Annual Report nd year Volume I

Transcription

1 Annual Report nd year Volume I

2 Annual Report nd year Volume I BancoSabadell

3 Annual Report Letter from the Chairman 8 Group financial data 10 Banco Sabadell shares 56 Development capital: BIDSA & Aurica XXI 56 Banking subsidiaries and associates 58 Treasury and Capital Markets 60 Risk management 14 Growth and Consolidation 68 Technology 17 Financial Review 18 Balance sheet 25 Profit and Loss account 30 Banco Sabadell Group companies-additional information Contents 38 Business and Operating Review 38 Branch network 39 Commercial Banking 42 Banco Herrero 44 Solbank 44 ActivoBank 45 Corporate Banking 50 Private Banking 51 Bancassurance 52 Asset management 53 Ibersecurities 54 Foreign branches and offices 55 Complementary equity investments 55 Landscape, a real estate group

4 Directors and senior executives 70 Board of Directors 72 Executive Committee 74 Senior Executives Statutory Information 79 Statutory Information 81 Auditor s Report 82 Annual Accounts 134 Report of the Directors 141 Contact details Annexes Volume II Annual Report on Corporate Governance of Banco de Sabadell, S.A. Report of the Audit and Control Committee Annual Report on Corporate Social Responsibility

5 Letter from the Chairman 4 Banco Sabadell Annual Report 2003

6 Dear Shareholder, It gives me great satisfaction to comment on Banco Sabadell s performance last year, because 2003 was an excellent year for our business. Our results for the year to 31 December 2003 are impressive indeed; moreover, a number of changes took place during the year which prove beyond doubt that the growth and consolidation programme that we put in hand for the three-year period from 2002 to 2004 was the right one. One of these changes stands out from the rest for its strategic importance: the purchase of Banco Atlántico. This, as you may remember, was announced on 21 December last year and you will have been given full details at the Extraordinary General Meeting on 29 January In a general context of uncertainty caused by continuing international geopolitical instability and an economic environment of recovering stock markets and interest rates below last year s levels, Banco Sabadell completed its 122nd year of operation with consolidated assets 12.1% above the level at the close of Customer lending grew by 16.6% and assets under management by 13.6%. Our net attributable profit was up 6.6% on the previous year was a year of solid achievement: a year which saw the integration of Banco Herrero and the incorporation of the Banco Asturias branches under the Banco Herrero brand name, and the resulting branch network reorganization; a year in which implementation of the new IT platform was 80% completed, ActivoBank was integrated as a specialist e-business unit providing online banking services to personal customers, Banco Sabadell formally signed up to join the Servired ATM network, and an agreement was reached with GE Capital Bank to set up BanSabadell Fincom as a joint venture to provide consumer loans to individuals and occupational groups. It has been a very intensive 12 months, but we have shown that the Banco Sabadell business model, based on independent businesses with their own brands differentiated according to customer groups, not only works, but works well; and we have fulfilled the objective that we set ourselves last year, which was that growth should be accompanied by a significant reduction in operating costs, as indeed it was: costs were down 12.5%. This was achieved partly through a major investment in technology in the last three years to increase productivity and efficiency, but also through a tough and determined drive to contain operating expenses. The good progress made by the Bank and the expectations that it aroused caused our share price to rise by 23.3% in the course of the year, a clear confirmation of our strong performance and an indication of the interest being shown in Banco Sabadell. Annual Report 2003 Banco Sabadell 5

7 The Report you are now holding contains comprehensive audited information concerning the consolidated balance sheet and profit and loss account, and full details of business operations carried out at home and abroad by the Bank and other companies in the Banco Sabadell Group in the year It also includes annual reports on Corporate Governance and Corporate Social Responsibility, as well as the annual report of the Audit and Control Committee. Banco Sabadell is a stronger and more competitive organization now than it was a year ago. It has made resolute strides towards achieving its goals of business growth and consolidation; and it has successfully updated and strengthened the values that underpin its solid business culture, a culture that reflects a way of being and of doing things in which adherence to ethical principles, rigour in decision making, and upholding our corporate good name are fundamental values which are shared by all those who make up our organization. I would not end without expressing to you my absolute faith in the future of Banco Sabadell. The acquisition of Banco Atlántico was a crucial decision so far as the future of our business is concerned, and gives us an opportunity to achieve a more balanced position that will ensure sustained growth and profitability for Banco Sabadell in the years to come. Our main priority now is to complete the integration of our new acquisition with all speed, and this is what we are focusing on in The task will require considerable effort and sacrifice, but will generate value and boost earnings per share as prospects continue to improve. Once integration is complete, our strategy for the immediate future will focus on organic growth, developing our business model and constantly improving efficiency. We have the capability and the resources to carry through this strategy and, more important still, we have the determination and the professionalism of our people, the confidence of our customers and the invaluable support of a broad base of shareholders who trust in our leadership. Sincerely, José Oliu Creus June Banco Sabadell Annual Report 2003

8 Annual Report 2003 Banco Sabadell 7

9 Group financial data 8 Banco Sabadell Annual Report 2003

10 The Banco Sabadell Group in 2003 '000 Financial highlights % 03/ Group shareholders' equity (*) 2,130,619 2,050, ,355,664 1,594,900 1,181,830 Total assets 30,511,552 27,224, ,547,498 18,613,388 15,410,623 Total gross investment in lending to customers 24,935,764 21,382, ,876,855 13,098,526 10,461,974 Total balance sheet deposits and issued securities 24,423,671 20,954, ,746,270 13,952,939 11,840,119 of which: customer deposits 22,195,044 19,169, ,832,466 12,198,850 9,264,836 Assets held in investment funds 5,166,217 4,569, ,669,690 4,442,188 4,718,444 Assets held in pension funds 1,697,086 1,522, ,348,559 1,241,042 1,108,134 Actuarial reserves (insurance) 2,143,094 2,253,352 (4.9) 1,871,180 1,208, ,965 Deposits and assets under management 31,184,315 27,439, ,648,979 19,555,249 16,764,962 '000 Results Net interest income 759, , , , ,510 Net income from basic operations 1,054, , , , ,694 Gross operating income 1,102,958 1,008, ,040, , ,566 Net operating income 468, , , , ,859 Profit before tax 370, , , , ,741 Profit attributable to Group 234, , , , ,048 % Ratios Balance sheet and cost/income ratios: ROA (Net profit / average total assets) ROE (Net attributable profit / average shareholders' equity) (**) Cost/income (General administrative expenses / gross operating income) Cost/basic income (General administrative expenses / net income from basic operations) BIS capital ratios: Total Tier I capital Risk management: Loan loss ratio Provisions / bad and doubtful debts Provisions / bad and doubtful debts (including mortgages) Resources Number of branches Number of employees 7,545 7,755 7,788 6,606 6,510 Shares Number of shares 204,002, ,002, ,002, ,630,560 22,294,584 Number of shareholders 53,991 48,977 50,573 40,097 39,795 Share price ( ) Earnings per share ( ) Dividend per share ( ) Total dividend paid ( '000) 102, , ,001 74,441 57,619 (*) After appropiation of profits. (**) Does not include premiums on new shares issued in exchanges of shares with Banco Comercial Português, S.A. and Caixa Holding, S.A. If share premiums are included the ROE falls to 11.65% in 2003 and 10.02% in (For the years 2001 and 2000 the corresponding figures would be 9.59% and 14.67% respectively). Annual Report 2003 Banco Sabadell 9

11 Banco Sabadell Shares 10 Banco Sabadell Annual Report 2003

12 Banco Sabadell shares made very good gains in 2003, rising by 23.26%. This made them an excellent investment option in a year that saw a reversal of the equity bear market of the last three years. 140,0 130,0 120,0 110,0 100,0 90,0 80,0 30/12/02 30/01/03 28/02/03 30/03/03 30/04/03 30/05/03 30/06/03 30/07/03 30/08/03 30/09/03 30/10/03 30/11/03 30/12/03 Sabadell IBEX IBEX Financial Markets suffered heavy setbacks early in the year in the unsettled climate leading up to the war in Iraq and stock market indices fell to new lows. With the removal of uncertainty, however, markets rapidly regained lost ground. Banco Sabadell shares moved in line with the markets until September, when the stock was added to the FTSE World and FTSE EuroMid indices. This attracted a surge of interest on the part of institutional investors, leading to a sharp upward movement in the share price and increased liquidity. At the time that Banco Sabadell shares were added to these indices they had weightings of 0.17% in the All World Eurobloc Index and 0.13% in the All World Europe (ex UK) Index. Stock market indices are used as benchmarks by portfolio managers (mutual funds, insurance companies and the like) for both stock selection and performance measurement purposes. The increase in liquidity can be seen in the table below. The average daily volume of trading in the shares moved from 60,000 in the first eight months of the year to 154,000 in the last four months (a monthly stock turnover of 1.52%). Closing Maximum Minimum IBEX Average price price price end of daily volume Month month (shares) December ,036.9 January , ,664 February , ,299 March , ,079 April , ,898 May , ,352 June , ,009 July , ,518 August , ,460 September , ,504 October , ,980 November , ,195 December , ,364 Change % % Annual Report 2003 Banco Sabadell 11

13 Shareholder numbers were also up, as can be seen in the table below. At the close of year the number had risen to 53,991, an increase of 10.2% compared with the previous year. At the close of 2003 the shareholder base included two strategic shareholders: la Caixa, with a 15% holding and Banco Comercial Português, with 8.5%; a further 5.3% was held by institutional investors, with the remaining 71.2% in the hands of other shareholders. Size of holding Number of shareholders ,500 or less 46,826 41,781 43,273 3,501 to 35,000 6,506 6,532 6,628 35,001 to 70, ,001 to 350, ,001 to 10,000, More than 10,000, Total 53,991 48,977 50, Size of Number of Number of % of total holding shareholders shares 3,500 or less 46,826 31,474, ,501 to 35,000 6,506 61,199, ,001 to 70, ,888, ,001 to 350, ,101, ,001 to 10,000, ,397, More than 10,000, ,940, Total 53, ,002, Banco Sabadell Annual Report 2003

14 At the close of the year Banco Sabadell shares were trading at 17.01, giving the company a market capitalization of 3,470 million. This places the company near the middle of the IBEX-35 index when compared with other companies in the index ranked according to market capitalization. The following table shows key data concerning Banco Sabadell shares and shareholders equity for the last six years. It also shows stock market ratios at the close of each year. Mn. shares Mn. Mn. Number of Net attributable Shareholders Net asset value shares (1) profit equity per share , , , ,050 (2) (2) , (1) Adjusted to reflect increases in capital for BCP (2000) and La Caixa (2001) and the bonus share issue in (2) Both shareholders equity and net asset value per share were reduced as a result of a charge to the share premium account to amortize goodwill arising on the acquisition of Banco Herrero. Share price 30/12/ PER x P/B ratio (1) x Dividend yield % (1) Price / book value The announcement of the acquisition of Banco Atlántico on 21 December 2003 and an increase in capital by Banco Sabadell to finance the acquisition, approved by an Extraordinary General Meeting of the company on 29 January 2004, opened a completely new chapter in the trading of Banco Sabadell shares in the early months of 2004, increasing the number of outstanding shares by 50% and adding greatly to the depth and liquidity of the market for the stock. Annual Report 2003 Banco Sabadell 13

15 Growth and Consolidation The second year of the Group s three-year plan for had a twofold aim: to increase business volumes, and to consolidate the corporate restructuring of the last few years. By the end of the year some excellent results had been achieved and good progress had been made along a path of profitable and sustainable growth. At 31 December 2003 the total consolidated assets of the Banco Sabadell Group amounted to 30, million, 12.1% above the figure for the year to 31 December Pre-tax profits were million, a 42.4% increase, and the net attributable profit was in excess of 234 million, up 6.6% on Total gross lending increased by 3, million, up 16.6% on the previous year, to a total of 24, million. The loan loss ratio at 31 December stood at 0.40% of total lending, a very low figure which confirms Banco Sabadell as one of the most successful of Spain s financial institutions in the management of lending risk. Bad loan provisioning amounted to 475% of bad and doubtful debts. On-balance sheet deposits and issued securities rose by 16.6% in 2003, totalling 24, million. Deposits and funds under management were 31, million, up 13.6% on Thanks to the Group s Fit@ cost reduction programme, recurring costs fell by nearly 3% compared with the previous year while non-recurring costs, most of which 14 Banco Sabadell Annual Report 2003

