After Euros 1,048.9 million in provisions, earnings were 39.0% lower than in 2010.
- Active capital management led to a core capital ratio of 10.30% (compared with 8.20% at 2010 year-end).
- Net interest income rose 5.4% and the margin before provisions by 8.3%, exceeding market consensus expectations.
- Strong organic growth improved the market share in all areas, and the bank added 342,000 new customers in 2011 to reach a total of over 2.7 million.
Despite the adverse economic situation resulting from prolonged economic weakness and persistent instability in the financial markets, Banco Sabadell met its objectives in 2011 and obtained consolidated results in line with expectations, evidencing the stability of the ordinary business and the measures undertaken to continue strengthening the balance sheet.
In 2011, the Bank's 130th anniversary, it obtained net attributable profit of Euros 231.9 million (39.0% less year-on-year) after booking NPL and other provisions amounting to Euros 1,048.9 million (up 8.4% with respect to 2010).
Key factors in the year included dynamic management of assets and liabilities, very good top line performance, strong growth in business volumes, an increase in supplementary provisions using extraordinary revenues, and improved capital ratios as a result of active capital management. Banco Sabadell also took major steps to grow its business in Spain, starting with the adjudication of Banco CAM.
Balance sheet
At 31 December 2011, Banco Sabadell and its group's total assets exceeded Euros 100,000 million for the first time (Euros 100,437.4 million), an improvement of 3.4% year-on-year.
Gross loans to customers increased by 0.8% with respect to 2010, to Euros 73,635.3 million. Personal loans rose notably, by almost Euros 2,000 million year-on-year.
Although delinquency in Spain increased in 2011, Banco Sabadell ended the year with an NPL ratio of 5.95%, notably below Spain's financial sector average (over 7%). Coverage of doubtful assets was 48.49% (115.84% including mortgage collateral).
At 31 December 2011, customer funds on the balance sheet amounted to Euros 52,827.0 million, a year-on-year increase of +7.0%. The balance of time deposits increased by a notable 9.1% in the period, to Euros 32,819.8 million.
In 2011, Banco Sabadell increased new customer additions by a record 43%, in the case of private individuals (+286,560), and 40%, in the case of companies (+55,536). At year end, and in line with the objectives of its 2011-2013 CREA plan, the bank had expanded its product and services market share and had over 2.7 million customers.
Loans to customers and customer funds on the balance sheet provided a jaws ratio of Euros 3,876.9 million in 2011.
Assets in mutual funds and collective investment vehicles totalled Euros 8,024.2 million at 31 December 2011, a decline of 9.4% year-on-year, in line with general market performance.
Assets in pension funds totalled Euros 2,858.3 million. Insurance sales increased by 3.5% year-on-year, to Euros 5,926.4 million.
Total funds under management in 2011 amounted to Euros 96,062.0 million.
Banco Sabadell maintained its leading position in the sector in terms of quality of service and was again ranked as one of the best banks in Spain in 2011. A total of 95% of new customers stated that their experience with Banco Sabadell met or exceeded their expectations.
Margins and profits
Active, detailed management of the spreads on assets and liabilities in 2011 enabled the bank to obtain higher operating margins than in 2010 and even surpass market consensus expectations.
Net interest income amounted to Euros 1,537.3 million in 2011, i.e. 5.4% more than in 2010 (‑4.4% including Banco Guipuzcoano throughout 2010).
Income from equity-accounted affiliates amounted to Euros 37.7 million, including a significant contribution from insurance and pension affiliates (Euros 14.3 million) and the investee banks in Latin America (Banco del Bajío in Mexico and Centro Financiero BHD in the Dominican Republic), which overall contributed Euros 21.1 million.
Net fees and commissions amounted to Euros 573.6 million, an increase of 11.1% year-on-year (+3.1% including Banco Guipuzcoano throughout 2010). Of special note were revenues from credit cards (+9.3% y/y), securities transactions for customers (+59.8%), and arrangement of syndicated loans (+21.3%).
