Santander delivers earnings beat fired by rates, currencies

Bloomberg

Banco Santander SA’s earnings beat estimates, with the retail banking giant’s geographical reach providing a buffer against growing economic risks in Europe from the war in Ukraine.
Spain’s biggest lender posted net income of 2.54 billion euros ($2.72 billion) in the first quarter, exceeding the analyst consensus of 2.26 billion euros, as rising lending revenue offset increased costs spurred by the
inflation, especially in South America.
With a loan book that topped 1 trillion euros for the first time during the quarter, Santander is poised to boost margins as interest rates rise in the UK, Poland, the US and potentially also the euro area this year. Another tailwind is currency strength, with the Brazilian real turning in a stellar rally against the euro amid booming commodity prices.
“Our geographic and business diversification continues to provide a cornerstone for growth,” Chairman Ana Botin said. “While inflation will affect the pace of global economic growth, with specific impacts varying across our regions and businesses, we are reiterating our 2022 targets.”
Analysts are watching for the knock-on effects of surging inflation in the costs for lenders. Price gains are close to 10% in Santander’s home Spanish market, and recently soared the most since 2003 in Brazil.
Operating costs rise 8% from a year earlier. An 11% salary increase approved in Brazil in September helped drive a 14% increase in costs in the market that contributed most to Santander’s earnings in the quarter.
Central bank policies in key markets helped the lender overcome the effect of higher costs. Net interest income gained 15% in the UK, 7% in Brazil and Mexico and 78% in Poland.
“We are a commercial bank, highly geared towards higher rates so we are quite optimistic even beyond 2022, 2023, 2024 on the back of these much higher rates,” Chief Financial Officer Jose Antonio Garcia Cantera said in an interview with Bloomberg TV.
Botin had sounded a bullish note to investors at Santander’s shareholders’ meeting at the start of the month when she said business remained resilient with high profitability expected from its banks in the Americas.
Underlying earnings from Europe rises 30% on higher revenues and the results of a cost-cutting drive, with the UK growing 26%. Underlying profit from South America increased 8%.
In February, Santander said it was targeting mid-single digit revenue growth in 2022, a return on underlying tangible equity of above 13% and a cost-to-income ratio of about 45%. The lender aims to keep its key capital ratio at around 12% as it aspires to raise shareholder remuneration in the longer term.