16 were related to technology upgrading, dropped by 55.1%. Administrative expenses were down by 28.2% on the previous year. As a result, net operating income rose to million, up 60.3% on The cost:income ratio was 52.9%, a notable improvement of 13 percentage points compared with the figure at the close of The new information and communications platform was more than 80% operational by the close of This ensures that the final phase of the technology upgrade programme that began in 2000 can be completed in 2004 as planned. Although not yet operating at full capacity, the new technology platform has already proved its worth in terms of design and scalability, as shown by the fact that the information systems of Banco Herrero, Banco Asturias and ActivoBank networks were all successfully integrated onto the platform during the year, with considerable savings in technology costs. During the year Banco Sabadell strengthened its position in ServiRed, an ATM and POS network operated by an association of financial institutions of which the Bank had been a member since Banco Herrero became a part of the Group. As a result it increased its share in the undertaking to 4.45%. The decision was taken in recognition of the need to handle payment media on a single platform, although customer service aspects and relative integration costs were also factors in the decision. In the year 2003 the integration of Banco Herrero and ActivoBank was completed and the Banco Asturias branch network was merged so as to operate under the Banco Herrero name. This led to a major restructuring of the Group s branches in the regions of Asturias, Castile, León and Cantabria to increase efficiency and rationalize the geographical distribution of the Herrero and Sabadell brands. A total of 166 offices were involved. On 17 June 2003 the Group s new Landscape office building in the Sant Cugat area of Barcelona was opened. The development was carried out by a subsidiary of the Group s real estate division for a cost which at the close of the year stood at over 30 million. The building is unique for its prime location and functional design, and marks a new milestone in Banco Sabadell s history. It will function as the nerve centre of the Group s business units and will serve as a striking symbol of Banco Sabadell s enhanced position and of its intention to continue to grow and to seek broader horizons. The Group s property and development capital investments, whether carried out by companies in the Landscape real estate group or by Bidsa and Aurica XXI, its development capital subsidiaries, have consolidated as significant independent businesses which are generating high returns on capital employed and developing valuable synergies for the Group s Commercial Banking operation. At the close of the year the total amount invested in complementary equity holdings of this kind was more than 1,200 million. Annual Report 2003 Banco Sabadell 15

17 Dexia Sabadell Banco Local, a company set up in 2001 in partnership with Dexia, the Franco-Belgian group, concluded the year with a 5.7% share of the Spanish market in public sector finance, with a contribution of 1.48% to consolidated Group profits. BancSabadell d Andorra (BSA), a bank set up in the Principality of Andorra in the year 2000 by Banco Sabadell and a large group of Andorran private investors, completed its fourth year of operation and made a profit for the first time. At the close of 2003 the assets under BSA s management amounted to 616 million, up 35% on the previous year. In 2003 Banco Sabadell and GE Capital Bank signed an agreement for the promotion of a joint venture to operate in the Spanish market as a provider of consumer credit under the name of BanSabadell Fincom, E.F.C., S.A. GE Capital Bank is a Spanish bank operated by GE Consumer Finance, a division of US multinational General Electric, and will bring to the new company its experience as a world leader in the provision of consumer credit; Banco Sabadell will contribute the distribution capability of its branch network and its unrivalled knowledge of the Spanish market, particularly the personal and professional association segments. The achievements of 2003 have shown that Banco Sabadell now has an internal organization that is strong, flexible and well structured and a business model focusing on clearly defined customer and business categories and based on service quality, efficiency and profitability. As an organization we are firmly committed to high ethical standards and acting in a responsible way in our dealings not only with those who rely on our financial services but with society as a whole. 16 Banco Sabadell Annual Report 2003

18 Financial review Annual Report 2003 Banco Sabadell 17

19 Consolidated balance sheet '000 Assets % 03/02 Cash and deposits with Central Banks 431, , Government securities 1,013, , Financial institutions 2,263,546 2,430,132 (6.9) Total loans and advances to customers 23,757,401 20,727, Bonds & other fixed-income securities 724, ,063 (1.7) Shares and equity investments 618, , Goodwill on consolidation 194, ,664 (10.9) Tangible fixed assets 452, ,860 (0.6) Losses of Group companies 168,152 99, Accrued income and other assets 887, , Total assets 30,511,552 27,224, '000 Liabilities % 03/02 Financial institutions 2,316,074 2,796,113 (17.2) Customer deposits and temporary asset sales 17,186,001 17,234,210 (0.3) Liabilities on negotiable securities 6,642,463 3,125, Accrued expenses and other liabilities 946, , General reserve and other provisions 146, , Subordinated liabilities 595, , Shareholders' equity 2,171,077 2,044, Minority interests 261, ,478 (0.3) Consolidated profit for the year 246, , Total liabilities 30,511,552 27,224, '000 Memorandum accounts % 03/02 Contingent liabilities 3,615,724 3,218, Commitments 9,062,385 7,914, Total memorandum accounts 12,678,109 11,133, Lending Gross lending by the Group was up 16.6% on the year 2002, reaching a total of 24,936 million. Mortgage loans an important component of lending to private sector borrowers showed an increase of 1,656 million in 2003, up by 19.0% on the year before. A noteworthy feature of the Group s mortgage lending was a 43.6% rise in loans to property developers. As a result of securitizations totalling 250 million and 500 million undertaken in April and November 2003 respectively, securitized loans increased by 59.9%. A noteworthy feature of the Group s lending to the domestic market was a substantial increase in loan and credit accounts which were up by 559 million, a rise of 16.6%. Also of significance was the strong performance of leasing and factoring products which together increased by 21.7% compared with the previous year. 18 Banco Sabadell Annual Report 2003

20 ' % 03/02 Loans to Government and local authorities 49, ,932 (56.6) Commercial loans 2,498,453 2,267, Mortgage loans 9,925,268 8,425, Personal loans 2,792,465 2,616, Loan and credit accounts 3,917,227 3,358, Other secured loans 458, , Overdrafts and sundry accounts 299, ,530 (7.5) Temporary asset purchases 234, , Finance leases 2,033,483 1,754, Factoring 665, , Loans to resident sector 22,824,821 19,701, Commercial loans 39,455 31, Mortgage loans 430, , Personal loans 557, ,590 (20.0) Loan and credit accounts 125,240 70, Other secured loans 42,477 33, Overdrafts and sundry accounts 11,414 25,086 (54.5) Finance leases 8,661 9,553 (9.3) Factoring 1, Loans to non-resident sector 1,217,546 1,141, Total investment in lending - gross ( Mn.) 18,877 24,936 21, Doubtful assets 96, ,544 (5.7) Total loans and advances to customers - gross 24,188,946 21,060, Loan loss and country risk reserves (431,545) (333,503) 29.4 Total loans and advances to customers - net 23,757,401 20,727, Temporary asset purchases and other transactions (563,364) (497,468) 13.2 Securitized loans 1,310, , Loan loss and country risk reserves 431, , Total gross investment in lending 24,935,764 21,382, Loans to resident sector, 31/12/2003 Loans to resident sector, 31/12/2002 Overdrafts and sundry accounts 1% Mortgage loans 44% Overdrafts and sundry accounts 2% Mortgage loans 42% Finance leases 9% Personal loans and other advances 31% Temporary asset purchases 1% Commercial loans 11% Factoring 3% Finance leases 9% Personal loans and other advances 32% Temporary asset purchases 1% Commercial loans 12% Factoring 2% Annual Report 2003 Banco Sabadell 19

21 Bad and doubtful debts as % of total lending Bad and doubtful debts and provision coverage As of 31 December 2003 bad and doubtful debts amounted to just 0.4% of total lending. This exceptionally low figure consolidates the Group s position within the Spanish banking industry as a leader in the management of credit risk. Total provisions as a proportion of bad and doubtful debts stood at %. The proportion rises to % if mortgage security is taken into account ' % 03/ Bad and doubtful debts: Opening balance (1 January) 114, , Increase due to new loan defaults 162, ,480 (6.1) Recoveries (128,904) (97,021) 32.9 Loans written off (35,677) (61,703) (42.2) Total bad and doubtful debts 112, ,617 (2.2) Total loans and advances to customers - gross 24,188,946 21,060, Contingent liabilities 3,615,724 3,218, Total credit risk 27,804,670 24,279, Bad and doubtful debts as % of total lending Specific provisions for bad and doubtful debts 63,487 54, Generic provisions for bad and doubtful debts 244, , Statistical provisions for bad and doubtful debts 224, , Total provisions for bad and doubtful debts 532, , Total provisions as % of bad and doubtful debts Total provisions as % of bad and doubtful debts (including mortgage security) Total provisions as % of bad and doubtful debts Provisions for bad and doubtful debts were up 32.27% to a total of 532 million. The provisioning surplus, the difference between total provisions and total bad and doubtful debts, was 420 million, up 46.0% on the previous year. This brings total provisions to more than four times the current level of bad and doubtful debts Banco Sabadell Annual Report 2003

22 ' % 03/02 Risks Provision Risks Provision Provision required required required Bad and doubtful debts specifically provided for 90,210 51,076 97,080 48, Bad and doubtful debts not requiring provisions 21,839 17,537 Other specific provisions 11,278 6, Bad and doubtful debts and specific provisions 112,049 62, ,617 54, Risks covered by normal generic provisions (1%) 22,352, ,529 18,859, , Risks covered by reduced generic provisions (0.5%) 4,171,369 20,857 3,866,319 19, Risks and generic provisions 26,524, ,386 22,726, , Statistical reserve 224, , Total provisions required 530, , Other additional provisions 1, Total provisions for bad and doubtful debts 532, , Provisioning surplus 420, , Investment portfolio The value of the Group s investment portfolio at 31 December 2003 totalled 2,357 million, an increase of 8.6% on the previous year. A major component of this increase was a 14.8% rise in the Group s holdings of Government securities. ' % 03/02 Treasury bills 23,044 52,607 (56.2) Other Government securities 990, , Less: Securities valuation reserve Government securities 1,013, , Fixed-income securities 724, ,063 (1.7) Other fixed-income securities 728, ,148 (2.1) Less: Securities valuation reserve (3,294) (7,085) (53.5) Shares and equity investments 618, , In Group and associated undertakings 258, , In unconsolidated undertakings 197, , Shares and other variable-income securities 177, ,037 (11.5) Less: Securities valuation reserve (14,117) (37,798) (62.7) Other securities 1,343,700 1,288, Total investment portfolio 2,357,609 2,171, Annual Report 2003 Banco Sabadell 21

23 Balance sheet deposits and issued securities Balance sheet deposits (including temporary asset sales) and issued securities were up 16.6%, reaching a year-end total of 24,424 million. The year 2003 saw an issue of mortgage bonds amounting to 1,500 million and three further euronote issues for a total of 1,600 million. These issues resulted in a sizeable increase in the Debt securities and other negotiable instruments caption, which was up by 112.5%. Customer deposits a source of funds for the Group s lending also grew strongly by 15.8% to reach a year-end total of 22,195 million. ' % 03/02 Creditors, Government and local authorities 155, , Current accounts 6,954,198 6,080, Savings accounts 1,319,862 1,261, Fixed-term deposits 4,962,578 6,427,792 (22.8) Temporary asset sales 2,259,438 1,844, Creditors, resident sector 15,496,076 15,613,649 (0.8) Current accounts 677, , Savings accounts 15,940 9, Fixed-term deposits 826, ,994 (7.4) Temporary asset sales 14,177 8, Creditors, non-resident sector 1,534,349 1,469, Debt securities and other negotiable instruments 6,642,463 3,125, Subordinated liabilities 595, , Total balance sheet deposits and issued securities 24,423,671 20,954, Customer accounts - resident sector, 31/12/2003 Customer accounts - resident sector, 31/12/2002 Temporary asset sales 15% Fixed-term deposits 32% Temporary asset sales 12% Fixed-term deposits 41% Current accounts 44% Savings accounts 9% Current accounts 39% Savings accounts 8% 22 Banco Sabadell Annual Report 2003

24 Investment and pension funds The volume of assets in investment and pension funds rose by 12.7% in aggregate thanks in large measure to a consistent policy of promoting and marketing guaranteed funds. Assets in guaranteed funds grew by 483 million, up 28.8% on the close of the previous year. Funds under management in undertakings of collective investment (investment funds and open-end and closed-end investment companies) totalled 5,166 million at the close of the year, 13.1% more than in Pension fund assets were 1,697 million, up by 11.4%; a particularly strong performance was shown by personal pension plans, which grew by 16.2%, and company pension schemes, which were up by 7.3% compared with Investment and pension fund assets ( Mn.) 6,018 6,092 6, ' % 03/02 Equity funds 201, ,060 (4.0) Balanced funds 582, ,777 (29.1) Fixed-income funds 1,691,400 1,480, Guaranteed funds 2,162,952 1,679, Property funds 9,015 0 Open-end and closed-end investment companies 518, , Investment funds 5,166,217 4,569, Personal 811, , Company 862, , Group 22,488 19, Pension funds 1,697,086 1,522, Total, investment and pension funds 6,863,303 6,092, Annual Report 2003 Banco Sabadell 23

