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UK’s Santander hit by PPI mis-selling provisions

Press release February 15, 2012 Economy

Santander Provisions

With the discovery of banks mis-selling PPI (Payment protection insurance) they have faced a short-fall in profits over the last few years. Santander UK reported an after-tax profit of £993m, a 40% drop on last year’s figures, which pushed net profits to its current low of 34% or £4.5bn (€5.37bn).

In 2011 Santander set aside a provisional amount of £538m to cover the expected cost of settling PPI mis-selling claims. However, this is only one factor the majority of banks have blamed for low profits.  Higher funding costs, low interest rates and the impact of new regulations had all impacted on profit margins.

Santander said it had exceeded its Project Merlin business lending target in 2011. The Project Merlin business lending target is an agreement that covers aspects of banking activity, notably lending, pay and bonuses with the intention of promoting lending to businesses, particularly small businesses. Santander beat its lending target of £300m, lending a massive £4.3bn to businesses and individuals. This was helped by the addition of 200 banking advisers at five new UK corporate banking offices.

Santander said it had opened 836,000 new current accounts in 2011, with the addition of a “upfront interest” bond launched by the bank, that gathered in excess of £160m of new deposits. An upfront interest bond is a three-year savings account that pays out its entire return within a few weeks of money being invested.

The company reported total revenues for 2011 of €30.8bn, up 5% on 2010. However, pre-tax profits were almost €3bn lower than the previous year, coming in at €9.15bn. Among such results analysts at broker Espirito Santo Investment Bank said Santander's results were "positive".

Originally a small Spanish banking group, Santander has continued to gain market share not only in Spain, but in the rest of Europe. As Spain struggles to meet debt repayments and unemployment, Santander Bank continues to be the largest bank in the Eurozone, and one of the largest banks in the world in terms of market capitalisation.