Santander flotation remains on hold

High street lender Santander UK has said a stock market flotation is unlikely until next year or 2015 as it reported a fall in annual profits.

The Spanish-owned group was forced to shelve plans to float the UK arm in 2011 amid market volatility and uncertainty over the Independent Banking Commission's recommendations to overhaul the sector.

Steve Pateman, head of UK banking at Santander UK, confirmed the group's aims to debut on the London market remained on track, but would go ahead once the group had improved its balance sheet and further bolstered its corporate business.

Annual results revealed Santander UK continued to come under pressure from falling profit margins and higher wholesale funding costs in 2012 as pre-tax profits dropped 34% year-on-year in the final quarter, leaving overall annual profits 2% lower at £1.23 billion.

Parent company Banco Santander suffered a 59% plunge in annual profits after an 18.8 billion euros (£16.1 billion) hit on soured property loans in Spain.

It posted earnings of 2.2 billion euros (£1.9 billion), down from 5.4 billion euros (£4.6 billion) in 2011, but insisted the write downs were "behind us" and said profits had "reached a turning point" following the mammoth provisions to cover losses from the collapse of Spain's property market.

Santander UK - formed from the takeover of Abbey, Alliance & Leicester and part of Bradford & Bingley - put by another £232 million to cover costs such as compensation for mis-selling of interest rate swaps to small businesses. This came on top of the £751 million set aside in 2011 for the PPI scandal.

It said it had uncovered a number of former Alliance & Leicester small businesses customers who had potentially been mis-sold swaps, but was looking at less than 500 cases overall.

Santander increased net lending to businesses by £300 million in the fourth quarter, although this was sharply lower than the £1.9 billion increase seen a year earlier.

Net lending to mortgage customers dropped by £9.4 billion in 2012 despite the group being part of the Funding for Lending scheme launched by the Bank of England and Treasury to give lenders access to cheap finance to boost the flow of credit.