25 Deposits and assets under management The overall volume of deposits and assets under management was in excess of 31,000 million at the close of 2003, a 13.6% increase on the year before. Deposits and assets under management ( Mn.) 31,184 27,439 25, ' % 03/02 Creditors, Government and local authorities 155, , Creditors, resident sector 15,496,076 15,613,649 (0.8) Creditors, non-resident sector 1,534,349 1,469, Debt securities and other negotiable instruments 6,642,463 3,125, Subordinated liabilities 595, , Investment funds 5,166,217 4,569, Pension funds 1,697,086 1,522, Insurance (actuarial reserves) 2,143,094 2,253,352 (4.9) Other funds 777, , Consolidation adjustments (3,023,533) (2,506,270) 20.6 Total deposits and assets under management 31,184,315 27,439, Shareholders' equity ( Mn.) 2,356 2,050 2,131 Shareholders equity ' % 03/02 Issued capital 102, , Reserves 1,922,215 1,743, Reserves of Group companies 146, ,283 (26.3) Losses of Group companies (168,152) (99,899) 68.3 Treasury shares (net of provision) (5,200) (12,991) (60.0) Net attributable profit 234, , Less: dividend for the year (102,001) (102,001) 0.0 Total shareholders' equity 2,130,619 2,050, Banco Sabadell Annual Report 2003

26 Capital ratios ' % 03/02 Issued capital 102, , Reserves 2,164,924 2,024, Minority interests 262, , Other capital accounts 5,385 6,420 (16.1) Deductions (367,389) (344,029) 6.8 Primary capital 2,166,980 2,050, Tier I capital (%) Subordinated liabilities 591, , Revaluation reserves 37,046 37, Generic provisions and other funds 310, , Secondary capital 938, , Tier II capital (%) Capital base 3,105,379 2,976, BIS ratio (%) Minimum capital requirement 2,287,563 2,009, Capital surplus 817, ,025 (15.4) Note: Credit risk-weighted assets 28,273,743 24,761, Profit and loss account The consolidated net profit of the Banco Sabadell Group at the close of 2003 was million, up 6.5% on the previous year s figure. The net profit attributable to the Group after deducting profits attributable to minority shareholders was million, an increase of 6.6% compared with the previous year. Efforts by the Group to grow business volumes in an environment of falling interest rates helped net interest income, which rose to million, an increase of 6.4%. This, combined with a rise in net fee and commission income of 3.2%, resulted in a net income from basic operations that was 5.5% above the total for A strong surge in dealing profits, up by 467.0% compared with the previous year, contributed to a 9.4% increase in gross operating income, which reached a total of 1, million. Thanks to a major investment in technology in recent years with the aim of increasing productivity and efficiency, and an ambitious programme to drive down Annual Report 2003 Banco Sabadell 25

27 costs, general administrative expenses were down to million, a reduction of million or 12.5% compared with the previous year. All these developments contributed to bring net operating income up to million, 60.3% higher than the figure for Profits of equity accounted undertakings were up 2.0% on the previous year and contributed another million to the profit and loss account for The tax charge for the year was million. The increased charge compared with 2002 is explained partly by the fact that in 2002 certain one-off deductions were allowed as a result of new rules affecting the tax treatment of reinvested capital gains, and partly by the fiscally beneficial effect of transferring the staff pension fund to an independent fund manager. '000 % of av. total % of av. total % 2003 assets 2002 assets 03/02 Interest income 1,236, ,317, (6.2) Interest charges (476,455) (1.63) (603,332) (2.26) (21.0) Net interest income 759, , Fees and commissions (net) 294, , Net income from basic operations 1,054, , Dealing profits 48, , Gross operating income 1,102, ,008, Other operating income 5, , (64.7) General administrative expenses (583,803) (2.00) (667,148) (2.49) (12.5) Staff costs (378,436) (1.30) (380,927) (1.42) (0.7) Other administrative expenses (205,367) (0.70) (286,221) (1.07) (28.2) Depreciation and amortization (48,629) (0.17) (57,301) (0.21) (15.1) Other operating expenses (8,104) (0.03) (7,844) (0.03) 3.3 Net operating income 468, , Net income from equity accounted companies 46, , Amortization of goodwill on consolidation (11,957) (0.04) (127,113) (0.48) (90.6) Net gain or loss on Group transactions 12, (26,551) (0.10) Loan write-offs and provisions for bad and doubtful debts (154,318) (0.53) (101,083) (0.38) 52.7 Writedown of investment securities (net) (705) (0.00) Appropriation to general reserve , (100.0) Non-operating gains or losses (net) 9, , (81.0) Profit before tax 370, , Profit tax (117,907) (0.40) (27,274) (0.10) Other taxes (6,356) (0.02) (1,830) (0.01) Consolidated net profit 246, , Minority interests 11,415 10, Net attributable profit 234, , Banco Sabadell Annual Report 2003

28 Average return on capital employed and average cost of funds Average total assets were 29,201 million in 2003, up by 9.2% compared with the previous year. In line with the trend in recent years, interest rates continued to decline in 2003 and affected both the average returns being made on capital employed and the average cost of funds. Thanks to the strong growth in lending, however, an increase of 6.4% in net interest income was nonetheless achieved. ' Amount Rate Income Amount Rate Income Cash and deposits with Central Banks 545, , , ,231 Financial institutions 1,669, ,793 2,919, ,713 Loans and advances to customers 22,390, ,068,888 19,610, ,114,554 Fixed-income portfolio and Government securities 2,416, ,527 1,420, ,964 Variable-income portfolio 574, , , ,249 Tangible and intangible assets 480, ,107 0 Other assets 1,124, ,010 0 Total investment 29,200, ,236,363 26,745, ,317,711 Financial institutions 2,434,071 (2.76) (67,265) 5,168,706 (4.05) (209,206) Customer deposits 21,117,934 (1.76) (371,077) 15,430,181 (2.11) (324,914) Temporary asset sales and other transactions 1,729,123 (2.20) (38,113) 2,146,894 (3.22) (69,212) Other liabilities 1,730, ,674,656 0 Shareholders' equity 2,189, ,325,335 0 Total funds 29,200,528 (1.63) (476,455) 26,745,772 (2.26) (603,332) Fees and commissions Net fee and commission income for 2003, at 294 million, was up by 3.2% compared with the previous year. Lending-related fee and commission income benefited directly from higher volumes of lending and rose by 7.0%. Fees and commissions related to investment funds, pension funds and insurance increased by 2.6%. Fees on life insurance showed a particularly strong performance, growing by 22.6% compared with Annual Report 2003 Banco Sabadell 27

29 ' % 03/02 Lending-related fees 62,388 59, Avals and other guarantees 39,662 38, Paid to other banks (9,434) (11,315) (16.6) Fees and commissions from lending operations 92,616 86, Cards 59,863 57, Money transfers 35,494 37,230 (4.7) Securities-related 15,729 14, Current account charges 16,315 12, Banknote and foreign currency exchange 4,215 4,628 (8.9) Other fee and commission income 1,192 5,793 (79.4) Paid to other banks (12,264) (13,638) (10.1) Service-related fees 120, , Investment funds 58,627 57, Pension plans 15,715 16,205 (3.0) Life assurance 6,687 5, Commissions related to investment and pension funds and insurance 81,029 78, Total net fees and commissions 294, , General administrative expenses The Group s success in holding down general administrative expenses is clearly shown in the following table, from which it can be seen that staff costs were down 0.7% compared with the previous year. The other administrative expenses category showed a substantial fall of 28.2% and a downward movement was apparent in almost all expense items. This was most evident in the IT systems category, reflecting the fact that 2002 was marked by heavy investment in technology and systems development and by the introduction of a new information and communications platform. 28 Banco Sabadell Annual Report 2003

30 ' % 03/02 Wages and salaries (282,409) (281,687) 0.3 Staff welfare costs (75,526) (70,836) 6.6 Other staff-related costs (20,501) (28,404) (27.8) Staff costs (378,436) (380,927) (0.7) Land and buildings, fittings and equipment (35,421) (39,369) (10.0) Printed material and office equipment (7,805) (8,680) (10.1) IT costs (55,153) (117,332) (53.0) Communications (14,217) (13,219) 7.5 Advertising and sales promotion (13,052) (15,823) (17.5) Entertainment allowances (6,586) (9,937) (33.7) Technical reports and court costs (11,208) (12,129) (7.6) Security and money transport services (7,655) (8,629) (11.3) Other expenses (25,943) (31,946) (18.8) Taxes and local rates (28,327) (29,157) (2.8) Other administrative expenses (205,367) (286,221) (28.2) Total, general administrative expenses (583,803) (667,148) (12.5) General administrative expenses recurring and non-recurring costs The healthy reduction in costs is attributable both to a fall in recurring costs of almost 3% compared with the previous year and to the fact that non-recurring costs were also down, falling by 55.1%. So far as non-exceptional items were concerned, reductions were possible despite the growth in business volumes thanks to the Fit@ programme implemented during the year 2003 with the aim of rationalizing and optimizing costs. As will be seen from the analysis in the table below, the sharp fall in non-recurring costs was due mainly to the following factors: Whereas the cost impacts resulting from the introduction of the new SIBIS technology were particularly heavy in 2002, the effect in 2003 was far smaller. By the close of 2003, 90% of the work related to the programme had been completed. Accelerated depreciation of software for 2002 did not continue at the same level in 2003 as most of the applications software due to be replaced by the SIBIS IT platform was already fully amortized. Annual Report 2003 Banco Sabadell 29

31 Expenses related to ActivoBank were reduced as a result of the integration of ActivoBank s business processes into those of Banco Sabadell early in the year In addition, accelerated depreciation of software in 2002 helped to increase costs in that year. The reduction in the other costs item is largely a reflection of the fact that the figure for 2002 included costs arising from the introduction of the euro. ' % 03/02 Recurring costs (528,719) (544,424) (2.9) Implementation of SIBIS IT platform (8,089) (20,091) (59.7) Platform/integration of Banco Herrero (16,609) (17,483) (5.0) Accelerated depreciation of software costs (4,008) (47,907) (91.6) ActivoBank (12,175) (20,068) (39.3) Other costs (14,203) (17,175) (17.3) Non-recurring costs (55,084) (122,724) (55.1) Total, general administrative expenses (583,803) (667,148) (12.5) Banco Sabadell Group companies additional information Banco Sabadell is at the centre of Spain s fourth largest banking Group, wich offers a full range of financial services through its different banks, brands, subsidiaries and associates. These businesses have been consolidated by the full consolidation, proportional consolidation, or equity method as required by the regulations in force at 31 December 2003 and A full listing of all undertakings in the Banco Sabadell Group can be found in the Annex to the Notes to the Accounts in the statutory information section (the blue pages) of this report. Undertakings are classified according to the method or procedure used in the consolidation. The following information has been provided for each company shown in the Annex: Principal business Registered office The parent company s proportional holding (direct or indirect) Capital, reserves, trading results and any dividend paid The Group s net investment in the undertaking The contribution to reserves or the loss made by the undertaking The contribution made by the undertaking to Group results Whether or not the undertaking is treated as consolidated for tax purposes Balance sheet and profit and loss data for some of these undertakings are provided in the following tables. 30 Banco Sabadell Annual Report 2003

32 Banco de Sabadell, S.A Balance sheet '000 Assets Cash and deposits with Central Banks 410, ,834 Government securities 1,013, ,860 Financial institutions 2,514,444 4,912,665 Loans and advances to customers 23,330,371 17,646,238 Bonds & other fixed-income securities 689, ,923 Shares and equity investments 772, ,143 Tangible fixed assets 331, ,931 Accrued income and other assets 835, ,604 Total assets 29,897,784 26,289,198 '000 Liabilities Financial institutions 3,274,568 3,630,381 Customer deposits and negotiable securities 22,694,842 19,111,729 Accrued expenses and other liabilities 831, ,143 General reserve and other provisions 146, ,422 Subordinated liabilities 850, ,000 Shareholders' equity 1,918,354 1,789,709 Profit for the year 182, ,814 Total liabilities 29,897,784 26,289,198 '000 Memorandum accounts Contingent liabilities 11,450,544 7,338,472 Commitments 9,180,394 7,330,428 Total memorandum accounts 20,630,938 14,668,900 Profit and loss account ' Interest income 1,228,815 1,275,893 Interest charges (480,636) (601,450) Net interest income 748, ,443 Fees and commissions (net) 256, ,393 Net income from basic operations 1,004, ,836 Dealing profits 38,253 5,078 Gross operating income 1,042, ,914 Operating expenses (579,185) (556,705) Depreciation and amortization (42,605) (39,920) Net operating income 420, ,289 Amortizations and asset provisioning (net) (152,453) (108,884) Profit before tax 268, ,405 Profit tax (80,177) (2,336) Other taxes (5,866) (1,255) Net profit 182, ,814 Annual Report 2003 Banco Sabadell 31

