Santander has recorded a goodwill update of its historical investments and deferred tax assets (DTAs), which generates an extraordinary charge without cash effect of 12,600 million euros and results in an attributable loss of 10,798 million euros in the first half. This adjustment is due to deterioration of economic prospects as a consequence of the Covid-19 crisis and does not affect liquidity, credit risk or the CET1 capital ratio. The entity has left more than 4% in the stock market.
Due to the impact that the pandemic has had on the economic forecasts of the markets in which the bank operates, Santander has made an analysis of the goodwill valuation of its historical investments and the ability to recover deferred tax assets ( DTAs).
After this analysis, the bank has carried out an update of the value of goodwill and DTAs that generates an extraordinary charge with no cash effect amounting to 12.6 billion, of which 10.1 billion correspond to goodwill (45% of the group's total goodwill) and 2.5 billion to DTAs.
Regarding the reduction in the value of goodwill, 6,101 million correspond to the business in the United Kingdom, 2,330 million to the United States, 1,192 million to Poland and 477 million to Santander Consumer Finance. This adjustment does not change the strategic importance of the markets or the group's businesses., explained the entity. The bank will continue to invest and accelerate its transformation plans, and maintains "complete confidence" in the long-term value generation potential of its regions and markets, he added.
"Although the attributable profit has been affected by the non-cash accounting update of goodwill and DTAs due to the impact of the pandemic on economic forecasts, this revision does not affect the strength of our balance sheet. The foundations of our business are solid, with a level of capital at the top of our objective"said Ana Botín, president of the entity.
RESUME THE DIVIDEND
The entity has communicated that the board of directors is finally planning propose a dividend of 0.10 euros corresponding to 2019, which will be paid this year and whose payment will be made in new shares.
"The board intends to apply a 100% cash dividend policy as soon as market conditions are normalized, subject to the recommendation and regulatory approvals," the bank has said. For this reason, the entity has reserved six basic points of CET1 capital in the quarter to a possible cash dividend charged to 2020 results. This decision is in addition to the aforementioned scrip dividend for 2019.
It should be remembered that Santander announced last April the cancellation of the complementary dividend of 2019 and that of the entire 2020.
Banco Santander obtained an ordinary profit of 1,908 million euros in the first half of 2020, 48% less than in the same period of the previous year, due to higher provisions related to the pandemic. According to the entity, although the pandemic has affected activity, a good ordinary result is maintained thanks to customer revenues, a reduction in costs above expectations, solid credit quality and organic capital generation.
Interest margin and customer income were stable, at 16,202 and 21,338 million eurosrespectively driven by revenue growth in Latin America, Santander Corporate & Investment Banking (SCIB) and Wealth Management & Insurance. This and cost control allowed increase the net margin by 2%, to 11,865 million euros. The gross margin fell 8% to 22,518 million.
The cost reduction plan is going faster than expected, the bank has said. Thus, Europe achieved more than 300 million savings in the first half, that is, 75% of its target for the entire year 2020. Operating expenses fell 2%, 5% without inflation.
The default rate decreased by 25 basis points in the last 12 months, to 3.26%, while the coverage ratio, which measures the capacity to absorb possible losses derived from delinquencies, increased to 72%.
The cost of credit, that is, what the bank provides when it grants a loan, increased 28 basis points, to 1.26%, due to the growth of 78% of provisions, to 7,027 million euros, due to the crisis . In the second quarter, the bank maintains its forecast for growth in the cost of credit, from 1.4-15% at the end of the year.
The CET1 capital ratio increased by 26 basis points in the quarter, up to 11.84%that is, in the high part of the medium-term objective of 11-12% that the group has set. The evolution of profit before provisions allowed a strong organic generation of capital (+28 basis points), Santander explained. The bank increased its capital by another 24 basis points thanks to changes in the Capital Requirements Regulation (CRR) of the European Union, although this item is neutralized by the impact of corporate operations, the evolution of markets and others.
Santander expects to continue increasing its capital in the coming quarters and remain at the top of its target range at the end of the year.
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