What happened

Shares of Madrid-based Banco Santander (SAN -1.90%) dropped 12.5% in July, according to data from S&P Global Market Intelligence. The drop came on the heels of an absolutely devastating Q2 2020 earnings report by the bank, which has operations around the globe, but particular exposure to Spain and Latin America. 

So what

It's hard to overstate how massive the bank's Q2 losses were. Banco Santander hasn't posted a quarterly loss since 2005, and then it was a loss of $80.9 million. Prior losses were similarly small. Its Q2 2020 loss was $12.3 billion. That's staggering.

A man watches a large red arrow crash downward through the pavement in front of him.

Image source: Getty Images.

Given the size of the loss, it's almost surprising that shares didn't drop any further. However, the bulk of the loss was due to noncash, nonrecurring impairment charges, primarily goodwill impairments in the U.K. and U.S., which were heavily affected by the COVID-19 pandemic during the quarter.

Noncash charges aside, the bank reported an "underlying" profit of 1.9 billion Euros (about $2.2 billion). Still, the numbers were poor. On a year-over-year basis, underlying profit fell by 64% in Spain, 76% in the U.K., and 56% in the U.S. Meanwhile, underlying profit in Brazil, one of the bank's largest overseas markets, fell by 17%. 

Now what

Investors are bracing for further bad news from Santander in Q3, as key markets Brazil and the U.S. continue to have trouble managing the coronavirus pandemic. In Spain itself, there have been reports of a "second wave" of coronavirus cases. The bank has already suspended its 2020 dividend payments, and will reevaluate whether to resume them as scrip dividends in October. 

On the other hand, Banco Santander is one of Europe's largest banks. Its shares are down 83.8% over the last ten years, but it's not clear whether Spain or the EU would allow it to actually fail. Investors with a high tolerance for risk might want to roll the dice by buying in now, but most will prefer to steer clear.