33 Sabadell Banca Privada, S.A. Balance sheet '000 Assets Cash and deposits with Central Banks 7,173 3,123 Government securities 19 2,109 Financial institutions 957, ,621 Loans and advances to customers 94,174 56,532 Bonds & other fixed-income securities 1 1 Shares and equity investments 2,769 6,544 Tangible fixed assets Accrued income and other assets 8, Total assets 1,071, ,758 '000 Liabilities Financial institutions 38, ,206 Customer deposits and negotiable securities 988, ,829 Accrued expenses and other liabilities 4,095 1,790 General reserve and other provisions Shareholders' equity 38,765 37,668 Profit for the year 1,243 1,097 Total liabilities 1,071, ,758 '000 Memorandum accounts Contingent liabilities 18,456 20,188 Commitments 23,024 13,719 Total memorandum accounts 41,480 33,907 Profit and loss account ' Interest income 16,179 13,516 Interest charges (13,563) (11,436) Net interest income 2,616 2,080 Fees and commissions (net) 5,496 6,737 Net income from basic operations 8,112 8,817 Dealing profits 960 (498) Gross operating income 9,072 8,319 Operating expenses (6,240) (5,586) Depreciation and amortization (115) (52) Net operating income 2,717 2,681 Amortizations and asset provisioning (net) (778) (988) Profit before tax 1,939 1,693 Profit tax (696) (596) Net profit 1,243 1, Banco Sabadell Annual Report 2003

34 BancSabadell Financiación, E.F.C., S.A. (*) (*) Formerly BanSabadell Hipotecaria, E.F.C., S.A. Balance sheet '000 Assets Cash and deposits with Central Banks Financial institutions 0 35 Loans and advances to customers 445, ,610 Tangible assets Accrued income and other assets 1,304 1,360 Total assets 446, ,626 '000 Liabilities Financial institutions 389, ,534 Customer accounts and liabilities on negotiable securities 0 23,285 Accrued expenses and other liabilities 3,299 5,076 Capital and reserves 50,731 50,232 Profit for the year 3,192 4,499 Total liabilities 446, ,626 '000 Memorandum accounts Commitments 5,516 4,387 Total memorandum accounts 5,516 4,387 Profit and loss account ' Interest income 16,730 22,568 Interest charges (12,642) (17,887) Net interest income 4,088 4,681 Fees and commissions (net) 0 20 Net income from basic operations 4,088 4,701 Dealing profits 1,494 1,754 Gross operating income 5,582 6,455 Operating expenses (1,092) (1,889) Net operating income 4,490 4,566 Amortization and asset provisioning (net) 456 2,566 Profit before tax 4,946 7,132 Profit tax (1,754) (2,633) Net profit 3,192 4,499 Annual Report 2003 Banco Sabadell 33

35 BanSabadell Vida, S.A. de Seguros y Reaseguros Balance sheet '000 Assets Investments 1,921,614 1,928,814 Investments for the account of life assurance policyholders who bear the investment risk 202, ,536 Reinsurers share of technical reserves 1,861 1,201 Loans 14,010 14,918 Other assets 133, ,204 Accrued income 14,154 16,959 Total assets 2,287,289 2,318,632 '000 Liabilities Capital and reserves 97,948 90,001 Technical provisions 2,171,788 2,208,383 Debts 16,878 19,553 Accrued expenses and other liabilities Total liabilities 2,287,289 2,318,632 Profit and loss account ' Underwriting results - non-life account Underwriting results - life account 19,306 20,810 Investment income Investment expenses (16) 0 Other income 2 3 Other expenses (308) (394) Non-operating expenses 0 (16) Profit before tax 19,923 21,166 Profit tax (6,969) (7,410) Net profit 12,954 13, Banco Sabadell Annual Report 2003

36 BanSabadell Correduría de Seguros, S.A. Balance sheet '000 Assets Fixed assets Debtors Cash in hand and at banks 6,404 4,557 Accrued income Total assets 6,717 4,892 '000 Liabilities Capital and reserves 4,460 3,295 Liabilities to Group undertakings Trade creditors 1, Other creditors Accrued expenses Total liabilities 6,717 4,892 Profit and loss account ' Operating income 7,135 6,433 Staff costs (1,348) (1,311) Depreciation of fixed assets (1) (5) Other operating costs (410) (700) Net operating income 5,376 4,417 Finance income Finance costs 0 (1) Non-operating expenses 0 (104) Profit before tax 5,386 4,325 Profit tax (1,921) (1,514) Net profit 3,465 2,811 Annual Report 2003 Banco Sabadell 35

37 BanSabadell Pensiones, E.G.F.P., S.A. Balance sheet '000 Assets Fixed assets 16 2 Debtors Cash in hand and at banks 30,317 22,893 Accrued income 21 0 Total assets 30,388 22,936 '000 Liabilities Capital and reserves 28,833 21,778 Liabilities to Group undertakings 1, Trade creditors Other creditors Total liabilities 30,388 22,936 Profit and loss account ' Operating income 12,409 11,448 Staff costs (1,093) (938) Administrative expenses (4,098) (6,918) Depreciation of fixed assets (1) (1) Net operating income 7,217 3,591 Finance income 24 2 Non-operating income 8 0 Non-operating expenses (11) (4) Profit before tax 7,238 3,589 Profit tax (2,533) (1,256) Net profit 4,705 2, Banco Sabadell Annual Report 2003

38 BanSabadell Inversión, S.A., S.G.I.I.C. Balance sheet '000 Assets Fixed assets Debtors 1 6 Short term investments 16,486 15,631 Cash in hand and at banks 59,571 37,903 Total assets 76,076 53,555 '000 Liabilities Capital and reserves 36,362 40,699 Liabilities to Government agencies 1,783 2,401 Fees and commissions payable 37,522 7,734 Accrued expenses and other liabilities 409 2,721 Total liabilities 76,076 53,555 Profit and loss account ' Operating income 49,274 49,298 Other operating income 1,511 1,091 Staff costs (2,661) (2,465) Other operating costs (39,340) (31,215) Net operating income 8,784 16,709 Finance income Non-operating expenses (447) 0 Expenses from previous years 0 (15) Profit before tax 8,712 17,206 Profit tax (3,049) (6,022) Net profit 5,663 11,184 Annual Report 2003 Banco Sabadell 37

39 Business and Operating Review Branch network In 2003 Banco Sabadell continued to expand its network by opening 20 new branches and adding ActivoBank s two customer service centres. Four new commercial banking branches were opened under the Banco Sabadell name in areas with good business potential and undergoing rapid urban development in Madrid (both the Autonomous Community and the city itself), Catalonia and the Canary Islands. Two dedicated Corporate Banking centres were opened in Barcelona and Valencia. The Group continued to address the specific requirements of expatriates from other European countries, setting up a total of 14 new branches under the specialist Solbank name. All these new branches are located in key holiday/tourist areas with excellent business prospects in the Autonomous Communities of Andalucía, Valencia, the Canary Islands, Murcia and Catalonia. In line with the Group s policy of improving efficiency and rationalizing the geographical focus of its different brands, a total of 59 branches were merged during the year, primarily with the aim of eliminating duplication following the integration of Banco Herrero and the incorporation of the former Banco Asturias branches under the Banco Herrero name. 38 Banco Sabadell Annual Report 2003

40 In view of Banco Herrero s long-standing historical association with the Asturias region and the province of León, and its clearly defined role as the Group s flagship in that part of Spain, Herrero is now the one brand name under which Banco Sabadell operates in Asturias and León. Following the redefinition of the geographical area to be covered by the Banco Herrero network, a total of 44 Banco Herrero branches were transferred to the Banco Sabadell network in the Autonomous Communities of Castile-León and Cantabria. As a result of these additions and the resulting reorganization in 2003, at the close of the year the Group branch network consisted of 872 branches, urban sub-branches and service centres (with four branches sharing premises with Corporate and Commercial Banking units). The distribution of Banco Sabadell branches by brand name and Autonomous Community is as follows: Autonomous d Banco Solbank Sabadell Banco Banco Total Autonomous Sabadell Banco Banco Banca Banco Asturias BancoHerrero Solbank Sabadell ActivoBank Total Community Sabadell Sabadell Privada Herrero Herrero Banca Andalucía 18 (Corporate) 18 (Corporate) 4 40 Privada Andalucía Aragón T 41 e Aragón Asturias l 11 Asturias Balíares e 170 p Balearic CanariasIslands h 31 Basque Cantabria Country 5 o n Canary Castilla-La Islands Mancha e 19 Cantabria Castilla y León & Castile-La Cataluña Mancha o Castile-León Extremadura n Catalonia Galicia l 320 i Extremadura La Rioja n 1 Galicia Madrid e 22 La Murcia Rioja b 3 Madrid Navarra a 107 n Murcia País Vasco k 6 Navarre Valencia 53 2 i n Valencia Total g 76 Total (*) (1) Precio / valor contable (2) precio / cash-flow * This figure does not include two ActivoBank demonstration centres in Madrid and Barcelona. ActivoBank also has six Customer Service Centres located in six of the Group s branches. Commercial Banking Commercial Banking, under different brand names, is now one of two major divisions within the Banco Sabadell Group s business organization. With a focus on providing banking and financial products and services to individuals, small businesses and retailers, it seeks to offer customers a personal service tailored to their needs through a network of branded offices supported by additional customer interface channels. In 2003 the commercial banking strategy launched in 2001, and the resulting business model based on customer group and market segmentation, began to bear fruit. Assets under management within the Commercial Banking area increased by 4.7% in 2003 compared with the previous year, with total lending up 15.3% over the same period. In the space of one year, the Bank attracted 95,282 new personal customers and 17,979 new business customers, solely within the Commercial Banking area. Annual Report 2003 Banco Sabadell 39

41 A particularly important part of the Group s business during the year was home loans, in which the range of products was increased by the addition of new fixed-rate, variablerate and composite mortgages. The Group s residential lending business received a further boost in the last quarter of the year, when a subrogation centre for processing transfers of mortgages to property purchasers came into operation. The Group s product range was further extended by the addition of a wide variety of multi-option deposits which were launched on the market during the year and have helped to attract increased funds for investment. Savings-linked life assurance products of various types, especially guaranteed return term insurance and life annuity products, also played a key role in attracting funds. Sales of creditor and payment protection insurance (a recent addition to the range) linked to different types of loan were above the sales figure for 2002, although standalone insurance products not directly linked to loans also showed improved performance. Online services were improved and usage increased substantially in the year 2003 following the launch of the new BS Online facility. The total number of online banking sign-ups now stands at 360,643, an increase of 14.21%. The new website features a more user-friendly design and a new look and feel which have been rated among the best in the Spanish market by the main providers of ratings for online services. BSMarkets.com, a Group website specializing in market information and financial services, was visited by a monthly average of 440,000 users who viewed over 9 million pages each month. The move from traditional bank statements on paper to online communication continued in line with expectations, thus affording customers greater ease of access to account information. The number of accounts for which regular account information is received entirely on line now stands at 16,000. As of 31 December 2003, the Banco Sabadell Group had 1,111 ATMs in operation all over Spain. These included 256 cash dispensers in hotels, shopping centres, airports and train stations serving the AVE high speed rail network. Credit and debit card issues increased by 9% in 2003 and the number of EFTPOS terminals in operation at the close of the year was up by 10.8% on The addition of new high-technology products to the Group s range of products and services was another highlight of Particularly noteworthy was the launch of the Via T (motorway toll) payment card, the Visa Platinum card, the GSM high-security point of sale terminal, the Mobipay service for making payments by mobile phone, the Visa GEBTA Traveller card for business travellers and the Carnet Joven youth card issued by the Regional Government of the Asturias. Once again, individual customer loyalty was a top priority for Commercial Banking 40 Banco Sabadell Annual Report 2003

42 during the year. Loyalty initiatives put in hand in 2003 included the successful launch of the BS Puntos scheme in which Banco Sabadell debit or credit cards can be used to accumulate points which can then be exchanged for gifts or used to make voluntary donations to charities. In all, 489,251 accounts benefited from Commercial Banking s new loyalty programme which included attractive discounts at stores, travel agents and hotels, on public transport, and other benefits. BS Puntos was just one of a wide range of direct and branch support marketing campaigns put in hand during the year with the aim, in most cases, of providing incentives for the use of cards and to raise awareness of new products and boost sales. In the last quarter of 2003 Banco Sabadell and GE Capital Bank agreed to form a strategic alliance to compete in the domestic consumer credit market. The arrangements included a joint venture to set up a jointly owned company, to be known as BanSabadell Fincom, which will operate as a provider of finance and other consumer credit-related products aimed at personal customers and professional bodies and occupational groups. Thanks to a programme of in-service training provided to investment advisors and asset managers during the year, it was possible to greatly enhance the Group s ability to serve customers requiring assistance in particular aspects of investment and asset management. A further boost to this service was provided when Banco Sabadell obtained National Stock Market Commission approval for its discretional portfolio and fund management framework agreement, which is designed to ensure a high quality asset management service. In addition, the Group s investment managers will be receiving certification as European Financial Advisors, an internationally recognized designation which offers a guarantee of expertise in the management of assets on behalf of customers. Another important development was the addition of the Pentapensión plan to the Group s range of investment products. This is a market leader in the balanced fixed-income II category in terms of performance over one, three and five-year terms, and contributed decisively to strengthening the Group s role as a provider of retirement plans for personal customers. A new pension fund called BS Plan Ético y Solidario was set up by Banco Sabadell in partnership with anti-poverty organization Intermón Oxfam and the ESADE Business School. Further details of this product, the first ethical pension fund to be launched on the Spanish market, can be found in the Report on Corporate Social Responsibility. In the provision of finance to business customers handled by Commercial Banking (i.e. firms with an annual turnover of less than 6 million), increases of more than 17% were achieved in 2003 thanks to the demand for discounting services Annual Report 2003 Banco Sabadell 41

