Sabadell, Spain, 24-1-2014 — /EuropaWire/ — The quality of ordinary revenues improved considerably in 2012, as net fees and commissions increased by 20.8% and gross income by 34.4%, well above the market consensus estimates. The core capital ratio reached 12.0% (10.1% under the forthcoming Basel III). Coverage of loan and real estate exposure stands at 13.61%, one of the highest levels in the Spanish financial sector. In 2013, Banco Sabadell obtained €1,479.2 million in income from financial transactions, and booked writedowns and provisions amounting to €1,763.6 million. The sale of real estate on the balance sheet increased by 34%, to 18,501 units, totalling €3,120 million in 2013.
Banco Sabadell ended 2013, its 132nd year, with a consolidated income statement that reflects the turning point announced at 2012 year-end: net profit amounted to €247.8 million. Net profit, obtained after booking €1,763.6 million in writedowns and provisions, is triple the 2012 figure and far outstrips market consensus expectations at the end of the fourth quarter.
Figures for 2013 reflect the strength of a balanced, well-capitalised balance sheet and an income statement that evidences solid ordinary business, a recovery in margins, and profitable growth.
Banco Sabadell’s CREA Plan, which was implemented in 2011 and focused on enhancing sales and productivity, concluded in 2013. CREA led to a sharp increase in business volumes and new client acquisitions over a complex and very intense three-year period, during which the bank substantially expanded its market share, in line with changes in the consolidation scope and notable sales efforts undertaken in that period.
Balance sheet and bottom line
At the end of the fourth quarter of 2013, the total assets of Banco Sabadell and its Group amounted to €163,411.5 million, having increased by 1.2% with respect to 2012 year-end. In particular, consolidated gross customer loans increased by 4.2% year-on-year to €124,614.9 million after including the balances of BMN-Penedès, Lloyds España and Banco Gallego.
Mortgage loans are the largest single component of gross lending,amounting to €57,580.0 million at 31 December 2013, i.e. slightly over 46% of the total and 3.7% more than one year ago. Commercial credit increased by 7.5% in the same period.
Excluding assets covered by the Asset Protection Scheme (APS) at Banco CAM, the reclassification of refinanced credit and the larger consolidation scope resulted in a ratio of non-performing loans (NPLs) to total computable risks of 13.63% (11.3% before reclassifications).At 31 December, NPLs had declined by €64 million and started to show signs of a turning point, after four consecutive quarters of slowingin the pace of assets being rated non-performing.
The sale of real estate on the balance sheet increased by 34% year-on-year, to €3,120 million in 2013, i.e. 20% more than expected. A total of 18,501 homes were sold, 16% over budget.
Reserves for loan and real estate exposure amounted to 13.61% at 2013 year-end, one of the highest coverage levels in the Spanish banking sector.
As of 31 December 2013, customer funds on the balance sheet amounted to €94,497.2 million, a 17.9% increase with respect to the fourth quarter of 2012.
Demand accounts performed well, increasing by 36.1% in the year to €36,862.5 million. Time deposits also expanded significantly in 2013, by 13.6% year-on-year, to €60,798.7 million at year-end.
Banco Sabadell had 6.5 million customers at the end of 2013. A total of 116,849 new customers were acquired during the fourth quarter, at a pace of 8,900 per week, of which 20% were companies.
The increase in the customer base and business volumes led to notable growth in market share. Among individuals, the bank reported growth in paycheck transfers (+99bp), loans to households (+118bp) and banking transactions (+145bp). The business segment saw good performance by PST revenues (+267bp), commercial loans (+201bp) and subsidised loans (ICO lines), which grew by +826bp, confirming Banco Sabadell’s leading position in this type of loan, with a share of 23.98% of export finance.
Service quality remains high, exceeding the sector average (6.89 vs. 6.03), according to an analysis of objective quality in bank branch networks conducted in the fourth quarter of 2013.
The differing performance of loans to customers and customer funds provided a funding gap (liquidity surplus) of €10,123.0 in 2013 (+74% during the three years of the CREA Plan), while the loan-to-deposit (LTD) ratio declined, from 121.9% at 2012 year-end to 107.3% in 2013 (compared with 135.0% in 2010, when the Plan was launched).
Assets in collective investment vehicles totalled €11,018.6 million at 31 December 2013, a 28.3% increase year-on-year. Assets in pension funds and insurance products marketed by the group amounted to €12,423.6 million, a 12.7% increase year-on-year.
Total funds under management at 31 December 2013 increased by 13.3% year-on-year to €149,122.9 million.
