Spanish multi-national banking group Banco Santander, S.A posted a 10.8-billion-euro loss for the first half of the year after taking a one-off provision of 12.6 billion euros in the second quarter to reflect the impact of the virus pandemic on the business, the group announced on Wednesday.
The group maintains that its balance sheet remains healthy and underlying growth strong.
Santander’s net operating revenue for the first half is overall up by 2 percent compared to last year, to a profit of 1.9 billion euros, thanks to its cost-saving efforts, the group said.
However, in their annual exercise of reviewing the value of their acquisitions, the group had to make an impairment charge of 12.6 billion euros to reflect the impact of the pandemic and increased capital cost. This charge turned a net operating income of 1.9 billion euros into a net underlying loss of nearly 11 billion euros for the first half of the year.
In responding to Bloomberg’s comment about Santander having the highest impairment charge of any European bank, Santander CFO Jose Cantera emphasized that the charge was a non-capital, non-cash accounting charge and that the group’s underlying profitability of the quarter was really strong.
The group maintained that the business is well capitalized. Santander has a common equity tier 1 capital ratio of 11.8 percent, which is above the required minimum of 10.5 percent and at the top end of their own target range. The tier 1 capital ratio is a core measurement a bank’s strength and its ability to withstand financial distress.
In the second quarter, the group saw an accelerated growth in the digital hemisphere, with 47 percent of sales occurring on digital platforms, versus 36 percent recorded at the same time last year.
In addition, the group’s corporate and investment banking business achieved an impressive 32 percent growth in net operating income before the impairment charge despite the harsh economic conditions.
“The impact of the pandemic has tested us all,” Ana Botin, Santander’s executive chairman, said in a statement. “We remain confident about the potential for value creation within our business.”
The share price closed at 2.00 euros, down 4.7 percent from yesterday’s closing. Santander’s share price has dropped 46 percent year-to-date.
By geographic location, the underlying profit of Santander’s UK operation fell by 76 percent to 139 million euros due to the impairment provision and a reduction in income.
Santander managed to lessen the damage by increasing customer fees and reducing perks offered to those holding a “123 current account.”
The bank will further reduce costs by cutting interest paid to customers on its 123 current account from 1 percent to 0.6 percent in August, and further increase account fees and alter the cashback paid on those accounts from late October.