43 and credit facilities, and also to strong performance in the leasing, contract vehicle hire and officially-sponsored trade credit businesses. Finance to property developers increased by 54% compared with the previous year and generated a large portfolio of potential mortgage assignees and a consequent influx of new personal customers. During the year a total of 17,979 companies had business dealings with the Group for the first time as customers. One factor that helped to attract new customers was the new Forfait Pymes range of products and services which was designed for small and medium sized enterprises and sold very well in that market. Anticipating and satisfying the needs of SME customers was the main focus of a very active outreach campaign which took the form of 81,430 visits to companies by account executives and small business managers throughout the year. Another area of activity within Commercial Banking was the development of cooperation agreements with chambers of commerce, reciprocal guarantee societies and a wide variety of businesses with a view to making better use of third-party referrals as a major source of new business and new customers. The Group s leading position as a key provider of foreign trade services to business was confirmed for yet another year, thanks largely to the specialist service that businesses receive from their account managers and at all Group branches. The Aulas Financieras business seminars organized by Banco Sabadell each year to provide starter courses and support to small and medium businesses in the area of foreign trade were again very well received all over the country, with more than 2,500 attendees present at some 20 seminars. The forging and development of links with professional, occupational and other groups and associations continued apace during the year. After 13 years hard-won experience in building these links, more than 400 professional bodies now provide the Banco Sabadell Group with a broad base from which to attract professional customers and an opportunity to serve a wide variety of occupational groups. A special three-year action plan was drawn up during the year to boost the role of partner agents and, through them, to win new personal customers by referrals from corporate customers (associate banking) with the aim of achieving substantial increases in business from both customer categories. Banco Herrero Banco Herrero is the well-established name under which Banco Sabadell s network of branches is now operating in the Asturias and León regions, where the brand has traditionally enjoyed a high reputation and occupies a position of pre-eminence based 42 Banco Sabadell Annual Report 2003

44 on quality commercial banking services aimed at individual customers and small and medium-sized enterprises. In 2003 the 202 branches operating under the Banco Herrero name within the Principality of Asturias and the province of León, and the staff employed in those branches, succeeded not only in maintaining, but in further developing the role of Banco Herrero as the most important network of retail banking outlets in the region. The operational integration of Banco Herrero onto Banco Sabadell s information systems was completed on 19 May A large-scale training programme had been put in hand in December 2002 and this, together with the skill, enthusiasm and hard work of the Banco Herrero staff, made it possible to bring a strategic programme of systems migration to a successful conclusion, despite the complexity involved, while day-to-day banking operations continued as normal. The integration involved a total spend of 26 million and required a 22% increase in processing and storage capacity on the central computer. The successful operation again demonstrated Banco Sabadell s capability and effectiveness in integrating new businesses. Another important development, again not without historic significance, was the merger of Banco de Asturias into Banco Sabadell, which was satisfactorily completed in July This required a comprehensive reorganization of the merged branch networks in order to eliminate duplication and bring them together under the single Banco Herrero brand name. This final step brought the integration process to completion, with the consequent improvements in efficiency and customer service. The process of integration according to the Banco Sabadell Group s business model continued throughout the year. This involved expanding operations at the corporate banking offices in Oviedo, Avilés, Gijón and León that serve business customers with annual sales of more than 6 million, and enhancing the range of products and services available at Commercial Banking branches serving personal customers and businesses with annual sales figures below that amount. The range of banking services was strengthened during the year with the launch of two new products that reflect the Group s philosophy of meeting the full range of customer requirements, both present and future: the Club Herrero 3 programme, aimed at customers over the age of 55, and the Carnet Joven designed for young people up to the age of 26. Club Herrero 3 has been named as one of the year s best initiatives by a number of specialist publications and had attracted more than 25,000 users by the end of This excellent reception makes it likely that the product will attract further customers in Annual Report 2003 Banco Sabadell 43

45 The Carnet Joven is being sold through the Banco Herrero network, which has exclusive distribution rights within the Principality of Asturias. The card offers benefits to customers under 26, including discounts, municipal services and travel grants. Solbank Expatriates from other European countries living permanently in Spain, together with businesses operating in the main residential holiday areas, mainly in the coastal regions, form a market segment which is served by branches operated by Solbank, one of Banco Sabadell s specialist brands. As of 31 December a total of 74 branches were operating under the Solbank name, offering multilingual staff and a carefully selected range of products and services designed to appeal to the typically German, English or French-speaking customer who appreciates being catered for in this way and in his or her own language. In 2003 Solbank continued to make excellent progress in expanding its business and increasing its customer base, achieving results well above target levels and consolidating its leading position as the only brand in the Spanish market specifically addressing this market segment. At the close of the year Solbank had a total of 1,801 million in assets under management, 31.29% more than the year before, and had attracted 28,746 new customers. A total of 14 new branches were opened to the public under the Solbank name in various locations in Andalucía (5), Valencia and Murcia (6), the Canary Islands (2) and Catalonia (1). Another five offices are scheduled to open in Andalucía and the Southeast in Major developments this year included the design and launching of two new deposit products (Solbank Eurostoxx and Solbank 24) and the introduction of Solbank Ready, a programme to train staff in Solbank s specific requirements; the year also saw the launch of a new corporate website ( featuring an enhanced array of banking transactions. Activities aimed at winning new customers and fostering customer loyalty, and thus consolidating the brand among residents from other European countries, included events such as open days, the 7-tournament Solbank Golf Tour 2003 and active par ticipation in a number of international exhibitions, domestic trade fairs, marketing and promotional campaigns and approaches to potential sources of customer referrals. ActivoBank ActivoBank is a separate, focused business unit within Banco Sabadell, offering innovative and specialized financial products aimed at personal customers operating solely via telephone banking and Internet-based channels. 44 Banco Sabadell Annual Report 2003

46 Thanks to a concerted effort to win new customers and the launch of new products during the year, by 31 December ActivoBank had attracted customer deposits of million and over 7,000 new accounts, 34% more than at the close of the previous year. ActivoBank markets a wide variety of investment products combined and structured deposits, investment funds, warrants, derivatives and pension plans which are outstanding within Spain s domestic market for the high returns they offer. During 2003 ActivoBank s range of products was enhanced with the addition of such traditional banking products as 30-year mortgages at fixed and variable rates. It is expected that in 2004 customers will be offered personal loans and credit and debit cards, as well as the ability to select from a range of general insurance products that are available on the market. ActivoBank s high quality service made sure that it won top place in the league table of the whole Spanish online banking market prepared each year by AQmetrix, a highly regarded rating firm. Corporate Banking Corporate Banking now constitutes the other basic area within the Banco Sabadell Group s business structure and is focused on offering financial products and services, both domestic and foreign, to large and medium-sized companies and institutions (i.e. those with an annual turnover of more than 6 million). Banco Sabadell s Corporate Banking business grew strongly during the year thanks to intense promotional and marketing efforts and new business and product development initiatives. The new business model based on specialist corporate account managers, supported by nine newly-opened Corporate Banking offices, had a beneficial effect in helping to increase the volume of funds under management. These centres are specially designed to service corporate customers and have been set up in Barcelona, Madrid (2), Valencia, el Prat de Llobregat near Barcelona, Oviedo, Gijón, Avilés and León. Nine more offices of the same type will be opened in The year 2003 was an excellent year for Corporate Banking, with increases in both deposits and lending that were well above industry averages. Deposits and other funds managed by Corporate Banking increased by million, up 12% on the year before. Total lending rose by 1,625.5 million, a rise of Annual Report 2003 Banco Sabadell 45

47 19% on 2002 and one which is above the average for the financial services industry as a whole. Of particular significance in a continuing low interest rate environment was the launching of new interest rate hedging products, both standardized and individually tailored, such as BS CAP. In all, interest rate hedging products of this kind were arranged for a total value of 1,300 million. On the lending side, loans and credit facilities subsidized by central or regional (Autonomous Community) government continued to play a significant role. Loans arranged by the Group under the officially sponsored ICO-PYME 2003 scheme totalled million in 2003, up 27% on the figure for As a result, the Group s share of loans provided under the scheme rose to 8%. Moreover, at the close of the year Banco Sabadell took first place in the number of loans arranged under the Catalan government sponsored CrèditPlus scheme, having arranged a total of 21.3 million in subsidized loans. In the area of leasing finance, a total of 11,274 leasing agreements were arranged in respect of assets with a value of million, an amount that was 17% above the figure for 2002, with a 19% increase in the number of transactions. For property leases the increase was 32%, with 517 separate transactions. A significant development for the Group s leasing business in 2003, and one which will have a major impact on operating efficiency, was the merging into Banco Sabadell of the Bank s three leasing subsidiaries: BanSabadell Leasing, E.F.C., S.A, Solbank Leasing, E.F.C., S.A. and BanAsturias Leasing, E.F.C., S.A. Finance provided under vehicle leasing arrangements was up by 65%, with a 47% increase in the number of new leasing agreements. To give a further boost to this area of the Group s business a dedicated subsidiary, BanSabadell Renting, S.L., was set up during the year. Factoring also performed very well in 2003, with receivables financing showing a 15% rise and the total volume of receivables increasing by 16.3%. This reaffirmed the Group s position as Spain s fourth largest provider of factoring services and its third largest for international factoring. In its international business the Group achieved growth of 68.4% in import factoring, a market-leading figure, and 32.3% in export factoring. Banco Sabadell is now a member of the Governing Board of the Spanish Factoring Association and has joined the Executive Committee of Factors Chain International, the world s foremost network of factors comprising more than 170 companies in 60 countries. It is the only Spanish representative on the Committee. 46 Banco Sabadell Annual Report 2003

48 In November the Group launched BS Covering, a product which is totally unique in the market and combines features of both factoring and credit insurance. This new product is designed to provide cover against the risk of default related to exporting as well as political and commercial risks, together with receivables financing. The Group s confirming business increased by 70% in 2003, with more than 500,000 payment instructions from customers being transferred to over 30,000 suppliers. The confirming service offers suppliers the option of collecting payment on their invoices earlier than would otherwise be possible. Payment instructions processed in this way amounted to a total of 1,983 million. By using Confirmiline, a service recently launched by the Banco Sabadell Group, suppliers to businesses using the Group s confirming service can keep track of their unpaid invoices and make online requests for early payment on a without recourse basis. In 2003 the Banco Sabadell Group took an active part in two foreign trade events for business: EXPORTA 2003 in Valencia, and Internationalization Week in Catalonia, in Barcelona. A total of 22 customer education seminars were held and were attended by 670 participants representing 250 companies. Equally successful was the 25th Jornadas de Negocio Internacional business conference, which attracted 245 delegates. Another highlight of the Group s business development activities during the year was the launch of the BS Europa service. This offers a range of financing options and facilities along with an individually tailored service in other European countries, provided through the Group s own foreign branches and representative offices or branches of other banks with which it has cooperation agreements. A noteworthy development in relation to officially-sponsored export credit was a new credit arrangement with the Bank of Communications in China. This means that the Group now has buyer credit facilities with all the state-owned banks in China for up to an aggregate amount of more than US$ 450 million. Thanks to these credit facilities and to the agreements reached between the Spanish and Chinese governments, Banco Sabadell was able to participate in financing 13 new Spanish export deals. Also of significance in relation to trade finance was the Group s growing participation in the Mexican market, of which it has in-depth knowledge thanks to its direct presence in that country. During the year Banco Sabadell actively assisted in producing the Guide to Finance for Businesses: Foreign Trade published by Catalonia s Centre for Business Innovation and Development (CIDEM). It also produced a revised and updated edition of a guide for customers entitled The Documentary Credit. Annual Report 2003 Banco Sabadell 47

