Quarterly financial report

Transcription

1 Quarterly financial report Third quarter,

2 Introduction 3 Key figures 7 Profit & loss account 8 Balance sheet 14 Results by business unit 21 Other aspects 27 Stock performance 28 Disclaimer Banco Sabadell cautions that this presentation may contain forward-looking statements or estimates relating to the business performance and results of the Banco Sabadell Group. While these forward-looking statements or estimates represent our judgment and future expectations concerning the development of our business, a certain number of risks, uncertainties and other important factors may cause actual results to materially differ from our expectations or estimates. This document may contain unaudited or summarized information; accordingly, recipients are invited to consult the public information held with the Spanish Securities and Exchange Commission (CNMV). Third quarter,

3 Introduction Macroeconomic environment Economic background Market attention in the quarter, and especially in September, was focused on the difficulties facing the financial system, whilst economic indicators in the quarter confirmed growing weakness in the main economies. In terms of prices, the decrease in the price of oil helped to reduce inflationary pressures, but underlying inflation rates continued to rebound. The United States saw continued economic weakness, with further deterioration of the property sector. In the second quarter, GDP growth slipped by 0.4 percentage points to +2.1% in annual terms. In the euro area GDP rose by 1.4% in annual terms in 2Q08 (versus +2.1% in the first quarter), with decreases in quarterly terms in the main economies and deterioration in particular in private consumption and investment. In the United Kingdom the economy was flat in 2Q08, recording the lowest rate of growth in annual terms since 1992 (+1.4%, versus +2.3% in the first quarter), on the back of weakness in private consumption, exports and especially business investment. In Japan economic growth declined in 2Q08, recording the lowest rate of growth in annual terms since mid-2002 (+0.7%, versus +1.2% in the first quarter). All growth components recorded a poor performance, but especially private consumption and exports which fell in comparison with the previous quarter for the first time in three years. The main central banks were particularly active in the quarter, injecting liquidity to offset the strains in the global money markets. The Federal Reserve held rates unchanged at 2%, as the balance of risk between inflation and growth became more even. The Fed in particular has been extremely concerned about the risk of rising inflation and falling growth rates, these latter as a consequence of the credit crunch, the slump in the property sector and the slowdown in exports. On the other side of the Atlantic, the European Central Bank (ECB) unanimously resolved to make a 25bp rate rise in July, taking the benchmark rate to 4.25%, its highest level since September According to the ECB, the aim was to prevent second-round effects in inflation and counteract the increasing upside risks to price stability over the medium term. Later in the quarter the ECB adopted a more neutral stance, considering that the present monetary policy approach will help towards achieving its price stability target. Fixed income markets Government bond markets closed the quarter on a clearly positive note on both sides of the Atlantic, as bonds represented a safe haven in light of the loss of confidence in the financial system. Moreover, inflationary pressures moderated in the quarter, thanks to the drop in the price of oil, and the different regions reflected clear signs of economic weakness. Thus in the United States, 10-year bond yields closed the third quarter at 3.82%, versus 4% at end-june, and in the euro area German 10-year bond yields closed at 4.02%, versus 4.62% at the end of the second quarter. Currency markets The dollar appreciated significantly against the euro in 3Q08, to reach levels not seen since September 2007, as US government bonds acted as a refuge at a time of great instability in the financial system. Moreover, economic indicators show that the economic slowdown, which was initially centred on the United States, is now spreading to other regions. Two further factors that contributed to the relative strength of the dollar in the quarter were the decrease in the current account deficit in the United States and the possibility of capital repatriation. Thus at end- September the dollar/euro exchange rate stood at USD1.41/EUR, versus USD1.57/EUR at end-june. The yen/dollar exchange rate closed the quarter at JPY106.19/USD, virtually unchanged on end-june. GDP USA vs. Euro area (%) Official interest rate USA vs. Euro area (%) US GDP Euro area GDP US official interest rate Euro area official interest rate /92 5/93 9/94 2/96 6/97 11/98 3/00 8/01 12/02 4/04 9/05 1/07 6/08 1/99 9/99 5/00 1/01 9/01 6/02 2/03 10/03 6/04 2/05 11/05 7/06 3/07 11/07 8/08 Third quarter,

