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Spanish property bubble hits Santander profits

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Spanish property bubble hits Santander profits
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Santander has reported a sharp drop in profit as it sets aside 3.2 billion euros to cover foreclosed Spanish property.

Fourth quarter profit at the eurozone’s biggest bank fell 98 percent and for the full year was down by more than a third at 5.34 billion euros.

Like all Spanish banks, Santander has huge amounts of unsaleable land and property and unrecoverable loans to bankrupt developers on its balance sheet after the housing bubble burst.

The bank’s writedown on repossessed property is now in line with Ireland’s 2009 state-driven cleanup after a similar boom and bust.

It is anticipating government demands for lenders to recognise losses in the sector.

Santander’s grim outlook for the property sector came a day after data showed Spain’s economy looked set to slip into recession after contracting for the first time in two years in the last quarter of 2011.

In Britain, where Santander is the fifth-largest bank, profit fell by 40 percent to 993 million pounds (1.18 billion euros), due to a weak economy, rising funding and regulatory costs and a big hit from compensating customers for mis-sold insurance, the lender said.

The Spanish bank took advantage of the European Central Bank’s offer of cheap loans in December, Chief Executive Alfredo Saenz said at a news conference, and had used the cash as a “buffer” rather than lending it on.