Profits dive at downbeat Santander UK

Santander UK’s first-quarter profits dropped 40% as its was hit by higher regulatory costs, increased funding costs and a weaker economic background.

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

Botin, pictured, 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 profit fell from £590 million to £347 million in the first three months of the year. Botin described this as a “solid” result and pointed out the bank had opened 400,000 new current and credit card accounts through the quarter.

Bad loan writedowns jumped 40% to £179 million partly as result of the bank building up its lending book to small and medium-sized businesses but also as a result of the legacy of Alliance & Leicester corporate lending book which has come under more pressure as the economy stalls.

Santander UK said the costs of medium-term funding in the money markets had continued to rise even in the last three months. At the same time almost permanently low interest rates make it difficult to grow the profit margin between what it offers savers and charges lenders.

A planned £1 billion London flotation of the bank has been put on hold.

Parent company Santander, the largest Spanish bank, also reported a fall in profits — down 24% at €1.6 billion (£1.3 billion).

*HSBC today confirmed that 2217 of its people in the UK will lose their jobs in the coming months. About 450 of those cuts will fall in London. The cull is part of the wider 30,000 jobs worldwide that chief executive Stuart Gulliver announced last year as part of a major bid to slash costs.