Income and profit performance
At year-end, the contribution by Banco CAM, the new businesses integrated in 2013, judicious management of customer spreads, and the greater margin from the fixed-income portfolio broadly offset adverse impacts on consolidated net profit in the first half of 2013 (such as the decline of the yield curve and the reduction in customer spreads).
Net interest income amounted to €1,814.7 million in 2013, 2.9% less than in 2012, although this item improved by 10% in the second half of the year with respect to the first half, confirming the expected change in trend.
Dividends received and results from equity-accounted affiliates together amounted to €18.4 million, with a notable contribution from the pension and insurance business.
The positive performance in sales activity and the newly integrated businesses enabled the group to steadily improve revenues linked to the provision of services and asset administration and management; as a result, net fees and commissions increased by 20.8% year-on-year, to €759.7 million.
Income from financial transactions remained high, totalling €1,479.2 million. Net revenues due to exchange differences increased by 13.3% year-on-year to €67.9 million.
Contributions to the Deposit Guarantee Fund amounted to €135.4 million euro.
As a result, gross income in 2013 amounted to €3,976.8 million, a 34.4% increase year-on-year.
Assuming a constant consolidation scope (i.e. including Banco CAM since 1 January 2012 and BMN-Penedès since 1 June, Sabadell Solbank since 1 July and Banco Gallego since 1 November 2013), recurrent operating expenses in 2013 were 12.5% lower than in 2012. Personnel and general expenses totalled €1,686.1 million in 2013.
The significant increase in gross income coupled with the operating cost containment policy provided a notably better efficiency (cost/income) ratio of 47.64% in 2013 (from 51.10% in 2012), excluding €437.3 million in extraordinary revenues on the sale of the held-to-maturity portfolio, which is reported under income from financial transactions.
Consequently, net income before provisions (total revenues less expenses) amounted to €2,062.3 million euro in 2013, 59.9% higher than in 2012.
Provisions for loan losses and other impairments (primarily real estate and financial assets) amounted to €1,763.6 million, following the reclassification of refinanced loans in the Sabadell-Banco CAM and BMN-Penedès segments.
Capital gains on asset disposals amounted to €43.9 million, including net gains of €25.6 million in December 2013 from the sale of Banco Sabadell’s stake in Centro Financiero BHD in the Dominican Republic.
After deducting income tax and minority interests, net income attributed to the group amounted to €247.8 million in 2013, i.e. 202.6% more than in 2012.
The Tier 1 capital ratio was 12.0% at 31 December 2013 (vs. 10.4% one year earlier). Applying the forthcoming Basel III standard, the ratio would be 10.1%. The BIS ratio is 12.8%, with the result that Banco Sabadell is among the soundest and most strongly-capitalised banks.
Other key developments in 4Q13
M&A activity was especially intense in the fourth quarter of 2013.Banco Sabadell completed the acquisition of Banco Gallego from Spain’s Fund for Orderly Bank Restructuring (FROB) and of 75% of Banco Gallego Vida y Pensiones (now owned 100%) from insurance/reinsurance company CASER for €28.2 million.
Banco Sabadell also sold a 15.15% stake in Banco Inversis, which it had obtained in the Banco CAM acquisition, to Banca Marchfor €34.2 million, with €20.4 million incapital gains.
Through its Miami subsidiary Sabadell United Bank, Banco Sabadell reached an agreement to acquire JGB Bank, with US$530 million in assets under management and US$173 million in loans, from GNB Holdings Trust. The final price, which will be determined when the transaction is completed (expected in the first half of 2014 once the corresponding administrative authorisations are obtained), is estimated at US$56 million.
During the fourth quarter, as part of its non-core asset divestment strategy, Banco Sabadell reached agreements with various international investors to sell two fully-provisioned loan books for a total of €632 million. This deal allowed Banco Sabadell to transfer the risk associated with those portfolios, which it obtained a result of the Banco CAM acquisition, and generated gross capital gains of €37.3 million.
In the fourth quarter, Banco Sabadell also reached an agreement to sell itsstake in Centro Financiero BHD to a group of shareholders of Centro Financiero BHD, S.A.; that stake will amount to 15.8% after the planned merger between Centro Financiero BHD, S.A. and Banco León, both in the Dominican Republic. The total price of the transaction was US$156.1 million (approximately €114.3 million), providing Banco Sabadell with a net gain of €25.6 million. Banco Sabadell first invested in Centro Financiero BHD, S.A. in June 1999, and the transaction is part of the bank’s plan to reorganise its non-controlling interests in Latin America.
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