Santander UK has witnessed its profits plummet by 44% at the beginning of the year, it said on Wednesday. It comes after setting aside nearly another £180 million for the motor finance mis-selling scandal. The high street banking giant posted pre-tax profits of £202 million for the first quarter, down from £358 million twelve months earlier.
Earnings took a hit from an additional £179 million provision for motor finance compensation alongside rising costs in the first quarter, bringing its anticipated total bill for the saga to £633 million. The group – owned by Spain's Banco Santander – also recorded a £73 million charge for bad debts, up 40% year-on-year, as it downgraded its outlook for the UK economy due to the Iran war, which it warned will likely trigger higher inflation, weaker growth and increased unemployment.
Santander now anticipates the economy will scrape growth of 0.5% in 2026 in its base case scenario, followed by 1% expansion the following year, while the unemployment rate is forecast to hit 5.5%. Although it expects inflation to climb as a result of rising costs stemming from the Middle East conflict, its central forecast is for interest rates to remain at 3.75% this year before being reduced to 3.25% by the end of 2027.
New chief executive Mahesh Aditya – who succeeded Mike Regnier on March 1 – stated that the group had so far not witnessed significant borrower difficulties arising from the Iran war cost surge.
He said: "While we are not yet seeing any significant impact of the current uncertain global economic environment on our customers, we have put measures in place including a proactive outreach programme offering support, in addition to our ongoing commitment to the UK mortgage charter."
The group revealed the motor finance scandal impact was partially mitigated by cost-cutting measures, and reiterated plans for additional savings throughout the year "driven by simplification and automation of our business".
Operating expenses dropped by 7% in the first quarter, with Santander announcing plans earlier this year to close a further 44 branches, placing nearly 300 jobs at risk.
Santander confirmed at the weekend it would not contest the Financial Conduct Authority's proposals for motor finance redress and would pay compensation for its share of unfair deals in the scandal.
Compensation is due on approximately 12.1 million mis-sold deals with hidden commission from various lenders at an average of £829 each, the financial watchdog announced in March when it unveiled final plans for its redress scheme.
Mr Aditya indicated the completion of the bank's £2.65 billion acquisition of smaller rival TSB was "expected imminently" following recent regulatory approval.
He stated: "The acquisition represents the single-largest inward investment in the UK banking sector for over 15 years and underlines Banco Santander's commitment to the UK.
"The deal is expected to accelerate Santander UK's transformation and enhance competition in the UK, benefiting both customers and shareholders."