Santander Reports $13B in Loss Fueled by COVID-19 Impairments

5.19 percent of ROTE also shows degrading asset quality.

Spain’s Banco Santander SA has reported a net loss of ‎€11.1 billion ($13 billion) for the second quarter of 2020, showing the impact of the Coronavirus into the European banking industry.

The second-largest European bank by market value, Santander, took a hit of €12.6 billion ($14.8 billion) due to the deterioration of the economy caused by the pandemic as it was forced to write-off acquisitions, primarily in Europe.

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€10.1 billion, out of the total impairments, are related to goodwill, while €2.5 billion is for DTAs, the tax break instrument for reporting losses.

Santander’s operations are dominated across Spain to Brazil. However, a third of the impairments came from its UK operations. The asset quality of the units of the US, Poland, and Santander Consumer Finance also deteriorated due to the impact on the economy.

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The impairments, however, have no impact on the bank’s cash flows or capital levels, Santander highlighted. Notably, the quarterly cash flow also surged marginally.

Some positives in the hard times

Moreover, the underlying attributable profit of the lender fell by 27 percent for the second quarter year-on-year to €1.53 billion, better than the market forecast of €944 million. The expense for the quarter stood at €5.1 billion, down from €5.8 billion a year ago. The core revenue generated by the bank, however, fell in line with the street expectations.

The return on tangible equity ratio (ROTE) is also showing the impact of the COVID-19 impairments as it stood at 5.19 percent.

“The past six months have been among the most challenging in our history,” Santander chairman Ana Botin said in a statement. “The impact of the pandemic has tested us all.”

She also committed to lifting the ROTE to 13 to 15 percent in the medium term and will publish a strategic plan for that in the coming months.

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