UPDATE 3-Santander bets on rapid recovery after first ever loss

* Record 2020 loss of 8.77 bln euros on COVID-19 provisions

* Q4 net profit falls 90% y/y to 277 mln; forecast 411 mln

* Sees 2021 underlying ROTE improving to 9-10%

* Will pay 0.0275 euros in cash dividend against 2020 (Recasts with Santander comments, shares)

MADRID, Feb 3 (Reuters) - Spain’s Santander is betting on a vaccine-driven economic recovery in 2021 after the euro zone’s second-biggest bank plunged to its first ever annual loss last year.

The lender said it expected its underlying return on tangible equity (ROTE), a key measure of profitability, to recover to 9-10% this year from 7.44% at the end of 2020.

A recent improvement in loan payments by customers also led it to estimate a lower cost of insuring loans for 2021. Bad loan provisions, as customers struggled to make repayments in the COVID-19 pandemic, were a factor in the 2020 loss, although it was mainly due to hefty writedowns on previous acquisitions.

“A successful roll out of the vaccine will act as a strong catalyst for an economic recovery”, Chairwoman Ana Botin said in a statement, citing an International Monetary Fund report last month that raised its 2021 global growth forecast.

For the fourth quarter of 2020, however, Santander’s net profit slumped 90% to 277 million euros as it racked up hundreds of millions of euros in costs to pay for job cuts and branch closures as part of its restructuring plan, mainly in Spain. Analysts polled by Reuters had expected a profit of 411 million.

Banks across Europe are struggling to cope with record low interest rates, and the economic downturn sparked by the pandemic is forcing them to cut costs.

For the whole of 2020, Santander booked a loss of 8.77 billion euros after 12.6 billion in one-off charges in the second quarter. Analysts had expected a loss of 8.64 billion.

Santander’s core markets, spanning Brazil to Spain, have been some of the hardest hit by the pandemic, with weaker emerging market currencies exacerbating the pain.

However, fourth quarter net interest income (NII), a measure of earnings on loans minus deposit costs, rose 3.2% from the previous quarter to 8.02 billion euros, above analysts’ forecasts of 7.79 billion euros.


Shares in Santander rose around 1.6% after gaining almost 5% on Tuesday, outperforming Spain's benchmark index .IBEX-35.

Citi welcomed the better news on lending income and fees that supported fourth-quarter results, excluding the restructuring costs, and highlighted the bullish 2021 guidance.

JP Morgan said Santander’s 2021 cost income ratio target of less than 47%, as well as its profitability and credit risk targets, should translate into net income of 6.2 billion euros.

Santander said it intended to pay a cash dividend of 0.0275 euros per share, down from an original plan of 0.1 euros, to bring its payout policy within the limits set by the European Central Bank (ECB) in December.

The bank added it intended to resume payments closer to previous levels in 2021, once the ECB removes its limitations, and restore a dividend of 40-50% of underlying profit, in cash, in the medium term.

The limited payout allowed Santander to improve its core tier-1 fully loaded capital ratio (CET-1), the strictest measure of solvency, to 11.89% from 11.57% in September, taking into account new accounting standards.

The bank said it was aiming for a CET-1 ratio of 11-12% and underlying ROTE of 13-15% over the medium term.

$1 = 0.8306 euros Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro and Mark Potter