49 In the area of finance for property development, the approach outlined in 2002 was fully consolidated in The specialist knowledge and skills of the Corporate Banking team ensured that the Banco Sabadell Group was a key player in the real estate market in 2003 and achieved substantial increases in business volumes. New financing deals were up by 44% compared with 2002 and amounted to more than 1,736 million in loans for real estate development. Twenty-two per cent of these loans were arranged for new customers. As usual the Group participated in all the major property industry events within the Spanish market, including such key trade fairs as the Madrid Real Estate Salon, Barcelona Meeting Point and the first ever Marbella Meeting Point, of which Solbank was a sponsor. In addition to all the work done to upgrade and integrate the Group s websites, a new business website was launched in This has a new design, a different structure and a full range of services for business which can all be accessed on including access to BS Online for online banking transactions. The new website is organized in thematic areas, allowing for faster and more intuitive navigation. A novelty is the addition of direct links allowing users to move easily between the information and the transaction areas. The site also has a new Services for Business area which includes an innovative electronic invoicing facility. Other new products and services include a newly upgraded and revamped online service called BS Trade, which focuses on international trade and offers a high added value to businesses. The take-up of remote banking services continued to show very satisfactory growth, both in the number of sign-ups and in the volume of transactions. As of 31 December 2003, 88% of corporate customers had signed up to remote banking services and transactions amounted to a total of 20.6 million. The Corporate area within Corporate Banking has been reorganized into five new departments: Energy, Infrastructure, Real Estate, Acquisition Finance and Corporate Finance. Finance arranged by Corporate Banking totalled 1,497 million, comprising both bilateral and syndicated loans. A significant number of syndicated loans were lead managed by the Bank, particularly in the energy and real estate sectors. In 2003, the Real Estate department diversified its business by moving into the financing of other types of commercial property such as shopping malls, leisure centres, homes for the elderly and sports centres. However, 75% of lending is still being directed to the hotel and tourism industry, for which the Group is one of the leading providers of finance. 48 Banco Sabadell Annual Report 2003

50 In all, the Real Estate department arranged finance for a total of 373 million, an increase of 55% on the previous year. Finance arranged for the energy sector totalled 236 million, of which the Bank s own share amounted to 168 million, an increase of 26% in the outstanding balance compared with the previous year. Of this amount, 68% was accounted for by renewable energy systems, with the Group organizing and participating in eight wind farm projects with a capacity of more than 765 MW when installed. The department s other lending was for the development of projects in combined cycle generation (14%) and environmentally friendly biomass and waste recycling (18%). This fast-growing business is a sign of Banco Sabadell s increasingly strong position as a key player in the energy sector. In the area of Infrastructure finance, a total of 110 million in loans was arranged to finance public works projects in the fields of transport and motorway construction, with outstanding balances up by 37% on the corresponding figure for the previous year. Banco Sabadell s involvement in this industry has ranged from advising on tendering for government contracts to lead managing and participating in the financing of a variety of projects. The Group has added new instruments to its range of financing options, including the purchase of entitlement to future credit and credit enhancement with monoline insurers. The Acquisition Finance department continued to experience the rapid growth of the previous two years, both in lending volumes and in the number of financings in which it was involved. At the close of the year 303 million in new financing had been arranged and over 80 projects analysed, including management buy-ins, management buy-outs and other forms of structured finance. Banco Sabadell continued to increase its share of the Corporate Finance market. The lending growth achieved in 2003, involving more than 90 projects analysed and totalling 478 million of new financing, was well above the growth of the market as a whole. Annual Report 2003 Banco Sabadell 49

51 Private Banking Sabadell Banca Privada is the Group s specialist bank that concentrates on financial advisory services to high net worth individuals and families, associations and other institutions requiring a personalized service, based on the provision of high quality financial services, a comprehensive asset management service and access to global financial markets provided by a team of skilled professionals. The Group s private banking business in 2003 was conducted, once again, against a backdrop of unstable financial markets with equity markets being particularly volatile. This gave rise to a need for ever greater effort and ingenuity in managing customer assets and in designing and implementing strategies to ensure that capital was suitably protected. In these difficult circumstances Sabadell Banca Privada had funds under management of 2,102 million up by 19.8% on the year before with a portfolio of 1,900 customers and a total of 83 open-ended investment companies (OEICs) in operation at the close of the year. The investment programme put in hand in 2002, as reflected in the profit and loss account, was directed at areas of key importance for the business to develop successfully. These included the development of internal management tools and customer information systems; the latter have been up and running since early 2003 and can be accessed on The services provided by Sabadell Banca Privada are designed to meet three primary customer needs: estate planning, tax planning and asset management. To meet these needs Sabadell Banca Privada continued to develop new investment products in 2003 in line with its business strategy, with a view to offering its customers innovative investment opportunities with or without capital preservation guarantees and affording them potential returns linked to the performance of par ticular assets. In the course of the year Sabadell Banca Privada developed an innovative asset management style designed to secure an absolute annual return regardless of how the markets perform. The absolute return approach does not use benchmarks and has a strong focus on capital preservation in the short term (a one-year horizon) with a moderate performance objective accompanied by careful control over risk to ensure that these priority objectives are achieved. In the management of actual portfolio assets, Sabadell Banca Privada aspires to achieve recognition as a specialist manager of European equities, including Spanish stocks, and of eurozone and US bonds. 50 Banco Sabadell Annual Report 2003

52 On the tax planning side, Sabadell Banca Privada s team of experts works with the customer s own advisors to draw up the most efficient tax and inheritance estate planning strategies. Sabadell Banca Privada also publishes a fortnightly review, SBP Opinión, with in-depth articles on current business topics and the financial markets. This has aroused considerable interest not only among customers but also in the media, where its analysis and comment are widely reported. Bancassurance Bancassurance is the Group business unit with responsibility for ensuring that the Group s different business lines have the insurance and pension products they need to be able to meet the needs of their customers, whether individual, business or institutional. Three Group subsidiaries, BanSabadell Vida, BanSabadell Pensiones and BanSabadell Correduría, market a full range of endowment, life assurance, pension and general insurance products designed and adapted to suit the Group channel or brand through which distribution is to take place. As of 31 December 2003, funds under management by the Bancassurance business unit totalled 3,840 million, up 3% on the previous year, of which 2,695 million related to personal customers and 1,144 million to corporates. Premium income on life and general insurance products amounted to 60 million, up 14% on With regard to trading results, net profits rose to 21 million, an increase of 12% on the year before. Profits before tax and brokerage commissions increased to 41 million. These results were achieved thanks to day-to-day monitoring and detailed oversight of margins in each product, particularly life and general insurance, and also to intense promotional efforts in an environment that was made difficult by low interest rates and fierce competition for customers in the marketplace, particularly in relation to pension plans. Turning to the performance of individual companies, BanSabadell Vida s mathematical reserves at year-end totalled 2,143 million, a fall of 2% which was attributable mainly to guaranteed interest and unit-linked products. Unit-linked products, in particular, were affected by market conditions and the concern on the part of investors to seek guaranteed returns. Premium income on life and general insurance totalled 26 million, up 21% on the previous year. As a result of this performance, BanSabadell Vida is now Annual Report 2003 Banco Sabadell 51

53 thirteenth in total provisions and fifth in the number of individual policies, according to the most recent league table to be published for the industry. BanSabadell Pensiones held a total of 1,697 million in assets under management as of 31 December 2003, up by a substantial 12% compared with the previous year. Of this amount, 834 million related to individual and group pension plans, which increased by 16%, with the remainder being accounted for by job-related schemes, which were up by 7% compared with 2002, a year that saw a very large inflow of customers as a result of the externalization of pension commitments. Net profits for the year rose to 4.7 million and profit before tax and brokerage fees was 10 million, up 14% on a comparative basis. In terms of assets under management, BanSabadell Pensiones holds eighth position in the league table of pension schemes of all types, and fifth place for job-related schemes. BanSabadell Correduría achieved a figure of 35 million for brokered premiums in 2003, which was 9% more than the previous year. Net profit for the year was 3.5 million, up 23%, thanks to an improvement in average brokerage fees and commissions on products sold by the company. Home and company all-risks policies, which come in a wide range of products and offer excellent quality, are a particularly profitable line, thanks to distribution agreements negotiated with leading insurers specializing in this class of business. Asset Management The Asset Management business unit is responsible for managing the assets of investment funds and companies and also the investments of other Group businesses that hold portfolios of financial assets for the account of customers. The year 2003 was particularly difficult for collective investment undertakings. The prolonged downward slide of global markets continued until March. In March stock market indices showed a sudden reversal and began to climb on expectations of a recovery in economic activity and corporate earnings. Dollar weakness and falling interest rates tended to curtail both performance objectives and the risk tolerance of investors. In a volatile climate, the inflow of savings into mutual funds recovered and assets under management increased in value as equity markets rallied and bonds outperformed. By continuing to offer guaranteed funds and strengthening our range of equity funds we were able to maintain our share of a rapidly expanding market. 52 Banco Sabadell Annual Report 2003

54 The number of undertakings of collective investment (UCITS) managed by the Group was 167 at the end of the year, 5% more than at the close of The number of unitholders and shareholders reached a year-end total of 160,794, up 3.3% on the figure for the previous year. Our global fixed-income funds once again achieved excellent returns in The Group s Herrero Fondo Internacional and Sabadell BS Dólar Fijo funds consolidated their position as the best performing funds in their category over the last nine and five years respectively, according to the classification drawn up by Inverco, an association of UCITS and pension funds. During the year Sabadell BS Dólar Bolsa was awarded top prize as the best Spanish US equity fund by Standard & Poor s Fund Service, a specialist in rating mutual funds, and the Spanish business daily Expansión, in recognition of the fund s excellent cumulative returns for the year. SBP Sabadell Fondo 4 was also singled out as one of the best performing global balanced equity funds of the last three years. The desire on the part of investors to seek protection from market volatility provided the stimulus for a major effort during the year to build investment strategies to take advantage of new market opportunities. In the course of the year performance guarantees were issued in respect of 12 guaranteed investment funds totalling 1,206 million as at 31 December. The assets of all the Group s guaranteed funds taken together amounted to 2,163 million at the close of the year. The Group s organization of its mutual funds was completed with the launching of 11 new funds, the merging of another eight and numerous changes in fund specifications and investment style. The purpose of these changes was to ensure that investment decisions for all mutual funds could be taken in a flexible but consistent manner in line with the Banco Sabadell Group s investment management model. Ibersecurities Ibersecurities, a stockbroking firm and a wholly owned subsidiary of Banco Sabadell, has a long tradition and extensive experience of operating on the capital markets and offers customers a high quality added-value financial information service. It also provides reports, technical analysis and advice to the Group s business units. In 2003 Ibersecurities was 13th out of a total of 70 securities houses in the number of share trades carried out in Spain, achieving a 2.5% market share. At the end of the year the company had generated income totalling 7.9 million and a net profit of 2.2 million. Annual Report 2003 Banco Sabadell 53

55 Foreign branches and offices The year 2003 was used to consolidate our position in foreign markets and develop the business synergies provided by our offices abroad. As part of a constant effort to improve our service and to be closer to customers operating in foreign markets, particularly companies and business people, the Corporate Banking business unit has taken over responsibility for the business and management of all the Group s foreign branches and representative offices with the exception of those in the United States, Latin America and the Caribbean. Cultural considerations, the sheer size of the area to be covered and the volume of business involved, combined with the continuing high level of Spanish investment in the region and the growing strength of the businesses in which Banco Sabadell holds interests (Banco del Bajío in Mexico and BHD in the Dominican Republic) provide solid grounds for treating our offices on the American continent separately from the rest. The Banco Sabadell Group has historically played a major role in cross-border operations, whether through the provision of finance for foreign trade or, as in recent years, through a direct foreign presence to support customers in their exporting or importing operations and in any aspect related to their interests abroad. At the close of the year more than 150 expert staff were working at Banco Sabadell s 12 locations in Europe, Asia and the Americas. In addition to its network of foreign branches, the Group maintained active relations throughout the year with Banco Sabadell s over 1,000 correspondent banks all over the world, developing further synergies and mutual banking interests. At 31 December 2003 Banco Sabadell s international network consisted of the following offices: Country Branch Representative Office France 1 UK 1 USA 1 Italy 1 Germany 1 Mexico 1 Venezuela 1 Guatemala 1 Cuba 1 China 1 Singapore 1 Iran 1 Total Banco Sabadell Annual Report 2003

56 Complementary equity investments In 1999 Banco Sabadell brought together its property and development capital businesses under the BS Capital name. These businesses had been set up with the aim of developing additional sources of income to supplement commercial banking. These operations and the companies responsible for them now constitute significant businesses on their own and are not only helping to generate synergies for the commercial banking business, but have become worthwhile business in their own right, producing high rates of return on capital employed. At the close of the year the investments of these complementary businesses totalled more than 1,200 million. Landscape, a real estate group Landscape, the company that controls the Banco Sabadell Group s operations in the real estate area, posted a consolidated profit of 24 million for the year The Company held real estate assets whose market value at the close of the year amounted to 1,316 million as valued by CB Richard Ellis, with unrealized capital gains totalling 296 million. Of these assets 36% are holdings of rental property and include a portfolio of high profile properties in excellent locations in Madrid, Barcelona and their respective metropolitan areas. These properties taken together provide a lettable area of 335,000 square metres. Development land management is a business which now accounts for 30% of the company s assets following a period of expansion in 2003 in which Landscape extended its operations to include ventures all over Spain, including residential property in Cartagena, Valladolid, Pontevedra, Zaragoza, Asturias and Madrid, as well as Catalonia. The remaining 34% of Landscape s assets is invested in real estate development. This currently comprises 54 development projects involving 15 companies (jointly owned by Landscape with partners of recognized expertise and good standing) with over 1,657,000 square metres of residential and industrial property under their management. At the close of 2003 the first residential developments, comprising a total of 700 dwellings, had been handed over by the developers; and the company had entered a new business: developing and operating logistics parks. Annual Report 2003 Banco Sabadell 55

