underlying earnings were 24% below consensus with provisions 21% worse and costs 3% weaker while income was in line.  Underlying earnings were 16% lower YoY and down 22% QoQ with costs and provisions 1% and 3% higher respectively.

All divisions under pressure: There was underlying weakness across all divisions QoQ but with Europe and the US seeing the most significant declines. Continental Europe was down 33% QoQ due to weakening net interest income in Spain as a result of ongoing price competition on loans and the expected annual contribution to the deposit guarantee and resolution funds. US earnings fell 64% QoQ due to a 27% or €200m QoQ increase in provisions.

Capital on target but weak: The NPL ratio fell 10bp QoQ to 4.4% and the CET1 ratio came in on target at 10.0% despite weak earnings.

The shares currently trade at 0.9x tangible book value.

 

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