Banco Santander SA built up capital in the fourth quarter, easing investor concern about its ability to bolster buffers, as Spain's largest lender booked charges that wiped out profit.

Net income fell to 25 million euros ($27 million) from 1.46 billion euros a year earlier, after the bank posted 1.7 billion euros ($1.8 billion) in charges. Those included provisions for its role in the U.K. banking scandal over wrongly sold payment protection insurance, the lender said in a regulatory filing Wednesday. The lender's capital ratio stood at 10.05% at the end of the year, compared with 9.85% in September.

"Santander results have been good, with many positive aspects if we exclude the charges," Nuria Alvarez, a bank analyst at Renta 4 Banco SA in Madrid, said by phone. "The underlying business evolution is positive, bad-loan ratios are down, and capital is above 10%. These results should calm the doubts the market has over capital and Brazil."

Concerns over capital and over the outlook for Brazil have weighed on Santander Chairman Ana Botin seeks to expand consumer banking, its core business, in its 10 largest countries. Its shares have dropped more than one third in the past 12 months and were down 0.88% to 3.95 euros as of 9:50 a.m. in Madrid.

"Although a low ratio versus the peer group, this level of capital generation gives Santander some breathing room in our view," Keefe Bruyette & Woods analysts Daragh Quinn and Hari Sivakumaran said in a note to clients.

The bank tapped shareholders for 7.5 billion euros and slashed its dividend at the start of 2015. Botin is now looking to increase the bank's capital ratio to more than 11% by 2018.

"We will not raise more capital," she said in a interview with Bloomberg TV in Madrid. "Given the organic capital generation after paying dividends and funding growth, we feel comfortable we can achieve the target of being above 11%."

Quarterly profit was hit by a provision of 600 million euros to cover future U.K. loan protection claims and of 1.1 billion euros for other charges, including covering the declining value of software and other intangible assets.

"We have delivered on everything we said we would do a year ago when we raised capital," Botin said. Besides building up its buffers, Santander has improved top-line results and increased its cash earnings per share in 2015, she said.

Net interest income, or revenue generated from the difference between what banks charge for loans and pay for funding, rose to 7.89 billion euros from 7.7 billion euros a year ago. It fell 1.2% from the previous quarter.

Profit from the British unit, the main profit contributor, rose 22.7% in the fourth quarter from a year earlier, while the Brazilian business dropped 12 % as the economy contracted.

"Brazil is going to be difficult we think for the next couple of years, but Brazil is much more than commodities, is much more than exports to China," Botin said. "I believe strongly that Brazil will come out of this stronger. It's going to be difficult but I have confidence they will take the right steps."

Earnings dropped 67% at the Spanish banking unit, to 94 million euros. Net interest income fell 16% from a year earlier due to low interest rates and strong competition, the lender said in a presentation. The bank also had to pay a yearly contribution to the Spanish deposit insurance scheme.

"Our results under stress perform much better than other banks precisely because we have 10 countries in Europe and the Americas that tend to compensate each other, so we are a different animal. We tend to do better when things get worse precisely because of that diversification," Botin said in the interview.

Bad loans as a proportion of total lending at Santander dropped to 4.36% from 4.5% in September, the company said.


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