57 Development capital: BIDSA and Aurica XXI The Banco Sabadell Group has for some years been entering into business partnerships based on the development capital concept, that is, providing financial and management support to carefully selected business ventures which have consolidated and are in an expansion phase, with a view to divestment in the medium term. This specialized form of financing is being provided through two companies, BanSabadell Inversión Desarrollo, S.A. (BIDSA), set up in 1998, and Aurica XXI, S.C.R., which was set up in 2000 in a 50:50 partnership with Banco Pastor to concentrate on development capital ventures. Sínia XXI, a subsidiary of BIDSA, operates specifically as a taker of equity holdings in the environment-friendly technology sector (small-scale hydroelectric generation utilities, wind farms and cogeneration plants). At the close of the year, Banco Sabadell had invested in renewable energy facilities with a capacity of over 80 MW. The year 2003 was fundamentally a year of consolidation of investments undertaken in the two preceding years. As of 31 December the Group s development capital undertakings held an investment portfolio of some 200 million, 7.1% more than in 2002, of which 45 million was invested in companies operating in the environmental protection field. Banking subsidiaries and associates Dexia Sabadell Banco Local The company was set up in 2001 in partnership with Dexia, the Franco-Belgian financial services group, and specializes in providing long and medium-term finance to central and regional government and local authorities. Banco Sabadell holds a 40% stake in the business, with the remaining 60% and managerial control being in the hands of Dexia, Europe s leading provider of finance to the public sector and a highly regarded, world renowned organization. At the close of the year Dexia Sabadell Banco Local was serving 137 customers and its loan portfolio totalled 2,901 million, giving it a 5.7% share of the market for public sector finance. Profits for the year were 3.6 million, contributing 1.48% to the Group s consolidated profit for Banco Sabadell Annual Report 2003

58 BancSabadell d Andorra This bank was set up in the Principality of Andorra in the year Banco Sabadell holds a 51% interest and has operational control of the company. The remaining shares are held by more than 800 Andorran private investors who showed an interest in the project when it was launched by subscribing for shares at the time of the initial public offering. BancSabadell d Andorra completed its fourth year of business in 2003 and made a profit for the first time. The bank s lending portfolio grew by 48.2% compared with the previous year, rising to over 130 million. Customer deposits and funds under management increased by 35% on the year, reaching a total of 616 million. Banco Comercial Português Since 2001 Banco Sabadell has held an interest in Banco Comercial Português, Portugal s foremost stock exchange-listed financial services group. At the close of the year, the Bank s interest amounted to 3.12% of the share capital. Centro Financiero BHD Banco Sabadell is also a shareholder in Centro Financiero BHD in the Dominican Republic, the financial services division of a group of companies with the same name which has interests in the basic sectors of the island s economy and throughout the Caribbean, including banking, tourism and real estate. Banco Sabadell owns a 20% share in the company. Banco del Bajío In 1998 Banco Sabadell took a shareholding in Banco del Bajío, a privately-owned Mexican bank which concentrates on providing finance to business. The company is associated with a select group of businessmen in the state of Guanajuato and has branches in the main centres of business activity throughout the country. Banco Sabadell had a 10% share in the company at the close of the year. Annual Report 2003 Banco Sabadell 57

59 Treasury and Capital Markets From the point of view of the economy, the year 2003 can be divided into two clearly differentiated periods. In the early months of the year economic activity was weak in most of the developed world because of heightened international geopolitical uncertainty. This led to fears of global deflation in the second quarter. In the second half of the year, however, a strong rally in the world s main financial markets and expansive fiscal and monetary policies helped to steady global economic activity. The US economy, in particular, returned to growth, while in the euro zone signs of economic improvement began to appear towards the end of the year. On both sides of the Atlantic central banks maintained an accommodative monetary stance in a low inflation environment. In June the US Federal Reserve cut its Fed Funds rate by 0.25% to 1% in anticipation of a substantial drop in inflation. In December, with clearer signs of economic improvement and some degree of stabilization in the labour market, the Fed acknowledged that the risk of deflation had probably receded but emphasized that monetary policy could remain lax for a considerable period of time. The European Central Bank (ECB) reduced the official interest rate by a quarter percent in March and a further half percent in June, bringing it down to 2%. Since then, the ECB has been adamant that monetary policy has done its work in providing a basis for economic recovery. The Bank of Japan, for its part, has continued to inject liquidity into the financial system to promote stability. In the currency markets an improved performance by the US economy did not prevent the euro from appreciating against the dollar, reaching a parity of approximately 1.25 USD/EUR by the end of the year, an annual increase of more than 18%. Markets were dominated by fears over the attraction for investors of holding dollar assets. In addition, geopolitical tension and protectionist measures approved by the US Department of Commerce further contributed to dollar weakness. Finally, stock market indices, after falling steadily for three consecutive years, rallied strongly in 2003 as corporate earnings strengthened, economic prospects improved, interest rates remained low and risk premiums declined. In this low interest rate environment, there was a marked increase in interest rate hedging by companies which had medium and long-term borrowings saw that the time was right to take this step. On the currency markets the sharp fall in the value of the dollar towards the end of the year only increased the desirability of using exchange rate hedging instruments. 58 Banco Sabadell Annual Report 2003

60 The Banco Sabadell Group was involved in underwriting and placing a tax-efficient bond issue for AUDASA and in placing preference share issues for Endesa Capital Finance LLC (guaranteed by Endesa, S.A.) and Unión Fenosa Financial Services USA, LLC (guaranteed by Unión Fenosa S.A.). It also continued to be actively involved in the fixed-income markets. The Group s investment policy continued to be managed with the utmost prudence according to exposure limits approved by the Board of Directors, with all investments being subjected to monitoring and review on an ongoing basis. The ten-day VaR (value at risk) at 31 December 2003 was 4.9 million at a 99% confidence level, with an average of 5 million and a maximum of 9.61 million for the year. Finance The Group s policy for raising finance on the capital markets has been to maintain and broaden the range of financing instruments allowing it to access the markets in an efficient way. In August, for example, an International Euro Medium Term Note programme, which had been arranged for the first time in 1998, was set up with an extended ceiling of up to 5,000 million outstanding at any one time. Under these programmes, four issues amounting to a total of 1,603.9 million were carried out in 2003, all of them on the global capital markets and aimed at institutional investors. In March a bond issuance facility known as Banco Sabadell non-convertible fixedrate bond issue programme 2003 for up to 3,000 million was filed with the Spanish National Stock market Commission (CNMV). The first issue of Banco Sabadell mortgage bonds under the programme, for a total of 1,500 million, took place in April and was fully subscribed by global institutional investors. In June the second Banco Sabadell Programme for 2003 for the issue of high liquidity commercial paper was registered with the CNMV. This has an upper limit of 3,000 million, extendible to 3,500 million. In 2003 the Group set up two funds for the issue of asset-backed securities secured on loans to Spanish small and medium-sized companies. This was done under the terms of agreements concluded with Government agencies with the aim of setting up securitization funds to increase the availability of funding for small businesses. The Government agencies concerned were the Catalan Government s Department of Economics and Finance (December 2002) and the Spanish Economics Ministry s Directorate-General for Policy on the Small and Medium Enterprise (September 2003). Annual Report 2003 Banco Sabadell 59

61 In April Banco Sabadell and other top tier Spanish banks set up a fund (known as GC FTGENCAT 2) for the issue of asset-backed securities. The fund was set up as part of an agreement entered into with the Catalan Government and was for a total of 950 million, of which Banco Sabadell s contribution was 250 million. Another fund of the same type, FTPYME TdA Sabadell 2, was set up in November with a total value of 500 million, as part of the agreement with the Economics Ministry s Directorate-General for Policy on the SME. For a number of years now Banco Sabadell has been rated by highly respected international rating agencies, a necessary precondition for raising funds on the domestic and global capital markets. During 2003 the ratings awarded to the Group s debt securities remained virtually unchanged. The Group s ratings at 31 December are given below: Agency Long-term debt Short-term debt Rating outlook FITCH A+ F1 Stable Moody s A1 Prime 1 Stable Standard & Poor s A A1 Stable Risk Management The chief categories of risk arising from the Group s business are credit, market, interest, liquidity, exchange rate and operational risk. Banco Sabadell is fully aware that the accurate and efficient management and control of risk is key to maximizing the creation of shareholder value and ensuring an appropriate degree of financial strength. The management and control of risk comprises a broad framework of principles, policies, procedures and advanced evaluation methodologies, integrated within an efficient decision-making structure. Underlying principles Solvency Banco Sabadell has opted for a prudent and balanced policy on risk to ensure sustained and profitable business growth in line with the Group s strategic objectives for maximum value creation. It is vital that the structure of limits and thresholds should be able to prevent concentrations of risk from building up in such a way as to compromise a significant 60 Banco Sabadell Annual Report 2003

62 proportion of the Bank s capital resources. For this reason, the risk variable is taken into account in decisions at every level and is quantified according to a single measure: economic capital. Responsibility The Board of Directors is committed to maintaining processes for the management and control of risk, namely the approval of policies, limits, management models and procedures, measurement techniques, and supervision and control. At the executive level there is a clear separation of functions between risk-originating business units and the functions responsible for managing and controlling risk. Monitoring and control The ongoing management of risk is supported by robust control procedures to ensure compliance with specified limits, clearly defined responsibilities, the monitoring of indicators and predictive alerts, and the use of an advanced risk assessment methodology. Risk management structure The Banco Sabadell Group has a well-defined structure in place for the management and control of risk, with clearly demarcated areas of responsibility. This is described in detail in the Annual Report on Corporate Governance. Risk management, capital adequacy and Basle II The Basle Committee on Banking Supervision is currently working on a new capital adequacy regulatory framework for financial institutions known as Basle II, a fundamental principle of which is that a bank s regulatory capital requirements should be more closely related to risks actually incurred, based on previously validated parameters and internal estimates. Banco Sabadell fully recognizes that having an advanced methodology in place will enable risks incurred to be reliably assessed and actively managed, and is following the guidelines provided by the new banking regulations in developing the components required to complete its own risk measurement systems. On the basis of the measures of risk provided by these new methodologies, Banco Sabadell has developed a consolidated risk measurement model with a common unit of measurement, economic capital, the purpose of which is to determine the capital requirement on the basis of internal parameters to ensure a specified level of solvency. A mapping of economic capital for each risk category is shown below. It should be noted that the market risk category includes exposures arising from long term investments, while the operational risk category covers a broader aggregate than the Basle II definition in that it includes an estimate of business risk. Economic capital (by risk category) Market risk 26% Operational risk 12% Structural risk 2% Credit risk 60% Annual Report 2003 Banco Sabadell 61

63 Evaluating risk in terms of an assigned capital requirement means that risk can be related to return, from individual customer up to business unit level. Banco Sabadell has developed an analytical risk-adjusted return on capital (RaRoC) system which provides this evaluation and incorporates it within the transaction pricing process. In the management of credit risk, for example, the last few years have seen the implementation of advanced measurement models based on internal data, tailored to particular counterparty categories and segments (businesses, retailers, individuals, property developers and development projects, financial institutions and countries). With these models, transactions can be differentiated on the basis of risk and assessments can be made of the probability of default or the degree of severity in the event of default actually occurring. All these advances have been possible thanks to the very considerable efforts of the last few years which testify to the importance that the Group attaches to these new risk management techniques which are, of course, not unrelated to performance. The Group s loan loss and loan loss coverage ratios (including mortgage security) for the last three years are shown in the diagram below. Loan loss and loan loss reserve ratios (including mortgage security) 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.4% 0.0% % 0.46% Loan loss ratio (%) 0.47% % % 0.40% % 500% 400% 300% 200% 100% 0% Loan loss reserve ratio (%) (incl. mortgage security) Credit risk Credit risk is the possibility of losses arising as a result of borrowers failing to meet their obligations or a loss in value due simply to a deterioration in borrower quality. Approval, monitoring and recovery To maximize the business opportunities provided by each customer and to guarantee an appropriate degree of security, responsibility for approval and monitoring of risk is shared between the relationship manager and the risk analyst, who by maintaining effective communication are able to obtain a comprehensive view of each customer s individual circumstances. The relationship manager monitors the business aspect through direct contact with the customer and by handling his day-to-day banking, while the risk analyst takes a more system-based approach involving the use of alerts. The Board of Directors delegates powers and discretions to the Operations Committee, which is then able to sub-delegate authority at each level. The authority thresholds assigned to each level represent exposure limits for each customer or company group, taking account of any existing exposures assumed by the Banco Sabadell Group for that customer or company group. 62 Banco Sabadell Annual Report 2003

