FINANCIALS: Santander: Guidance Upgrades Could Drive Spreads Tighter

Santander (SANTAN: Baa1 pos/A-/A-) results included decent credit metrics, a pre-tax profit beat and incremental upgrades to 2024 targets which look like up to 10% above consensus. Spreads have performed relatively well into these results but that could extend on the basis of these positives, we feel.

• Credit stats: loan losses were marginally (4%) better than consensus (at 1.21%, +1bp q/q) with North America and the cards business the only areas of worsening, and then only slightly. Non-performers were 8bp better q/q and, again, a little better than consensus. CET1 came in 12.5%, +20bp q/q and 20bp ahead of consensus. So, decent figures.
• Revenues were 1% ahead of consensus with NII missing slightly but costs better than expected (by 4%) and the loan loss beat meant pre-tax beat by 3%. Portugal beat expectation (on revenues) – positive for BCP and peers. The UK missed marginally on weaker fee income, not the greatest indicator for Lloyds (reporting tmrw).
• Guidance: this saw upgrades with revenues upgraded (to high-, from mid-single digit growth; consensus is +6.5% so this perhaps 2pp light. Cost-income to 42% (from <43%), consensus is at 34% and RoTE to >16% (from 16%); consensus is at c.15%. So small and incremental but helpful.