The hefty impairment charge was put down primarily “to a change in outlook for Santander UK as a result of a challenging regulatory environment, including the various negative impacts of the Banking Reform Act (‘ring-fencing’).”
The bank additionally cited “increase in competitive pressure in the country and the impact that ongoing uncertainty related to Brexit has had on UK economic growth”.
The effects of the Banking Reform Act 2013 were to increase assets at Banco Santander’s London branch by €40bn (£35.4bn), including a €25bn (£22.14bn) initial transfer of assets from Santander UK, and to increase costs through duplication of functions, “resulting in a decrease in the capacity to generate profits in Santander UK”.
The impairment will be recognised in Q3 2019 and will impact reported statutory profit for the quarter. However, it will not affect underlying profit, tangible book value per share, Santander’s Common Equity Tier 1 (CET1) score, cashflow generation or the medium term objectives set out in April.
At the same time, Santander announced its first 2019 dividend at €0.10 (around nine pence) a share. And Pamela Walkden, former member of the UK Prudential Regulation Authority regulatory reform panel, was announced as a board member succeeding Carlos Fernandez.
In June, Santander attributed a decline in profitability in the first half of 2019 “to the highly competitive UK mortgage market”. The bank’s net interest margin had dropped by 8 per cent compared to H1 2018.