UPDATE 2-Santander's profit hit by one-off charges for UK business

Jesús Aguado

* Q3 net profit falls 75% y/y but beats forecast

* Books charges of 1.6 blns euros, mainly in the UK

* Q3 NII up 5.5% y/y

* Ends September with core tier-1 capital ratio of 11.3%

* Shares fall more than 2% (Adds details on countries, capital and share price)

MADRID, Oct 30 (Reuters) - Santander on Wednesday reported a 75% fall in third-quarter net profit after one-off costs relating to business in Britain partially offset a solid performance in Brazil, the Spanish bank's biggest market.

The euro zone's biggest lender by market value booked one-off charges of around 1.5 billion euros ($1.67 billion) as a result of a review of the goodwill ascribed to Santander UK, with uncertainty around Brexit.

On top of the goodwill impairment, Santander also set aside 103 million euros for payment protection insurance compensation in Britain.

Santander's expansion overseas, especially in Latin America, has helped the bank cope with tough conditions for banks in Europe in the years since the financial crisis.

"Our diversification is one of the defining characteristics (...) and because of this we have continued to deliver predictable, profitable growth," Santander Chairman Ana Botin said in a statement.

She reiterated the bank's commitment to reach a medium term return on tangible equity target (ROTE), a measure of profitability, of 13-15%.

Santander's shares opened about 0.3% higher before falling by more than 2% at 1003 GMT, underperforming the Spanish Ibex blue chip market. The European bank stock index was down 1.33%.

Analysts at UBS broadly welcomed a solid set of underlying results though they did not see any obvious upside to consensus forecasts.

Goldman Sachs highlighted that Santander's better than expected fees in South America broadly offset weaker financial margins in developed markets, notably Spain, Britain and the United States.

In Britain, its third-largest market after Spain and Brazil, profit fell 63.4% due to continued pressure on mortgage margins and restructuring costs of 12 million euros.

Overall, Santander reported net profit of 501 million euros in the period July to September. Analysts expected net profit to come in at 445 million euros, according to a Reuters poll.

Excluding the impairments, underlying profit rose 7% in the third quarter helped by trading gains.

Overall, net interest income, a measure of earnings on loans minus deposit costs, was 8.8 billion euros, up 5.5% from the third quarter of last year boosted by Latin America.

Analysts had forecast a net interest income of 8.85 billion euros.


In Brazil, where Santander already makes nearly a third of its overall profits, net profit rose 24.7% in the quarter, while net interest income increased 7.7%.

As part of its growth strategy, Santander recently increased the ownership of its Mexican business to 91.7% from 75%. In this market, net profit rose 20.6%

In Spain, net profit rose 1% in the quarter though net interest income was down 7.4% against the same quarter last year and 4.2% lower against the previous quarter due to pressure from low interest rates.

In terms of solvency, Santander ended the quarter with a core Tier-1 capital ratio, a closely watched measure of a bank's strength, of 11.3%, the same as in the previous quarter, in line with its medium-term target of 11-12%.

Chief executive Jose Antonio Alvarez told analysts the bank expected to end 2019 with a capital ratio of between 11.4% and 11.5%.

Taking into account regulatory impact of 23 basis points with the full implementation of the new accounting standard IFRS-9, capital ratio stood at 11.07%.

Looking forward, Alvarez said that between 2019 and 2020 he expected additional regulatory headwinds to impact solvency by between 80 and 90 basis points.

($1 = 0.8996 euros) (Reporting By Jesús Aguado; Additional reporting by Jose Elías Rodríguez Editing by Ingrid Melander and Jane Merriman)