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StockBeat: Who Needs Orcel? Santander and UBS Rise on Solid 2Q

By Geoffrey Smith -- Who needs Andrea Orcel?

Not Banco Santander (MC:SAN), apparently. Spain’s largest bank, which is facing a 100 million euro/dollar lawsuit from the man who nearly became its chief executive last year, reported what it said was the best underlying quarterly result in eight years Tuesday.

Profit before one-off charges rose 5% to 2.1 billion euros ($2.35 billion). The net result was 1.4 billion euros, still around 7% higher than expectations.

In large part, that was due to the bank’s strategy of regional diversification paying off, with its units in the U.S., Mexico and Brazil all posting solid gains. Its European operations fared less well.

Santander's Spanish business has had to absorb some 600 million euros of charges in the first half related to the integration of Banco Popular, which it bought for a token sum in 2017 when regulators declared it “failing or likely to fail”. It’s also had to absorb a further 172 million euros in charges that were taken in the U.K. in respect of mis-sold payment protection insurance, the problem that never seems to go away for U.K. banks.

The solid earnings helped Santander, one of Europe’s largest bank by assets, to a healthier core tier one capital ratio of 11.3%. That measure of financial strength is up from a thin-looking 10.8% a year ago.

The bank’s shares were up 2.7% by mid-morning in Madrid, one of the best-performing in the sector in Europe. But they’re still down 11% since April, when the European Central Bank re-adopted an easing bias that has put fresh pressure on its lending margins. And the shares will face a fresh test on Thursday when the ECB's policy-making governing council meets, amid expectations that it will cut its interest rates still further into negative territory.

The Spanish IBEX 35 index was up 0.7%, slightly ahead of the Stoxx 600 benchmark. Germany’s Dax led the way in Europe with a 1.2% gain as the euro’s decline against the dollar boosted the outlook for its battered exporters.

Orcel’s absence was arguably more felt at his old employer, UBS Group (SIX:UBSG). While the Swiss bank, too, managed to post decent group results, the investment bank that Orcel headed until his departure was unable to escape the negative trends already evidenced by its Wall Street rivals.

Adjusted profit before tax at UBS’s investment bank fell 23% from a year earlier, while the unit’s adjusted cost-income ratio, a measure of profitability, rose to 78.7%, some 20 points higher than rivals like JPMorgan (NYSE:JPM). Equities trading revenue fell 9% and fixed income trading fell 7%.

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