Banco Santander SA said third-quarter profit rose 52%, beating estimates, as charges for bad loans dropped in Spain and earnings climbed in the U.K. and Brazil.
Net income at Spain's largest lender increased to 1.61 billion euros ($2 billion) from 1.06 billion euros a year earlier, the Santander, Spain-based bank said in a filing to regulators Tuesday. That compared with the 1.53 billion-euro average estimate in a Bloomberg survey of 17 analysts.
Under Ana Botin, who became chairman in September after the death of her father, Emilio, Santander is counting on economic recovery to boost profit in Spain as its U.K. bank continues to drive earnings growth. Emilio Botin's message to shareholders in his last speech to them in March was that they should expect Spanish earnings to lift profit back toward precrisis levels of about 9 billion euros ($11.2 billion) by 2016.
"The main driver is going to be Spain because of lower provisions and the improvement in margins," Carlos Peixoto, an analyst at Banco BPI SA in Porto, Portugal, said in an interview before the earnings. "The U.K. is on a stronger track."
Santander has a large presence in the U.S., including the $77 billion-asset Santander Bank (formerly Sovereign Bank) in Boston and Santander Consumer USA in Dallas. Those units have faced several challenges this year. The Santander Consumer unit said in August it had received a Justice subpoena related to its subprime auto lending practices. The Federal Reserve rejected Santander's capital plan this spring along with several other banks' plans on so-called qualitative grounds, and in September it entered into a written agreement with Santander over unauthorized dividends at the consumer unit.
Banco Santander increased its cost savings target to 1 billion euros in 2014 from a 750 million-euro goal, and now predicts 2 billion euros of savings in 2016 compared with its previous target for that year of 1.5 billion euros.
Net interest income, or the difference between what the bank charges for loans and pays for its funding, rose to 7.47 billion euros from 6.94 billion euros a year earlier.
Bad loans as a share of total lending fell for a third straight quarter, dropping to 5.28% from 5.45% in June, the bank said. Loans newly classified as in default during the quarter plunged to 1.96 billion euros from 4.72 billion euros a year ago.
Earnings from Santander's Spanish banking business almost quadrupled to 309 million euros, as loan-loss provisions fell to 429 million euros from 630 million euros a year earlier.
Profit from the U.K. jumped 34% to 411 million euros, while profit from Brazil rose 14% to 409 million euros.
"The quality of the results is relatively weak, with net interest income in Spain, Brazil and Chile lower than our expectations, something that has been offset by strong trading income," David Vaamonde, bank analyst from MainFirst Bank, said Tuesday.
Trading income increased 86% from the previous quarter to 952 million euros.