Spanish banks' profits to be hit by property cleanup

Wed Jul 18, 2012 6:07pm EDT
 
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By Jesús Aguado

MADRID (Reuters) - Spanish banks' earnings for the first half of the year, which start on Thursday with Bankinter, are likely to be marked by a continued cleanup of toxic real estate assets which will hit profits.

Although Bankinter is not fully representative of the sector, as it is less exposed to the property market than the rest of Spanish lenders, the medium-sized bank will report a halving in net profit on Thursday, a Reuters poll forecasts.

Euro zone finance ministers will discuss on Friday the conditions attached to the release of up to 100 billion euros ($122 billion) in aid for Spain's banks, loaded with bad loans following a 2008 property crash and ensuing recession.

The government has demanded banks write down losses of more than 80 billion euros on around 184 billion of repossessed property and bad loans to developers, as well as sound real estate assets, through two laws passed before the country sought European aid for its lenders.

"We expect banks to try to book as much as possible, and we forecast the bottom lines of all the Spanish domestic banks under our coverage to be close to break-even," Espirito Santo said in a research note.

Bankinter, which has a modest 60 billion euros of total assets, is set to report a 51 million euro net profit for the first half, down from 100 million a year ago, according to a poll of eight analysts.

"Bankinter has already complied with the first provisioning law and now needs to come up with an additional 136 million euros. The bank will probably advance in its cleaning exercise and still book profits," said Fabio Mostacci, analyst at broker Ahorro Corporacion.

Analysts expect the bank to post a 32 percent rise in net interest profit -- the difference between what the bank makes in loans and pays out in deposits -- boosted by the support of cheap financing from the European Central Bank.   Continued...

 
A man walks past a euro symbol painted in red on a branch of Santander bank in central Madrid, September 13, 2011. REUTERS/Susana vera