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Confession Time for Big Banks in Europe: Banco Santander Reports $12.7 Billion Loss

Confession Time for Big Banks in Europe: Banco Santander Reports $12.7 Billion Loss

Too-Big-To-Fail Santander is also one of the Eurozone’s worst capitalized banks.

Banco Santander, Spain’s largest lender and one of the Eurozone’s eight global systemically important banks (G-SIBs), has posted its first ever loss in 163 years of operations. And it was gargantuan. During the first half of the year, the bank racked up a loss of €10.8 billion ($12.7 billion).

The loss was caused by heavy provisions for expected loan losses. This quarter wiped out the equivalent of one-and-a-half years of the bank’s global profits — in 2019, it posted total global profits of €6.5 billion, and in 2018 of €7.8 billion.

The losses were the result of a €2.5 billion charge related to the recoverability of tax deferred assets as well a €10.1 billion write-down on assets across a number of key overseas markets:

  • In the UK: €6.1 billion write-down of “goodwill” — amount overpaid for prior acquisitions, which included Abbey National and Alliance and Leicester. Santander already took a €1.5 billion write-down on the value of its UK business last year, blaming new regulations and the expected economic fallout from Brexit.
  • In the US: €2.3 billion write-down for Santander Consumer USA, which specializes in consumer lending, particularly subprime lending, and these consumer loans are now particularly at risk.
  • In Poland, its largest market in Eastern Europe: €1.2 billion goodwill impairments charge.
  • In its consumer finance division, which is present in 15 markets: €477 million hit.

Santander’s shares initially reacted to the news by slumping 5.8%. They then staged a partial recovery, only to slump again, ending the day down nearly 5%. Shares are down an eye-watering 45% this year, making it one of the continent’s worst-performing large financial institutions.

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

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