Santander is one of the most widely held stocks in this country.
More than 1.4 million Britons own shares in Spain’s largest bank, courtesy of its takeovers, down the years, of the old Abbey National, Alliance & Leicester and the high street branches and savings business of Bradford & Bingley.
So when the bank – which is also now the largest in the Eurozone by stock market value – updates investors, there are plenty of people hanging on its every word.
Today’s update points to a bank in reasonable health.
Net profits, the bank’s preferred measure, rose by 37% during the April-June quarter to hit €1.75bn (£1.56bn). That was pretty much in line with expectations and reflected, in particular, a very strong performance in Brazil which, after a two-year recession, is dragging itself back to growth. For the first half as a whole, Santander’s profits rose by 24% to €3.6bn.
In Britain, where it is the country’s third-largest mortgage lender behind Lloyds Banking Group (owner of the Halifax) and Nationwide Building Society, half year pre-tax profits on an underlying basis rose by 13% to £1.12bn.
That reflected an improvement in the net interest margin – roughly speaking, the difference between the rate the bank charges borrowers and pays to savers – from 1.48% to 1.53%. That is pretty low compared with some other players in the sector: Lloyds Banking Group’s net interest margin during the first half of the year was 2.82% and at Barclays it was a thumping 3.69%.
Unlike both of those banks, however, Santander’s UK arm is not burdened by issues regarding past misconduct to quite the same extent. While Lloyds has had to make significant new provisions exceeding £1bn for the mis-selling of payment protection insurance and for possible compensation payments to some mortgage customers who have been overcharged in the past, and Barclays has put aside another £700m for PPI mis-selling, Santander UK’s latest misconduct provisions were a much more modest £186m, most of which was for PPI.
What is really striking is how cautiously Santander’s UK bank is being run.
The bank makes clear today that it sees “greater uncertainty” in the UK economic outlook, flagging a “concern that some downside risks could materialise later this year and into 2018”.
In particular, it is concerned that higher inflation, following the drop in the pound after Britain voted to leave the EU, is now eating into disposable incomes for households. This, it warns, is likely to lead to lower consumer spending.
Image: Santander is Spain’s largest bank but also one of the most widely-held stocks in the UK
Accordingly, Santander UK is deliberately reining back from what it regards as potentially riskier activities.
One area where it has already been doing this is in mortgage lending – where, during the last 12 months, it has been scaling back its activity.
During 2016, it accounted for just 10.4% of mortgage lending in the UK market, down from 11.8% in 2015. That meant it dropped to fourth place in the table of new mortgage lending behind both Lloyds and Nationwide, but also behind Royal Bank of Scotland, owner of NatWest.
Overall, the bank ended the first half of 2017 with a loan book slightly smaller than that with which it finished 2016.
So Santander UK, it is fair to say, is being run very carefully at the moment.
For those 1.4 million small shareholders, though, there is a bigger picture.
Like HSBC, Santander is a big, global bank, spanning a lot of countries.
Brazil, Latin America’s largest economy, is currently the biggest single contributor to the bank’s profits, chipping in 26% of earnings. Britain is next on 17% and Spain third on 13%.
But it is active in a lot of other places. In Poland, for example, it owns the country’s third-largest lender, BankZachodni, while Mexico is growing in importance. It contributed 7% of earnings in the first half of the year and, as was seen with drinks giant Diageo earlier this week, the pick-up in the Mexican economy is benefiting those multinationals doing business there.
The bigger global questions being asked of Santander concern its capital position.
It has just rescued its struggling rival, Banco Popular, which has pushed up the proportion of bad loans on its book. The acquisition has also reduced Santander’s core tier 1 capital ratio, roughly speaking, a measure of a bank’s ability to absorb unexpected losses and a measure of its financial strength, to one of the lowest among Europe’s big banks.
Yet Santander is in a reasonable position to build up its capital reserves. While the UK economy is seeing only tepid growth currently, many of the bank’s other markets are growing strongly, not least Spain, currently one of Europe’s fastest-growing economies.
It is why Ana Botin, Santander’s executive chairman, is striking a confident note.
She has plenty to be pleased about.