Santander Q1 2021: Solid Recovery, but Cautious About Outlook for Credit Quality

Narrow-moat Santander reported attributable net profit of EUR 1.6 billion for first-quarter 2021, recovering strongly from the EUR 331 million it reported for first-quarter 2020 and 20% ahead of the EUR 1.3 billion the analyst consensus collected by Visible Alpha expected for the quarter. If one adds back the EUR 530 million restructuring charge Santander took during the quarter it is close to EUR 2.2 billion net profit Santander booked prepandemic for first-quarter 2019. Preprovision profit growth was flat year on year; the improvement was solely the result of loan-loss provisions halving to EUR 1.9 billion for the quarter. The recovery was most noticeable in Santander’s developed market businesses, with its European franchise seeing attributable profit tripling and its U.S. business posting $743 million for first-quarter 2021, compared with $66 million a year ago. Santander’s emerging-markets franchise's euro performance was depressed by currency weakness, but in local currency Santander reported a 47% earnings increase in Brazil, driven by robust revenue growth and a moderation in loan-loss provisions. The Mexican business remains under pressure with elevated loan-loss provisions. We maintain our EUR 4/share fair value estimate and our narrow moat rating.