Santander, the eurozone's biggest bank, said profit for 2010 would fall short of forecasts as it takes a bigger-than-expected charge for bad Spanish assets under new Bank of Spain accounting rules.
The bank reported a 9.8 per cent fall in nine-month net profit after a one-off hit of €472 million for the provisions. The move complies with Spanish rules enforced after a severe property crash and the nation's worst recession in half a century.
At the end of July Santander estimated the impact of the new regulations would be around €400 million.
Shares fell 1.2 per cent, against a broadly unchanged blue chip index.
Santander had previously said it expected net profit for 2010 to be in line with that achieved in 2009, when it earned a net profit of €8.9 billion.
Net profit for the nine months to the end of September came in at €6.08 billion.
Under new rules which came into effect on September 30th, the Bank of Spain has cut the time over which banks can fully provide for estimated losses on non-performing loans. It has also required a further 10 per cent writedown on properties held for more than two years.
Santander shares, which had fallen 19 per cent from the beginning of the year, were 0.9 per cent lower at €9.1 euros in early trading. Hedge funds used Spanish banking shares as proxies for Spain earlier this year when investors fretted the country faced a Greek-style debt crisis.
The bank, whose shares have underperformed European peers by around 16 per cent since the beginning of the year, said its bad loans as a percentage of total loans at a group level rose to 3.42 per cent, from 3.37 per cent at the end of June.
Santander's multi-billion euro spending spree since the beginning of the summer on assets in Poland, Mexico, Germany and Britain has raised concerns about its capital strength just when regulators are forcing banks to hold more and better quality capital under the Basel III rules.
Reuters