Santander slumps to €11bn loss after writedowns

Santander slumped to a €11.1bn loss in the second quarter after the coronavirus pandemic forced the eurozone’s largest retail bank to take large writedowns on the value of several of its businesses. 

The Spanish lender wrote off €2bn in deferred tax assets that it no longer expects to recover and more than €10bn in goodwill, including 86 per cent of the value of its UK arm.

Despite the hits, which it blamed on “the deterioration in the economic outlook”, Santander on Wednesday stressed the strength of its underlying business by reporting stronger than expected capital levels and committing to resume dividend payments as soon as regulators allow.

Ana Botín, Santander executive chairman, said “the past six months have been among the most challenging in our history”, but added “the foundations of our business remain extremely strong, with capital at the top end of our target range.”

Santander reported revenue of €10.7bn for the quarter, down 13 per cent from a year ago primarily due to the impact of foreign exchange movements. Excluding currency movements, revenue dropped 3 per cent. The company also made solid progress in cost-cutting plans, with operating expenses down 4 per cent after excluding currency movements.

As a result, the bank’s preferred underlying profit measure, which excludes the goodwill and DTA impairments, fell a more modest 15 per cent, to €1.5bn. It put aside an additional €3.1bn to deal with loan losses, compared with €3.9bn in the first quarter

Santander’s common equity tier one ratio, a key measure of balance sheet strength, ended the period at 11.84 per cent, at the upper end of its full-year target range of 11 to 12 per cent.

Shares in the Spanish lender have long been weighed down by concerns about relatively low capital levels, but the company has insisted its diversified business means it is more resistant to economic shocks than rivals.

The lender also said it had put aside capital in the quarter to contribute to a potential future cash dividend. In the meantime, it committed to pay a share-based dividend equivalent to 10c per share for 2019.

On Tuesday, the European Central Bank ordered banks in the eurozone to continue to freeze cash dividend payments until at least next January.