Sabadell Quarterly Net Profit Beats Forecasts Helped by UK Unit TSB

By Jesús Aguado

The country’s fourth-largest bank by assets reported a net profit of 147 million euros ($173.6 million) in the April to June period. Analysts polled by Reuters expected a net profit of 86 million euros.

The lender said its board had proposed a cash dividend pay-out of 30% against 2021 results, following ongoing conversations with the supervisor..

In Britain, TSB booked a net profit of 41 million pounds in the second quarter compared to a loss of 41 million pounds in the same period last year on lower impairments.

Sabadell’s acquisition of TSB in 2015 backfired when IT glitches sent costs spiralling in 2018. It has for now frozen its plans to sell TSB until it completely turns around its business.

Banks across Europe are under growing pressure from low interest rates as they grapple with the COVID-19 impact but a more benign economic scenario allowed Sabadell to reduce its cost of risk, which acts as an indicator for potential losses in the future, to 53 basis points from 69 basis points in March.

It did not book coronavirus provisions in the quarter.

It also said it was on track to meet its strategic plan year-end targets, which foresees a low single digit growth in net interest income, earnings from loans minus deposit costs, in 2021.

Its net interest income already rose 3.9% in the second quarter compared to the same quarter a year ago to 852 million euros, slightly above analysts’ forecasts of 848 million euros, thanks to an increase in mortgage lending in Spain and the UK.

Its three-year strategy sets a return on equity target (ROTE), a measure of profitability, of more than 6% by the end of 2023. It finished the first half with a ROTE of 3.88%.

Sabadell’s failure to merge with bigger rival BBVA in November added pressure and the bank is also expected to focus on new cost-cutting measures in Spain.

The lender’s fully loaded core tier-1 capital ratio remained stable at around 12% in June.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro)