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Spanish Banks’ Profits Drop

Spanish Banks’ Profits DropSpanish Banks’ Profits Drop

Spanish lenders Caixabank and Popular on Friday missed 2015 profit forecasts, hit by one-off charges, but their underlying businesses improved slightly in the last quarter, sending their shares higher.

Like European peers, Spanish lenders are struggling to increase earnings from loans as interest rates hover at historic lows, while increasingly fierce competition as Spain emerges from recession is eroding margins, Reuters reported.

Many analysts expect this will soon force a new round of cost-cutting mergers in a Spanish financial sector that has already shrunk to a dozen banks from close to 50 in 2008.

The improving fortunes of a third lender, Sabadell, which reported a 91% jump in 2015 net profit, however, showed not all lenders are equally prepared for this new chapter.

While Sabadell grew its net interest income–or earnings on loans minus deposit costs–by 42% last year, partly thanks to the acquisition of Britain’s TSB, this measure rose a more modest 4.8% at Caixabank, thanks to the purchase of Barclays’s Spanish unit, and fell 16% at Popular.

In the fourth quarter, though, all three banks posted a rise in net interest income, which pleased investors.

Shares in Sabadell were up 5.5%, while those in Banco Popular and in Caixabank were up 5.6% and 3.1% respectively, all outperforming Spain’s blue-chip index Ibex and recovering from heavy losses in January.

Caixabank, hit by writedowns at energy firm Repsol in which it holds a 12.14% stake, still managed to post a 31.4% rise in full-year net profit to €814 million ($888 million), boosted by its Barclays purchase.

But that fell way short of analysts’ 1.1 billion euros forecast in a Reuters poll and the bank also reported a 182 million euros loss in the fourth quarter.

Popular was hit by a €350 million provision to cover potential legal risks linked to the removal of so-called “floor” clauses on its mortgages.

As a result, the mid-sized lender posted a 68% drop in full-year net profit to €105 million, missing both a €400 million target and analysts’ expectations.

Profitability was also pressured at both banks. Return on equity dipped to 0.83% at Popular while a similar return on tangible equity ratio fell to 4.3% at Caixabank.

Financialtribune.com