In spite of a robust double-digit growth in lending in Latin America, Banco Santander (NYSE: STD ) reported a 4.8% drop in its first-quarter net profit, primarily due to a sharp decline in profit in continental Europe. As expected, the quarter witnessed a rather mixed performance throughout the group. But with growing revenues, declining loan-loss provisions and improving credit cost, Santander looks fundamentally upbeat on the whole.
The $103 billion Spanish banking giant witnessed significant improvement overall. Net interest income grew 5.5% owing to an increase in volumes and improvement in the spreads on loans. Net fee income increased 11.5% as it gained on a strong performance from its insurance and services, as compared to the first quarter of 2010. Net operating income after provisions rose too, growing 7.9% year-on-year.
Regionally and within the U.S., I've discussed the trend of declining provisions for losses thanks to growing credit quality at banks such as BankAtlantic Bancorp (NYSE: BBX ) and Flagstar Bancorp (NYSE: FBC ) in a recent article. It seems the trend isn't a provincial one.
Santander too, seemed to fall in line as loan loss provisions declined to $3.2 billion, 10.2% down from the first quarter of 2010, and the lowest since the first quarter of 2009. Santander's core capital ratio also rose to 9.66% from 8.8% in the preceding quarter, at it slashed its risk-weighted assets and issued convertible bonds in Brazil.
The Spanish bank, however, did not perform impressively in all its business areas. While its profit in Latin America surged 26.8% on a year-on-year basis, it reported a decline in the profits in the European region. Net interest income in continental Europe declined by 3.5%, while its profit shrank by 14.1% compared to the year-ago period. Profits in the U.K. went down by 2.2% and -- although net interest income for the group grew overall -- it could have fared much better if it had not been for tougher regulatory requirements regarding liquidity in countries such as the U.K. The bank also witnessed a decline in the demand for loans in Spain and Portugal.
The Foolish prognosis
In a previous article on Santander, I presented my bullish stance on the bank as I spoke about the string of deals it had been clinching and how the bank projected a positive outlook with strong basics.
Unfortunately, operating expenses went up by 13.2% this quarter as compared to the same quarter a year ago. But this was part of its strategy to secure its grip in key markets and businesses acquired in previous years. Long-term, I expect greater things from this company.
As a testament to its potential, Fool colleague Russ Krull prepared a list of seven lucrative international stocks based on parameters such as current dividend yield and price-to-earnings ratio on which you'll find Santander prominently placed. I clearly agree. Here, I've done the math to advocate for the stock with the highest current yield on the list. Go ahead, Fools -- take a look. I think you'll like what you see.