Santander Earnings: On Track to Achieve Our 2023 Estimates; Brazil Is a Concern

Narrow-moat Santander reported a net income of EUR 2.7 billion for the second quarter of 2023, a 14% increase year on year and 4% higher than it reported for the first quarter of 2023. Santander is well on track to reach our net income estimate of EUR 10.4 billion for 2023. Revenue growth came primarily from the net interest income line, especially in the group's European operations, where it continues to benefit from the tailwind from higher interest rates. Loan loss provisions are tracking below our expectations and company guidance, while Santander contained cost growth well—apart from Brazil. While it was a solid set of results, we do not see a clear pathway for Santander to achieve its ambitious goal of a 15%-17% return on tangible equity by 2025. Santander reported a 14% return on tangible equity for the first half of 2023. With the tailwind from higher interest rates already starting to fade, revenue growth is likely to moderate while cost pressure is building. Reducing its capital base to boost profitability is also not an option for Santander.