64 Electronic processing of corporate credit applications has streamlined the decisionmaking process and significantly reduced response times to customers as well as increasing efficiency and reducing management and administrative costs. By analysing indicators and early warning alerts, and by conducting regular rating reviews, the quality of a risk can be constantly monitored in an integrated way. The establishment of effective processes for managing existing risk exposures also benefits the process of managing past due accounts. The early identification of probable default cases allows proactive measures to be taken, with risks being transferred to recovery specialists who are better equipped to determine the most suitable type of recovery procedure in each case. Loan loss ratios for different customer categories are shown alongside the Group s exposure to each category in the bar chart below. Loan loss ratio by customer category 70% 60% 50% 40% 30% 20% 10% 0% 0.21% 20.9% Mortgage loans 1.39% 0.20% 4.7% 1.58% Individuals (excl. mortgage) 0.53% 0.65% 3.0% Retailers (excl. mortgage) 0.39% 56.0% 0.54% 8.9% 0.78% 0.46% 6.7 % 0.00% 0.00% SMEs Corporates Other Exposure (%) Loan loss ratio Loan loss ratio Rating For some years now, credit risk exposures to corporate customers have been assigned a rating based on an internal estimate of the probability of default. The system is based on factors that predict the probability of default within one year and is designed for different customer segments. The rating model is revised each year on the basis of an analysis of actual default data. Each rating score is assigned an anticipated default rate which allows consistent comparisons to be made across segments and with the ratings of independent rating agencies, according to a master scale. Scoring For credit risk exposures to individuals scoring systems are used. These are based on the quantitative modelling of historic data to identify key predictive factors. Two types of scoring are used: Behavioural scoring, in which the system produces a maximum risk figure which is apportioned among different risk products. Reactive scoring, which is used to evaluate applications for personal or mortgage loans or for loan accounts and credit cards. When all transaction data has been entered, the system generates a result based on estimates of borrowing capacity, financial position and the quality of any security or collateral. Annual Report 2003 Banco Sabadell 63

65 By assigning an anticipated default rate to each scoring level and its equivalent value on the master scale, a risk profile for a portfolio of mortgage and personal loans can be obtained. Country risk This is the risk associated with the debts of a country analysed as a class on the basis of factors other than credit risk. It manifests itself when a borrower is unable to meet his foreign currency liabilities to external creditors because the country will not allow access to, or transfers to be made in, that currency, or where a recovery action against the borrower would fail for jurisdictional reasons. An overall exposure limit is set for each country, which applies across the whole Group. These limits are approved by the Operations Committee and are constantly monitored to ensure that any deterioration in the political, economic or social situation in the country can be foreseen and acted upon in good time. The geographical distribution of the Group s aggregate credit risk exposure is as follows : Credit risk - geographical distribution Spain 89.98% Other European Union 6.00% Noth America 1.59% Other OECD 1.37% Latin America 0.79% Supranationals 0.01% Other 0.26% Credit risk due to market operations Credit risk exposures to financial institutions include both cash transactions, where the amount at risk is comparable to the nominal value of the transaction, and transactions in derivative instruments not traded on organized markets where in the great majority of cases the transaction amount is below the notional value, in which case the exposure is described as counterparty risk. Banco Sabadell has developed a system for the assessment of counterparty risk which generates results that show the potential future exposure that different positions could entail; these are monitored each day on an integrated basis and reports on these exposures and on compliance with approved limits are sent to the appropriate risk control units or functions. The distribution of the Group s counterparty risk exposure is shown below for each type of counterparty. Counterparty risk (by counterparty type) Companies 20% Banks (non-oecd) 3% Banks (OECD) 77% 64 Banco Sabadell Annual Report 2003

66 Market risk Market risk is the possibility of losses in the valuation of investments due to fluctuating stock prices or interest rate or exchange rate movements. Market risk is measured by the VaR (Value at Risk) method, which allows risks on different types of financial market transaction to be aggregated. The VaR provides an estimate of the anticipated potential maximum loss on a position that would result from an adverse, but normal, movement in any of the identified parameters that affect market risk. This estimate is expressed in money terms and is calculated at a specified date, to a specified confidence level and for a specified time horizon. The estimate takes account of different levels of market risk factors (interest rates, exchange rates, equity prices), the volatility of these factors and any correlations between them. Market risk is monitored on a daily basis and reports on current risk levels and on compliance with the limits assigned to each unit are sent to the risk control functions. This makes it possible to track changes in exposure levels resulting from changes in market product prices and volatilities. Risk control of this kind is supplemented by specific simulation exercises and extreme market scenarios ( stress testing ). The reliability of the VaR methodology is validated by back testing techniques which are used to verify that the VaR estimates are within a specified confidence level. The chart below shows the evolution of the 10-day VaR in the year 2003 at a 99% confidence level. Market risk (VaR) 10-day VaR ( Mn.) Jan-03 Jan-03 Feb-03 Mar-03 Apr-03 Apr-03 May-03 Jun-03 Jun-03 Jul-03 Aug-03 Aug-03 Sep-03 Oct-03 Oct-03 Nov-03 Dec-03 Dec-03 Structural risk Structural risk arises from the ongoing customer-based commercial and corporate banking businesses. Management of structural risk seeks to ensure stability at the margin by maintaining appropriate levels of liquidity and capital strength. Structural interest rate risk Interest rate risk is caused by changes in the interest rates, reflected in the position or slope of yield curves, to which asset, liability and off balance sheet positions are linked. Gaps or mismatches arise between these items because of differences in repricing and maturity dates so that rate changes affect them at different times; this in turn affects the robustness and stability of results. Annual Report 2003 Banco Sabadell 65

67 The management of interest rate risk focuses on overall financial exposure for the Group as a whole and involves proposing alternative business or hedging strategies to allow business results to be achieved that are appropriate to market conditions and the balance sheet position. A number of methodologies are used to measure interest rate risk. These include interest rate gap analysis, which measures the sensitivity of net interest income to changes in interest rates over a one-year horizon. By this technique volumes of asset and liability items are grouped according to their maturity date (for fixed rate instruments) or their repricing date (for floating rate instruments). This analysis provides an estimate of the effect that a change in interest rates will theoretically have on net interest income, assuming that all rates change by the same amount and in a sustained manner. Gap analysis is supplemented by a simulation technique that measures the effects of different interest rate movements on different terms, that is, changes in the slope of the yield curve. These simulation techniques assign a probability to each scenario so as to arrive at a more precise estimate of the effect that interest rate movements might have. Another approach is to measure the sensitivity of asset values to changes in interest rates by duration gap analysis. This measures the effect of interest rate changes over a longer time horizon. The chart below shows the interest rate sensitivity of both net interest income and asset value. Euro structural interest rate risk (interest rate sensitivity) ( Mn.) Net interest income 0 Asset value Structural liquidity risk This can be defined as the possibility of the Bank s being unable to meet payment commitments, even if only temporarily, due to a lack of liquid assets or of its being unable to access the markets to refinance debts at a reasonable cost. Liquidity risk may be caused by external factors such as a financial market downturn, systemic crisis or reputational risk issues, or internally, by an excessive concentration of maturing liabilities. Banco Sabadell keeps a close watch on day-to-day changes in its liquid asset position and holds a diversified portfolio of such assets. It also carries out yearly projections to anticipate future needs. It uses liquidity gap analysis to manage foreseeable differences between cash inflows and outflows over a medium-term horizon. In addition, systematic checks are made to verify that the Group s ability to raise funds on the capital markets is sufficient to satisfy its requirements in the long and medium term. 66 Banco Sabadell Annual Report 2003

68 The Banco Sabadell Group has in place a number of financing programmes on the long and medium term capital markets (Euro Medium Term Notes). Short term promissory note and long term debt security issue programmes further contribute to the diversification of its sources of funds. The Group is an issuer of mortgage bonds and is active in developing new sources of finance such as asset-backed securities, which provide a further instrument for the management of liquidity risk. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from unforeseen external events. This includes legal risk. Banco Sabadell has paid particular attention to operational risk in recent years and has developed a management approach based on a dual methodology: early detection of risk using indicators of management-related or causal factors which provide a measure of potential risk exposure and over which managers have some control; and a quantitative analysis of actual loss events, the aim of which is to measure operational risk by business line and event type based on combined data of internal and external losses. This dual approach links measurement with exposure indicators and their associated action levers, by mapping the operational risks related to key management activities, that is, to a mapping of Group processes which encompasses the full range of management functions that form the basis of the Group s management control system and organizational schema. In addition, a detailed analysis of actual loss events resulting from operational risk can enhance the cost/benefit analysis prior to deciding on any investment in improved systems of process management and control; it can also ensure an optimum use of casualty and liability insurance. Annual Report 2003 Banco Sabadell 67

69 Technology In the course of 2003 the Banco Sabadell Group successfully completed the integration of Banco Herrero, ActivoBank and Banco Asturias onto the Group s IT systems and reorganized the branch network, all according to schedule. The integration of these three undertakings was carried out seamlessly and without disruption to services or business operations. It will result in considerable savings in IT costs and will ensure that communication and information systems are developed in a consistent and unified way across the Group, with consequent benefits in operational and business terms. In 2003 the Group made great efforts to hold down IT costs and succeeded in reducing them by 18% compared with the year This drive to reduce costs will continue in 2004 and has already contributed to a substantial improvement in the Group s cost/income ratio. The process of upgrading the Group s IT platform that began in the year 2000 continued all through the year. In 2003 the software applications that handle securities, credit, factoring, confirming, endowment insurance, annuities and individual pension plans were replaced, providing ample evidence of the advantages afforded by the standardized, integrated and scaleable information system now possessed by the Group. The new platform incorporates an enhanced range of tools and processes 68 Banco Sabadell Annual Report 2003

70 offering a high capacity to respond to the demands of growth, whether organic or by way of acquisitions. Another area that received attention during the year was the development of the Group s websites (Solbank, Banco Herrero, Banco Sabadell, ActivoBank and Sabadell Banca Privada). At the same time, the range of transactions available from all Group brands serving individual customers was upgraded and progress was made in making the most important online services more accessible, with BS Online being placed at the top of the AQmetrix league table. Another development during the year was the introduction of Agenda Comercial, a new application which has made it possible to further automate and improve the efficiency of the Group s operations. In April 2003 a telecommunications outsourcing and technical maintenance agreement was entered into with the Telefónica Group. The agreement will have an initial term of five years (renewable) and will not only ensure that the Banco Sabadell Group has an appropriate global telecommunications strategy in place with regard to quality and innovation, but will also enable it to develop a range of high value-added technology products and services for small and medium-sized businesses. In the year 2003 the Intranet became fully established as the Group s primary knowledge management tool and as the ideal environment in which new internal working processes can be developed and applied. The number of users logging on to the Intranet on a daily basis grew by 34%, with the number of accesses up by 62%. The implementation of the actions set out in the Security Master Plan with a view to conforming to the ISO17799 standard, and the work done in the course of the year, made it possible to reduce system diversity, eliminate redundancy, improve security and ensure system quality, thus contributing to the attainment of ISO certification in a number of areas of the Group s operations. The year also saw increased cooperation on technology with a number of universities and institutions of higher education. These included a co-operation agreement with the Autonomous University of Barcelona for the joint development of student training programmes and to design case studies for the ESADE and Instituto de Empresa business schools. Annual Report 2003 Banco Sabadell 69

71 Director José Manuel Lara Bosh Director Miguel Bósser Rovira Director Héctor María Colonques Moreno Director Juan Manuel Desvalls Maristany Director José Permanyer Cunillera Director Juan Mª Nin Genova Chairman and CEO José Oliu Creus Board of Directors 70 Banco Sabadell Annual Report 2003

72 First Deputy Chairman Buenaventura Garriga Brutau Second Deputy Chairman Joan Llonch Andreu Secretary to the Board Miquel Roca i Junyent Director Francesc Casas Selvas Director Jorge Manuel Jardim Gonçalves Director Joaquín Folch-Rusiñol Corachán Honorary Directors Juan Corominas Vila* Domingo Fatjó i Sanmiquel Antonio Ferrer i Sabater * Honorary Chairman Annual Report 2003 Banco Sabadell 71

73 Executive Committee Director and General Manager Juan María Nin Genova Secretary José Luis Negro Rodríguez 72

74 Chairman and CEO José Oliu Creus Director and General Manager José Permanyer Cunillera* * From March 24th, 2004, Chairman of Banco Atlántico Annual Report 2003 Banco Sabadell 73