Santander plans extra 1 billion euros in cost cuts as profit rebounds

MADRID (Reuters) – Santander SAN.MC expects its core profit in 2020 to beat current market expectations, helped partly by additional cost savings of 1 billion euros in Europe by 2022, which could include thousands of job cuts.

FILE PHOTO: The logo of Santander bank is seen at a branch in Mexico City, Mexico April 12, 2019.REUTERS/Edgard Garrido/File Photo

More efficiency gains and improved customer behaviour on loan repayments allowed the bank to forecast an underlying profit of around 5 billion euros ($5.91 billion) for the whole year, after a return to profit in the third quarter.

“The recovery of our business is progressing well, and the third quarter was significantly stronger than the second,” Executive Chairman Ana Botin said a statement on Tuesday. “Revenues increased 18% in constant euros as activity returned close to pre-pandemic levels.”

Santander’s shares were up 4.6% by 0849 GMT, the strongest performers on Spain’s Ibex-35 index .IBEX which was up 0.2%.

Banks across Europe are struggling to cope with record low interest rates and the economic downturn sparked by the coronavirus pandemic is forcing lenders to focus on further cutting costs.

Santander said the group was planning to achieve cost savings of 1 billion euros in Europe by 2020, ahead of its medium term target, and expected an additional 1 billion euros savings by 2022 also in Europe.

Spanish newspaper Expansion reported that Santander was planning to lay off around 3,000 of its employees, around 11% of its workforce in Spain, due to the economic impact from the COVID-19 and a customer shift towards digital channels.

Santander declined to comment.

Chief financial officer, Jose Antonio García Cantera, told Bloomberg on Tuesday the bank would discuss job cuts with unions without giving any precise number.

Santander’s statutory net profit trebled in the third quarter compared with a year ago, but on an underlying basis the bank’s profit fell 18% in the same period to 1.75 billion euros due to more coronavirus related provisions.

Analysts polled by Reuters expected an operating profit of 1.06 billion euros.

Santander has been focusing on its Latin American businesses to help it to cope with tough conditions for banks in Europe.

But its core markets, spanning Brazil to Spain, have been some of the hardest hit by the pandemic, with weaker emerging market currencies exacerbating the pain.

Santander said an improvement in customer behaviour regarding loan payments led the bank to estimate that the cost of insuring its loan book would be lower for 2020.

Santander lowered its guidance for cost of risk, which measures the cost of managing credit risks and potential losses, to 130 basis points by the end of 2020 after a previous guidance of between 140 bps and 150 bps, implying lower loan-loss provisions in the future.

Santander is also holding a shareholder meeting on Tuesday to approve a scrip dividend, payable in new shares, equivalent to 10 cents per share for 2019. The bank is also seeking the approval for a 0.10 euros per share cash dividend to be paid in 2021, pending a green light from the European Central Bank.

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