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UPDATE 1-Spain's Sabadell sees H1 profit fall 45 pct on provisions
July 25, 2012 / 6:18 AM / 5 years ago

UPDATE 1-Spain's Sabadell sees H1 profit fall 45 pct on provisions

(Adds details)

* Net profit falls to 90 mln euros vs estimates of 113 mlns

* Sabadell makes provisions of 1.89 billion euros in H1

* Bad loans 7.82 pct in June vs 6.02 in March

By Jesús Aguado and Sonya Dowsett

MADRID, July 25 (Reuters) - Spain’s sunken real estate market nearly halved first half profit at Sabadell‘s, after the lender took a big hit from potential losses on toxic property assets, which are likely to drag on earnings across the country’s banking sector.

Spain’s fifth-largest lender said on Wednesday that it had put aside total provisions of 1.89 billion euros ($2.28 billion)to counter the possible losses, causing it to miss analysts’ forecasts as profits fell 45 percent from a year earlier.

The Spanish government has demanded banks beef up provisions as the country tries to contain the damage from a burst real estate bubble in 2008 and an ensuing recession.

Those problems have now been compounded by concerns over Spain’s indebted regions, causing the country’s borrowing costs to spiral and raising fears of a sovereign bailout.

Spain has already had to ask for up to 100 billion euros in European aid to shore up its most troubled banks.

Sabadell is part of a group of seven Spanish lenders which will be in focus in a new round of independent stress tests of the banking sector to determine which entities will need to tap the European credit lifeline.

It bought failed Alicante-based savings bank CAM - so badly hit by soured property loans the state had to step in - for the symbolic sum of one euro in December last year.

Sabadell said the CAM acquisition gave way to a negative goodwill gain of 933 million euros that partially helped offset the profit decline in the first half. Negative goodwill is a gain booked when the price paid for an acquisition is less than fair value of assets.

But the integration of CAM also caused non-performing loans to rise to 7.82 percent of the total loan book by the end of June from 6.02 percent in March.

Sabadell’s net profit was 90 million euros in the first half, when analysts had expected the bank to make 113 million euros.

The bank’s net interest income - the difference between what a bank earns on loans and what it pays out on deposits - rose 11.7 percent to 854.3 million euros, slightly above a Reuters’ poll, boosted in particular by the support of cheap financing from the European Central Bank.

The real estate woes are likely to scar results across Spain’s banking sector, though heavyweight Santander, due to report on Thursday, had decided in the first quarter to wait and act on provisions later in the year.

The country’s second biggest lender, BBVA, did the same.

Other Spanish banks also reporting shortly, such as CaixaBank, Popular and Banesto, have already covered part or all of their provisioning needs by retaining profits in the first quarter of the year.

But one of Spain’s healthier lenders, Bankinter, last week posted a sharp drop in profit due to provisioning. . ($1 = 0.8275 euros) (Editing by Sarah White/Julien Toyer)

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