Banco Santander (LSE: BNC) (NYSE: SAN.US) announced a 29% rise in first-half attributable profits to €2.3bn but, as with so much in the world of banking, the headline didn’t tell the whole story.
The bank was facing a rather easy comparison period because of €2.2bn in special loan loss provisions related to bad real-estate loans in Spain and Colombia.
Looking at the pre-provision operating profit. Santander reported a 10% drop (ignoring currency movements in its various markets) on the back of economic struggles in Brazil — which makes up a quarter of the bank’s profits — and continued pain in Spain. The UK market offered a bit of a bright spot with profits up 3%, but at only 13% of overall profits it wasn’t enough to offset weakness elsewhere.
While the bank’s capital levels — reinforced with last year’s provisions — look strong, non-performing loans continue to rise as a percentage of total loans due mainly to the Spanish loan book. It is hard for a bank to improve its profits if the loans it has written aren’t being (or can’t be) honoured by the borrower.
Despite troubles in Brazil’s banking market and an outlook in Spain that remains grim, Santander’s chairman Emilio Botin feels the worst is behind the bank and thinks profits should grow from here.
The market seems a bit sceptical, however, as the shares trade at .75 times book value — less than half the value they were given prior to 2008.
For those brave investors out there willing to bet on a recovery in Spain — where Santander is increasing its market share as rivals continue to fall — and Brazil, these shares could offer strong returns.
However, if you’re looking for growth without the uncertainty that comes with banks and a Spanish recovery, you may be interested in this free report which outlines The Motley Fool’s favourite growth share for 2013.
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> Nate does not own shares of Banco Santander.