Santander Earnings Plunge 94% on Real Estate Woes

LONDON – Banco Santander of Spain reported on Thursday that net profit plummeted 94 percent in the third quarter, after the bank set aside money to cover potential losses in the Spanish real estate market.

The bank has faced growing headwinds in its home market as the European debt crisis continues to weigh heavily on the Spanish economy. Santander’s international units, including those in Brazil and Britain, also reported subdued performance, a reflection of concerns about the global economy.

As a buffer, Santander – one of Europe’s largest banks – said it had set aside 5 billion euros ($6.5 billion), including an additional 1 billion euros in the third quarter, to offset potential losses in the Spanish real estate market. The bank said it now had a total of 9.5 billion euros in reserve to cover bad loans.

Santander, based in Madrid, said net income in the three months ended Sept. 30 fell to 100 million euros from 1.8 billion euros in the period a year earlier.

The bank’s volume of bad real estate loans in Spain and abroad continued to rise. Santander reported that its percentage of so-called nonperforming loans in Spain stood at 6.4 percent, an increase of 1.2 percentage points from the period a year earlier. For its global operations, the figure increased to 4.3 percent.

“The bank’s capacity to generate profit enables us to set aside hefty real estate provisions in Spain in 2012 and significantly increase nonperforming loan coverage,” Santander’s chairman, Emilio Botín, said in a statement.

Shares in Banco Santander fell less than 1 percent in morning trading in Madrid on Thursday.

Santander is reducing its lending in the Spanish real estate market. The bank said its exposure in the sector stood at 26.5 billion euros at the end of September, a reduction of 16 billion euros in the last four years.

Santander’s global operations continue to play an important role in offsetting its domestic troubles.

Latin American operations – including units in Brazil, Mexico and Chile – represented 50 percent of the bank’s profit in first nine months of the year, the company said. Yet even in these fast-growing markets, the bank reported that net income fell 6 percent, to 3.3 billion euros, for the nine-month period after Santander sold several businesses in the region.

The bank raised about $4.2 billion last month through an initial public offering of its Mexican unit, Grupo Financiero Santander México. The dual listing in New York and Mexico was the third-largest initial public offering this year, after those of Facebook and Japan Airlines.

The bank’s core Tier 1 ratio, a measure of its ability to weather financial shocks, rose to 10.4 percent at the end of the third quarter from 9.4 percent in the period a year earlier.