Santander takes a bigger share of mortgages

The lender, which completed the rebranding of its Abbey and Bradford & Bingley branches in January, said the rise in trading profits to 426m came as UK revenues rose by around 8 per cent in the first quarter.

It now claims a fifth of UK gross mortgage lending, at 5.7bn.

Net deposits soared by 240 per cent to 3bn year-on-year across retail, corporate and private banking.

Santander, which is also rebranding the Alliance & Leicester chain this year, revealed net mortgage lending of 1.4bn in the first quarter, up on the 800m seen a year earlier. The figure, which includes repayments and redemptions, was down from 2.5bn at the end of 2009.

In a further sign that borrowers remain under pressure, it has set aside more to cover bad debts – up 8 per cent to 204m compared with a year earlier. Santander predicted that UK economic conditions will remain challenging this year, with interest rates remaining low throughout 2010.

It said: "House purchase volumes are higher than a year ago, but remain low relative to the past decade."

Santander took advantage of the banking crisis to increase its market share in the UK, snapping up Alliance & Leicester and the savings arm of Bradford & Bingley in a move that left it with more than 25m customers and 1,300 branches.

It bought Abbey in 2004, marking its first step on the UK high street.

The group is also one of the front runners to acquire 318 Royal Bank of Scotland branches, which are being put up for sale to appease competition concerns.

It is thought to be one of four contenders left in the bidding process, alongside rival Spanish bank BBVA, Virgin Money and Clydesdale and Yorkshire Bank parent National Australia Bank.

The first quarter figures showed that the wider Santander business also delivered an increase in profits, up by a better-than-expected 6 per cent to 2.21 billion euros (1.9bn).

Analysts said sovereign risk fears were over-riding fundamentals on Spanish stocks.

"These are good quality numbers," said Antonio Ramirez, analyst at Keefe, Bruyette & Woods. "But the markets are reacting very nervously to these concerns and I don't think they are differentiating between companies."

Daragh Quinn, analyst at Nomura bank, agreed.

"Bottom up these numbers look good – the market should look at these numbers positively, but clearly a key driver for Spanish equities at the moment is sovereign risk," he said.

Shares rose yesterday, making up lost ground after they were pushed to a near-three-month low in Wednesday's stock market rout following a downgrade in Spain's ratings by credit rating agency Standard & Poor's.

Hedge funds often use Santander and rival BBVA shares as a proxy for Spain.

Santander is one of the world's most profitable banks and aggressive investment abroad has left just around a quarter of its business in Spain.

Banks are affected by sovereign concerns because of implicit government backing for them.

Chairman Emilio Botin said the bank was consistently profitable despite reduced economic growth.

"Santander is demonstrating the benefits of being a diversified bank, both in terms of geography and business lines," he said in a statement.

Growing high street presence

The Spanish group Santander has grown rapidly since it entered Britain's high street in 2004 with the acquisition of Abbey.

Earlier this year, Santander erased the Bradford & Bingley and Abbey names for good from the high street. It expects to complete the rebranding of A&L later this year.

The move signalled the end of B&B's 150-year presence on the high street, although its loan book remains in state ownership and is unaffected by the rebranding.

Santander bought B&B's 197 branches and 141 agencies, plus its 20bn savings book, for 612m in October 2008 when the bank's loan book was nationalised.