Banco Santander Q3 Results

Shares of Banco Santander (BME:SAN) fell over 3% on Tuesday after the bank's third-quarter results showed strong performance in key areas, but challenges in Argentina negatively affected overall outcomes.

The bank reported an attributable profit of €3.25 billion, surpassing consensus estimates by 4%, though it faced adverse impacts from currency-linked adjustments in Argentina.

Analysts at UBS noted, "Uneventful numbers at first sight, unlikely to be a strong share catalyst in our view, with YE24E guidance reiteration (>16% ROTE, 42% CI ratio, HSD revenue growth) suggesting moderate upside to UBS/consensus." Excluding the Argentine effects, Santander’s attributable profit reflected a 7% beat, with pre-tax profit ahead by 5%.

Despite positive trends in markets like Spain and Poland, misses in segments such as the Digital Consumer Bank and the Corporate Center partially dampened the Group’s broader financial picture. Revenue dynamics reflected a marginal 1% miss as net interest income (NII) and trading income fell short of forecasts, although these were partially offset by stronger-than-expected contributions from other income sources.

The Group maintained efficiency, with costs undershooting expectations by 3%, indicating prudent cost management across its key markets, including Spain, where the bank saw a 41% profit beat due to stronger NII and improved asset quality. Poland also stood out, with a 25% profit beat driven by robust loan growth and effective margin management.

Analysts at Jefferies highlighted that Santander's steady cost control and resilience in core regions positioned it well to meet its full-year guidance despite Argentine challenges and a difficult global economic environment.

At the Group level, Santander’s net interest income came in 3% below expectations, down 2% quarter-over-quarter but largely stable year-over-year. Argentina remained a primary drag, with NII slipping sequentially due to inflation-linked bonds impacting returns. Stripping out Argentina, NII remained broadly aligned with consensus. Fee income showed modest growth, and other operating income achieved a robust beat at €185 million compared to the €61 million forecast.

However, trading income narrowly missed estimates, although it still presented a modest 5% beat outside Argentina. The bank’s asset quality was a positive narrative, with total impairment charges coming in 3% below consensus due to favorable trends in key markets.

Loans and deposits were mixed, with customer loans falling 2% below estimates but up 1% year-over-year, while deposits stayed steady with expectations, marking a 1% year-over-year increase. The capital position remained robust, with a CET1 ratio of 12.5%—slightly below consensus but within regulatory expectations after absorbing approximately 18 basis points in quarterly regulatory adjustments.

Geographically, Santander’s earnings showed mixed results. Spain led the outperformance with a 41% profit beat, driven by strong NII and favorable asset quality. In the UK, Santander exceeded expectations by 7%, while Poland outperformed forecasts with a 25% profit beat.

Conversely, challenges surfaced in Portugal, where profits fell 10% below consensus on weaker-than-expected NII, and Brazil faced a 1% shortfall despite stable local currency top-line growth of over 12% year-over-year. The Digital Consumer Bank reported a 15% profit miss due to ongoing NII pressure and higher provisioning, while the Corporate Center missed by 70%, impacted by weak trading income and increased provisioning.

Santander reaffirmed its 2024 guidance, targeting high single-digit revenue growth, a cost-to-income ratio around 42%, a return on tangible equity (RoTE) above 16%, and a cost of risk at approximately 120 basis points. Despite these assurances, investor sentiment appeared cautious amid persistent inflation and economic volatility affecting Argentina and some emerging markets.

Analysts noted, "Still pending up to 10bps of regulation in 4Q and c30-50bps in 25E (B4), thus capacity to increase pay-outs more visibly remains a YE26E discussion in our view."