Bad debts at Santander UK have risen by more than £200 million after the bank was hit by the cost of having to write off loans made to Carillion, the failed construction company.
It said that it would book an impairment charge of £203 million for 2017 after the Carillion debt caused the ratio of non-performing loans in its corporate banking portfolio to rise by a factor of five.
Santander UK entered the British market in 2004, moving from its origins of three former building societies to a British bank that is wholly owned by Santander, the Spanish banking giant.
Leading lenders have been widely hit by Carillion’s failure, with Barclays, HSBC, Lloyds and Royal Bank of Scotland having provided the company with £140 million of emergency funding in September, on top of a near-£800 million credit facility.
Estimates of bank losses from the collapse of Carillion have been put at more than £900 million as lenders believe that much of the money they loaned will not be recovered.
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According to a Companies House filing, Santander UK was the lead bank on a loan to Carillion in December 2016. According to the latest details of the loan, the debt remains outstanding.
Nathan Bostock, chief executive of Santander UK, said that the scale of the Carillion losses had hurt the lender’s otherwise “strong growth”. “We are working closely with customers who have suffered from their collapse,” he said.
Santander said that the overall proportion of its lending book that was not expected to be repaid had fallen year-on-year to 1.42 per cent, a drop of 0.08 percentage points. However, in its corporate banking division that proportion rose from 1.11 per cent to 5.67 per cent.
Details of Santander UK’s exposure to Carillion came alongside the bank’s full-year results, which showed pre-tax profits down 5 per cent year-on-year at £1.81 billion, even as net interest income rose to £3.8 billion. It reported a fall in net lending to British companies of £100 million, largely as a result of a lower exposure to commercial property.
John Cronin, head of UK banks research at Goodbody Stockbrokers, said the results were “not the most positive update” and pointed to the additional £109 million Santander UK had set aside for compensation to those mis-sold payment protection insurance.
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Big guns in line of fire
Some of Britain’s most prominent institutional shareholders are set to be sucked into parliamentary inquiries into the failure of Carillion (Robert Lea writes).
Blackrock, the world’s largest fund manager, is to be called in by the Commons’ business and work and pensions joint select committee to answer questions over its conduct during the rise and fall of Carillion. This time last year Blackrock was Carillion’s largest shareholder, with nearly 9 per cent. In subsequent months it became one of the biggest short-sellers of Carillion stock — effectively a bet on the shares falling.
Blackrock’s London operations incorporate the former Mercury Asset Management.
Carillion shares were held by several large institutions. Deutsche Bank, UBS and Brewin Dolphin had about 16 per cent between them. The Scottish fund managers Standard Life Aberdeen and Kiltearn Partners, a spin-off from the Templeton fund management empire, held another 10 per cent, but they began bailing out after Carillion’s profit warning in July.