Wednesday 29 July 2020 10:27 am

Coronavirus pushes Santander to €11bn loss

Santander suffered a record loss of €11bn (£10bn) in its latest half-year, it revealed today, as coronavirus provisions tanked its bottom line.

Read more: Barclays braces for pandemic blow with extra £1.6bn

The figures

A massive €12.6bn impairment relating to coronavirus meant Santander swung to a €10.8bn loss for the first half of 2020.

Underlying profit before tax halved to €3.8bn year on year. And Santander’s UK bank revealed profit before tax shrank 74 per cent year on year to £147m.

However, Santander said the provisions would not hurt cash flow or capital levels. And the bank posted a 26-basis-point rise in its CET1 ratio – a key test of financial resilience –  to 11.84 per cent, near the top of its medium-term target.

Profitability took a deep knock, though, with Santander’s Return on Tangible Equity (RoTE) falling to 5.9 per cent.

Why it’s interesting

The bank’s share price fell 2.1 per cent to 184p in early trading as investors balked at the blow to profit.

Of the huge pandemic provisions, €6.1bn related to UK losses. Santander’s UK arm counted a £307m year-on-year spike in credit losses to £376m.

And UK chief executive Nathan Bostock warned the economic outlook has worsened since the first quarter.

The bank now predicts UK house prices to shrink a base case six per cent in 2020, against a 9.5 per cent contraction in GDP. That scenario sees Brexit trade deal uncertainty continue this year. The unemployment rate could hit 9.3 per cent, the bank forecast.

A quick Brexit trade deal, an extension to negotiations or a vaccine could improve the UK’s outlook.

“Decisive management actions have helped us to mitigate some of the impact this crisis could have had on our results and business operations and ensure we are well positioned as the UK emerges from the lockdown,” Bostock said.

Chairman Ana Botin said Santander will stick to its RoTE target of 13 per cent to 15 per cent in the medium term.

And the bank said it wants to pay a scrip dividend equivalent to 10 cents per share for 2019 after Europe’s central bank told lenders not to pay cash dividends until 2021.

Read more: Bank of England could extend bank dividends suspension

What Santander said

Chairman Ana Botin said: “The past six months have been among the most challenging in our history. The impact of the pandemic has tested us all and I am proud of how Santander has responded.

“During the second quarter, we lent an average of €1.6bn every day, supporting millions of individuals and businesses.

“While our statutory profit reflects a non-cash revaluation of goodwill and DTAs due to the impact of the pandemic on the economic outlook, it has no impact on the group’s balance sheet strength.

“The board is committed to applying a 100 per cent cash dividend policy as soon as market conditions normalise, subject to regulatory approvals and guidance, and we have accrued capital this quarter to reflect this commitment.”