• UK profits down 3% to £572m
• Bank blames 'costs of holding higher levels of liquid assets'
• Santander to press ahead with flotation of UK arm
Spanish bank Santander is pressing ahead with the stock market flotation of its UK arm despite a first-quarter drop in profits in the business – which unites Abbey, Alliance & Leicester and Bradford & Bingley.
The bank's Spanish head office pointedly stated that profits in the UK business would have been 20% higher than the same period last year without the additional regulatory burden of being required to hold liquid assets such as government bonds, the chancellor's balance sheet levy and its contribution to the Financial Services Compensation Scheme.
It intends to hold an investor day in London to showcase the UK arm, which is also in the throes of taking over 318 Royal Bank of Scotland branches to bolster its business banking presence.
While the stock market flotation has already been pushed back, the new UK chief executive Ana Botín – daughter of the Santander chairman Emilio Botín – is still aiming for a share sale this year. She was parachuted in from another part of the Santander group after António Horta-Osório suddenly left to join bailed-out Lloyds Banking Group as chief executive.
She is positioning the bank to become "an even more effective challenger" to the incumbent players.
Without the extra regulatory costs, the UK arm would have reported around £700m of profits rather than the 3% fall to £572m published on Thursday.
"The decrease has been driven by increased market funding costs and the costs of holding higher levels of liquid assets as a result of new regulatory requirements," the bank said.
The UK is a major contributor to profit for the Spanish bank, the largest in the eurozone, by generating 17% of the total. This is more than Spain – which has been hit by losses from the crash in construction – but less than Brazil, which contributes about a quarter of its entire profits.
Total group profits fell 5% to €2.1bn (£1.8bn) although the chairman indicated that the bank was turning a corner.
"Revenues are growing at a good pace throughout the group and in Spain reversed the downward trend of recent quarters. I am convinced that this change will continue in coming months," said Emilio Botín.
In the UK, provisions for loans which have turned sour were down almost 50% to £118m although its stock of repossessed properties increased to 1,001 from 873 at the end of last year.
One of the signatories of the Project Merlin deal, Santander said lending to small business was up 30%.