Profits take dive and will stay low this year, says Santander UK

Santander UK's first-quarter profits fell 40 per cent as it was hit by higher regulatory and funding costs as well as a weaker economic background.

The bank, headed by Ana Botin, yesterday cautioned that it did not expect to see any great improvement in its profits this year and perhaps into 2013.

Ms Botin said: "The macroeconomic outlook, together with increased funding costs and low interest rates, will continue to put pressure on earnings this year, partially offset by a broadening and deepening of our customer relationships and the maintenance of our cost discipline. Regulatory uncertainties continue to impact our ability to plan ahead."

Santander UK's pre-tax profits fell from £590m to £347m in the first three months of the year. Ms Botin called it a "solid" result and said the bank opened 400,000 new current and credit card accounts in the quarter.

Bad loan writedowns jumped 40 per cent to £179m, partly as a result of the bank increasing lending book to small and medium-sized businesses, but also because of the legacy of Alliance & Leicester's corporate lending.

Santander UK said the costs of medium-term funding had continued to rise while low interest rates made it difficult to grow the profit margin between what it offered savers and charged lenders. A planned, £1bn London flotation of the bank has been put on hold.

Its parent company Santander, the largest Spanish bank, also reported a fall in profits – down 24 per cent at €1.6bn (£1.3bn). The bank has around €1bn left to write down against losses from Spain's property crash.