Santander delays full UK results as it weighs impact of car finance ruling

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Santander has delayed the release of its full UK results because of a court ruling on car loans while revealing a large drop in the division’s profits, as one of the Spanish bank’s most important markets emerges as a trouble spot.

The company said on Tuesday its UK profit in the three months to the end of September had dropped 18.5 per cent from a year earlier to €346mn, in a highly competitive lending market. That followed a 23 per cent fall in the previous quarter.

The lender is already streamlining its UK operation and said it had cut its headcount by 468 to 21,812 this year via a combination of redundancies and not replacing staff who had quit or retired.

The night before publishing its global results, Santander said it would not publish a detailed set of numbers for the UK because it was seeking to quantify the possible cost of a British court decision that some commissions that banks paid to car dealerships had been unlawful.

The ruling, which comes as UK financial regulators investigate potential mis-selling in car finance, has increased the likelihood that the Financial Conduct Authority will implement a costly redress scheme for lenders, mirroring remediation imposed over the payment protection insurance scandal.

The regulator is investigating the historic use by brokers and lenders of so-called discretionary commission agreements on car loans, a practice that was banned in 2021. Lenders including Santander are braced for the possibility of being ordered to make large compensation payments to consumers, with analysts saying the sector could be hit with as much as £16bn in redress costs.

Santander said it did “not expect any material impact” for the group as a whole but it had to delay its UK results because the consequences could be material at the national level.

Benjamin Toms, an analyst at Royal Bank of Canada, estimates that Santander could be hit with a €1bn charge. Lloyds Banking Group, which owns the largest car finance provider, already took a £450mn provision to prepare for potential compensation costs.

Marta Sanchez Romero, analyst at Citibank, said that despite the decline in UK profit the British business had done better than the market expected. But she said “the UK’s beat could be overshadowed” by the car loan risk and delayed results.

The regulatory threat comes amid fierce competition in the UK lending market, most notably for mortgage customers. Santander’s fall in UK profit came as national revenue fell almost 10 per cent as it resisted pressure to lower interest rates by as much as some competitors.

UK house prices and mortgage activity have been rising as falling interest rates have buoyed buyers’ confidence. However, lenders including Santander have in recent weeks pulled back some of their cheapest mortgage deals as stronger economic data for the UK and concerns about the government’s borrowing plans ahead of this week’s Budget have put upward pressure on swap rates, which are key to the pricing of mortgages.

The bank said the drop in profit partly reflected the fact it had received a one-off windfall of £46mn in the same quarter of 2023 from the sale of a stake in Euroclear. But net interest income and net fee income also declined from the same period last year.

Mexico was the only other big market where Santander’s profit fell, sliding 2 per cent to €394mn. Profit grew modestly in the US and Brazil, while the best performance came in its home market of Spain, where profit jumped 50 per cent.

Overall the bank reported a quarterly profit of €3.25bn, up 12 per cent from a year ago.

Ana Botín, Santander’s executive chair, said: “We are growing both net interest income and net fee income, credit quality is robust and our transformation continues to generate positive operational leverage.”