Revenues from financial transactions and exchange differences increased by 29.9%, to Euros 341.2 million. That includes Euros 87.1 million from the debt-for-equity swap in 1Q11 (issue and placement of Banco Sabadell shares to tender for preference shares and subordinated debt).
As a result, the gross margin amounted to Euros 2,506.7 million (+7.5%).
Operating expenses amounted to Euros 1,145.1 million in 2011, including Euros 38.1 million in non-recurrent expenses.
In terms of constant consolidation scope (i.e. including Banco Guipuzcoano throughout 2010 and excluding the impact of the integration of Lydian Private Bank in the second half of 2011 and the sale and leaseback transaction in April 2010), operating expenses declined by 3.7% year-on-year in 2011. The cost/income ratio, excluding non-recurrent expenses, was 45.75%.
As a result of growth in revenues and favourable cost trends, net income before provisions totalled Euros 1,230.7 million, an increase of 8.3% year-on-year.
Loan-loss provisions amounted to Euros 512.4 million, compared with Euros 383.9 million in 2010. Real estate and financial assets were written down by a total of Euros 536.6 million.
Net income attributed to the group amounted to Euros 231.9 million, compared with Euros 380.0 million in 2010.
The Tier 1 capital ratio was 9.94% at year-end, compared with 9.36% at the end of 2010. The core capital ratio was 9.01% (8.20% in 2010), and increases to 10.30% including the Euros 718 million of preference shares exchanged for ordinary shares.
Other key developments in 2011
Adjudication of Banco CAM
On 7 December, Banco CAM, S.A. was adjudicated to Banco Sabadell by competitive tender in the process of restructuring Caja de Ahorros del Mediterráneo (CAM) undertaken by the Fund for Orderly Bank Restructuring (FROB).
Banco Sabadell's bid was strategic since Banco CAM will be a significant complement to its existing franchise in Alicante, Murcia, Valencia and the Balearic Islands.
Banco Sabadell will acquire 100% of Banco CAM once it obtains authorisation from the EU competition authority; the process is currently under way. By virtue of the signed agreement, Spain's Deposit Guarantee Fund (FGD) will acquire 100% of Banco CAM by subscribing one or more capital increases, for a total amount of Euros 5,249 million, and the bank will then be transferred to Banco Sabadell for one euro.
An asset protection scheme has been established by which the FGD will assume 80% of the losses on the asset portfolio over a period of ten years, once the provisions for those assets have been absorbed.
The adjudication also includes a commitment to support Banco CAM's liquidity; accordingly, the FROB will guarantee its access to certain sources of funding currently available to it.
The structure of this deal will allow Banco Sabadell to integrate Banco CAM without impairment of its balance sheet.
Adjudication of Lydian Private Bank in Florida
On 19 August, Sabadell United Bank, a Banco Sabadell subsidiary in Miami, Florida, was designated as successful bidder for Lydian Private Bank, which was in administration at the time, in a process organised by the Federal Deposit Insurance Corporation (FDIC).
Lydian Private Bank contributed 3.6 billion dollars in business volume, boosting the Sabadell group's total in Florida by 51% to 10.7 billion dollars (3.4 billion in loans and 7.3 billion in funds). Lydian's six branches were added to Sabadell United Bank's 19. The deal enables Sabadell to strengthen its position in Florida as the state's seventh-largest bank in terms of deposits.
The acquisition of Lydian Private Bank further enhanced Sabadell's banking franchise in Florida. It is Sabadell's fourth acquisition in the region in just five years, following TransAtlantic Bank in 2007, BBVA's private banking business in 2008, and Mellon United National Bank in 2010.
Operational integration of Banco Guipuzcoano
Banco Sabadell group completed the integration of Banco Guipuzcoano in the second quarter of 2011. The process took less than five months, setting a new record for M&A integration in Spain. Banco Sabadell's experience and technology together with the similar culture shared by the two entities and the staff's positive attitude towards change were all fundamental in the operation's success. As a result, Banco Sabadell has strengthened its position in the Spanish banking sector and is able to pursue its strategy in the domestic market, particularly in the Basque Country and Navarra, where it is now the fourth-largest bank, operating under the new SabadellGuipuzcoano brand.
