Santander (SAN.US) Q3 beats expectations with 12% YoY net profit growth, but retail is overshadowed by UK court ruling

Santander (SAN.US) reported a 12% YoY increase in Q3 net profit to €3.25bn, topping expectations, driven by resilient retail performance and strict cost control. However, the bank's performance was overshadowed by a UK court ruling against auto finance brokers, which is estimated to result in a £1bn loss. Despite the challenges of falling interest rates, Santander is committed to achieving "strong growth" in the coming years and maintains its target of a 16%+ tangible asset return on equity (ROTE) in 2024.

Net loan loss provisions fell 9% and operating expenses declined 2%, driving profit growth. Retail, the main profit contributor among the five global segments, grew 17.5%, while wealth and insurance grew 12.85%.

Moreover, the Spanish and Brazilian subsidiaries contributed the most to net income, at €1.1bn and €630m, respectively, while profits in the US, Mexico, and Portugal declined sequentially, with US profits falling 44% due to increased costs and provisions.

It is worth noting that Santander recently launched its digital branch Openbank and has hired hundreds of investment bankers in the US market.

CEO Hector Gómez said the bank would remain committed to achieving strong growth despite falling interest rates and set its net income target for this year above €12bn.

Chairwoman Ana Botín confirmed that the bank would maintain its previous targets and capital return policy and keep the momentum until 2025.

However, Santander delayed the release of its UK group's earnings due to the UK Court of Appeal's ruling on the disclosure of brokerage fees for auto finance transactions, which is estimated to result in a £1bn loss. The bank's UK branch is one of the major auto financing providers in the UK and needs time to assess the impact of the ruling.

Despite this, Santander expects the Financial Conduct Authority's review of the ruling will not have a significant impact on the group's financial position and will include the UK subsidiary's performance in its earnings.