Santander Q4 2021 Cost Pressure Starting to Build

Narrow-moat Santander reported pretax profits of EUR 3.8 billion for fourth-quarter 2021, 44% ahead of the EUR 2.7 billion it reported for the same quarter a year ago. Lower loan-loss provisions were again the main earnings growth driver; preprovision profit growth was flat year on year. Excluding the EUR 750 million loan-loss provision overlay Santander released during the quarter, pretax profits increased by only 16% year on year and declined by 20% quarter on quarter. Inflationary pressure has been evident over the past two quarters, and Santander's main challenge for 2022 will be to create positive operating leverage. Higher interest rates could support net interest income, and Santander anticipates an additional EUR 1 billion cost-saving from restructuring its main European businesses. We maintain our EUR 4/share fair value estimate and our narrow moat rating.