By Jesús Aguado

MADRID, Oct 28 (Reuters) - Weaker earnings and higher provisions in Brazil took the shine off a 19% rise in Spanish bank Santander's underlying third-quarter profit, which was boosted by acquisitions in Britain and the US.

The euro zone's most valuable lender posted underlying net profit of €3.85 billion ($4.28 billion) for the quarter, ahead of analysts' average forecast of €3.75 billion.

For decades, Santander's presence across 10 core markets has helped shield it from economic weakness in individual countries, but left it exposed to currency depreciations, particularly in Latin America.

The bank has recently sought to strengthen its position in developed markets through the acquisitions of TSB and Webster, which it expects will help lift profit by more than 40% in the next three years to above €20 billion.

In Brazil, its second-largest market, net profit fell 15% from a year earlier, partly due to a 23% rise in provisions. The cost of risk, which measures potential losses, rose 11 basis points from the previous quarter to 4.25%.

Following the surprise re-election of President Luiz Inacio Lula da Silva, Citi said a likely higher-for-longer interest rate environment would delay Santander's bad-loan normalisation, while slower economic growth could weigh on loan demand.

Santander benefits from lower interest rates in Brazil because its funding costs are closely linked to benchmark rates.

By contrast, underlying net profit rose 48% in the US and 40% in Britain, while increasing 21% in Mexico and 19% in Spain.

JP Morgan said the British and US businesses beat expectations, while Brazil underperformed.

At 0917 GMT, Santander shares were down 3.3%, having gained about 12% so far this year through Tuesday's close.

TARGETS REAFFIRMED

The bank reaffirmed its targets for 2026 to 2028, which include mid-single-digit revenue growth in 2026, lower costs in constant euros, higher profits and a capital ratio of 12.8% to 13%. The capital ratio stood at 12.7% in September after a 147-basis-point hit from the Webster acquisition.

Including restructuring charges of €416 million mainly related to the Webster deal, reported net profit attributable to shareholders fell 2% to €3.43 billion.

Overall revenue rose 12% in the third quarter, outpacing a 5% increase in costs. That helped improve the efficiency ratio to 42.1% from 42.8% at the end of June and lifted underlying return on tangible equity (ROTE) to 16.8% from 16.0% in the previous quarter.

Net interest income, a measure of earnings on loans less deposit costs, rose 12% on an underlying basis to €11.9 billion, compared with analysts' expectations of €12 billion. Fee income increased 11%.

Underlying net profit at Santander's retail banking business, the largest contributor to earnings among its five global divisions, rose 17%.

($1 = 0.8993 euros)

(Reporting by Jesús Aguado. Additional reporting by Emma Pinedo; Editing by David Latona and Mark Potter)

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