Santander shows benefits of string of British deals

Banco Santander's boast about its "conservative lending policy" appeared to bear fruit yesterday as the Spanish group, which owns several British lenders, reported a sharp increase in profits.

Santander's UK earnings surged by nearly a third to £790m, and revenues were up by a fifth. At group level, the figures were less impressive: net income fell by 4 per cent to €4.52bn (£3.9bn).

Santander has taken advantage of the crisis in Britain's banking system to pick up a string of assets on the cheap. As well as Abbey National, it owns the Alliance & Leicester and Bradford & Bingley's deposit book.

It also has 1.8 million shareholders in the UK, mostly through its purchase of Abbey National, which was the country's second biggest building society before it converted into a bank.

Santander said provisions against bad loans in its UK business, which could be an indicator of what to expect when the British-quoted banks report next week, were sharply ahead. They were £176m in the second quarter, up from £92m a year ago but down from £189m in the first quarter of this year. The first-half provision of £365m doubled from a year ago.

Overall, non-performing loans on Santander's books leapt to €21.8bn from €9.7bn a year earlier.

The Spanish bank is now the biggest in Europe after HSBC. It was involved with Royal Bank of Scotland and Fortis in purchasing and breaking up the Dutch lender ABN Amro, but unlike the other two, which plunged into crisis following the deal, it has not suffered any ill-effects from the parts it bought.

Santander's chairman, Emilio Botin, in charge since 1986, is set to demonstrate his eye for a good deal by floating off part of its Brazilian operations, including businesses bought from ABN, which could raise up to $4.5bn (£2.7bn) in much-needed capital.

Yesterday, Santander was at pains to point out that it had increased loans to small businesses following a carpeting from the Chancellor, Alistair Darling. It also said it had repossessed fewer properties than in the first quarter.