Spain's Sabadell sticks to 2019 targets on lower TSB tech costs

MADRID (Reuters) - Spain's Banco Sabadell SABE.MC almost doubled its third-quarter net profit as provisions related to IT failings at its British bank TSB fell, lifting its shares close to 1% on Friday.

FILE PHOTO: The Sabadell bank branch in Barcelona, Spain October 6, 2017. REUTERS/Yves Herman

Spanish banks have gone abroad in search of higher revenues, but Sabadell’s 2015 purchase of TSB has been marred by major technology glitches, which last year led to losses of 240 million euros at the British bank.

For the first nine months of 2019 TSB lost 5 million euros, after booking a restructuring charge of 15 million euros in the third quarter.

Sabadell’s chief financial officer Tomas Varela told analysts in a call that TSB could book some additional charges in the last quarter of the year.

TSB will present its strategic plan on Nov. 25, which is expected to focus on costs and growing small business lending.

Sabadell said its overall net profit for the quarter was 251 million euros ($279 million), compared to 127 million euros a year before and higher than the 231 million euros forecast in a Reuters poll of analysts.

In the same quarter last year Sabadell had one-off costs of 88 million euros related to the TSB IT outage.

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Although third quarter net profit was down 8% against the previous quarter, Sabadell said it was on target to meet its return on equity target of more than 6.5% by the end of 2019 after it finished September at 6.9%.

“A sound set of numbers ... that should support the stock, also in the context of management confirming most points of this year’s guidance, which should reassure consensus and provide further support to our forecasts,” UBS said in a client note.


Ultra low interest rates squeezed Sabadell’s net interest income (NII), a measure of earnings on loans minus deposit costs, which fell by 2.9% in the third quarter to 906 million euros from a year earlier, but was slightly better than forecast.

Like other European banks, Spanish lenders are struggling to increase earnings from lending because of ultra-loose monetary policy.

Sabadell lowered its NII guidance to between 0 and -1% in 2019 in July, before the ECB cut rates deeper into negative territory in September. It had previously forecast NII growth of 1%-2% for 2019.

In an attempt to offset increasing competition, Spanish banks are focused on cost-cutting and shifting to more profitable consumer and enterprise business, while also building up their capital positions.

At the end of September, Sabadell increased its core tier-1 capital ratio by 21 basis points to 11.4%.

Taking into account real estate asset disposals, Sabadell said its pro-forma core-tier 1 capital ratio was 11.8%, which its CFO said would be its reported target for the end of the year.

Sabadell also announced a 0.02 euros gross per share dividend against 2019 results to be paid in treasury stock.

Reporting by Jesús Aguado; Editing by Ashif Kassam and Alexander Smith