Santander Santiago Misses Estimates

We are maintaining our Hold on Banco Santander Santiago (SAN), but raising our target price to $36. SAN reported 4th quarter earnings of Ch$77,566 million - up 10% year over year, but below our estimate as both net revenues and loss provisions were worse than expected.

Net interest income rose 18% year over year, reflecting a 19% year-over-year increase in average loans outstanding, partly offset by a 40 basis-point fall in the net interest margin to 5.8%. The net interest margin was hurt by a lower quarterly inflation rate, though increased lending spreads in both consumer and commercial loans combined with a higher level of deposit funding mitigated this problem to an extent.

Fee and income from services (less related expenses) advanced a paltry 10% year over year, reflecting declines in brokerage fees (down 44% year over year to Ch$916 million) and asset management (down 29% to Ch$5.9 billion), hurt by the fall in equity markets and weaker volumes.

The loan loss provision deteriorated, rising 51% year over year to Ch$82.5 billion, due to growth in higher loss consumer and SME lending and also due to economic slowing.

We are cutting our 2009 EPADS estimates to $2.75 from $3.45, due to recent sharp appreciation of the US$ against the Chilean peso and our expectation of higher loan losses and weaker revenue growth due to economic slowing.

SAN has reduced its payout ratio to 65% from 100%, with its indicated $1.76 annual offering a 4.9% yield.

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