Investing.com -- Shares of Banco Santander (BME:SAN) fell over 3% on Tuesday after the bank's third-quarter results posted strong performance in core geographies, but ongoing challenges, particularly in Argentina, continued to weigh on overall outcomes.
The bank reported attributable profit of €3.25 billion, surpassing consensus estimates by 4% but encountering an adverse impact from currency-linked adjustments in Argentina.
“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,” said analysts at UBS in a note.
Excluding the Argentine effects, Santander’s attributable profit reflected a 7% beat, with pre-tax profit ahead by 5%.
Despite positive dynamics in markets like Spain and Poland, misses in segments such as 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, though these were partially counterbalanced 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 on stronger NII and improved asset quality.
Poland also stood out, with a 25% profit beat driven by robust loan growth, effective margin management, and favorable fee dynamics.
Analysts at Jefferies said that Santander's steady cost control and resilience in core regions positioned it well to meet its full-year guidance despite the Argentine headwinds and the challenging 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 was a primary drag, with NII slipping sequentially as inflation-linked bonds impacted returns.
Stripping out Argentina, NII remained broadly aligned with consensus. Fee income showed modest growth in line with expectations, and other operating income posted a robust beat, reaching €185 million compared to the €61 million forecast.
However, trading income narrowly missed estimates, although it was still a modest 5% beat outside Argentina.
The bank’s asset quality also presented a positive narrative, with total impairment charges coming in 3% below consensus due to favorable trends in several key markets.
Loans and deposits were mixed, with customer loans falling 2% below estimates, though up 1% year-over-year, while deposits stayed steady with expectations, marking a 1% year-over-year increase.
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 landscape showed mixed results. Spain led the outperformance with a 41% profit beat, fueled by strong NII, favorable asset quality, and steady trading income.
In the UK, Santander exceeded expectations by 7%, and Poland outshone forecasts with a 25% profit beat, reflecting sound loan and margin growth and solid fee income.
Conversely, challenges were more evident in Portugal, where profits fell 10% below consensus on weaker-than-expected NII, and Brazil saw a 1% shortfall despite stable local currency top-line growth of over 12% year-over-year.
Meanwhile, the Digital Consumer Bank (DCB) 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, exacerbated by a strong second-quarter comparison due to a €50 million one-off gain.
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 the persisting inflationary and economic volatility impacting Argentina and some emerging markets.
“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,” said analysts at UBS in a note.