4 10-year bond yields USA vs. Germany (%) Exchange rate USD vs. EUR and JPY (%) US 10-yr bond German 10-yr bond USD / EUR JPY / USD USD/EUR exchange rate JPY/USD exchange rate 2.5 1/99 11/99 9/00 7/01 5/02 2/03 12/03 10/04 8/05 6/06 4/07 2/ ene/99 oct/99 ago/00 jun/01 abr/02 feb/03 dic/03 oct/04 jul/05 may/06 mar/07 ene/08 96 Emerging markets The signs of economic slowdown have now spread to the majority of the emerging markets. High commodity prices, the recent increases in official interest rates and the spread of the economic slowdown to most of the developed world are all factors that have contributed to this trend. Regarding prices, although inflation rates continued to rebound in the early part of the quarter, the subsequent decline in the price of crude oil alleviated some of the inflationary pressures. In this context the central banks adopted a somewhat more neutral stance, and in some cases there were even rate cuts, for example in China. One exception to this general rule was Brazil, where high economic growth and inflationary pressures led the central bank to raise the benchmark rate to 13.75%. Emerging market debt also felt the brunt of the global financial crisis in the quarter, reflected in an increase in risk premiums. Moreover some economies, such as Russia or India, were obliged to inject liquidity and to intervene to halt currency depreciation, in light of capital flight and difficulties in securing external financing. In Poland the government and the central bank agreed to set 2011 as the target date for meeting the Maastricht criteria and securing European Commission approval for adoption of the euro. Lastly, among the key credit rating moves in the quarter, Argentina s sovereign rating was downgraded from B+ to B and the outlook on Russia s sovereign credit ratings was revised from positive to stable (BBB+). Equity markets The stock markets closed 3Q08 with significant losses, against a background of measures taken by the financial and regulatory authorities to inject liquidity and stave off bankruptcies in the financial sector. Weak macroeconomic data and disappointing 2Q earnings figures provided little support in the quarter, while the oil price dropped by 29.79% to USD98.13 per Brent barrel on the back of lower economic growth expectations. In the United States the Standard & Poor s 500 rose by 1.94% in euro terms and the NASDAQ by 2.06%. As several financial institutions were hit by further losses and rumours of capital requirements, Lehman Brothers filed for bankruptcy, AIG was rescued by the Federal Reserve, which paid USD85,000 million for 79.9% of the insurance giant, and a rescue package was announced whereby Treasury funds will be used to restore confidence in the financial system. In Europe the Dow Jones STOXX 50 closed the quarter down 9.33% and the governments of Belgium, the Netherlands and Luxembourg injected a total of EUR11,200 million into Fortis in exchange for 49% of its capital. In Spain the IBEX 35 lost 8.79% in the quarter. In the utilities sector Gas Natural bought 45.3% of Unión Fenosa from ACS and acquired a further 9.9%, ahead of authorization from the regulator for a takeover bid on the company. And in the banking sector Santander announced that it had acquired Alliance & Leicester for GBP1,259 million and that it had paid GBP612 million for the assets of Bradford & Bingley. In Latin America the Brazilian index fell by 29.27% in euro terms and the Mexican index by 11.12%. In Japan the NIKKEI 300 lost 7.56% in euro terms. Third quarter,

5 Key developments in 3Q08 Bases of presentation The consolidated Group profit and loss account and balance sheet as of 30 September 2008, together with the heading breakdowns provided in this Financial Report, are all presented in accordance with the format established in Circular 1/2008 of the Spanish Securities and Exchange Commission (CNMV). The consolidated group financial statements as of 30 September 2008 also include the accounting reclassifications resulting from the agreement announced on 10 July 2008 whereby Banco Sabadell and Zurich entered into a strategic alliance for development in Spain of life and non-life insurance business, marketing of pension schemes and pension fund management. Specifically, and for the purposes of the profit and loss account, the net results as of 30 September 2008 corresponding to the insurance and pension companies affected are reported (50/50 in each case) under equity-accounted companies and discontinued transactions. This latter heading records the final net capital gain from this operation, as well as 50% of the net results obtained by these companies up to the date of formalization thereof. For purposes of comparison with the profit and loss account closed as of 30 September 2008, the FY-2007 profit and loss account has been adapted to the format established in CNMV Circular 1/2008. In addition, and also for purposes of comparison, the FY-2007 profit and loss account has been amended to include the accounting reclassifications deriving from the aforesaid agreement between Banco Sabadell and Zurich. Key figures At the close of 3Q08, Banco Sabadell has obtained attributable net profit of Euros million, up 26.1% on a year earlier, significantly reinforcing its solvency levels. Excluding extraordinaries, comparable net profit amounts to Euros million, up 3.8% year-on-year. Banco Sabadell has allocated Euros 235 million net of tax from the capital gains obtained on the bancassurance deal to fund advance extraordinary provisions and has raised its Tier I capital ratio to 7.24%. Customer deposits are up by 23.1% year-on-year and gross loans and advances by 6.8%. Banco Sabadell continues to post NPL ratios below the Spanish and European financial sector average. In a general economic scenario affected by the global financial crisis and against the backdrop of the associated general crisis of confidence and anxiety, Banco Sabadell has closed the first nine months of the year with an exercise in prudence, reinforcing its solvency levels and its liquidity position and maintaining its balanced results profile thanks to 10.1% growth in net interest income and cost containment (costs have risen by just 0.3%). The third quarter saw the formalization and close of the alliance with Zurich, a leading insurance group worldwide. This partnership has entailed, inter alia, sale of 50% of Banco Sabadell s bancassurance group to Zurich, resulting in net capital gains of Euros 512 million that have been used to bolster the balance sheet. Of these total capital gains, Euros million were booked in 3Q08. The remainder, which basically correspond to tax credits for reinvestment of capital gains, will be booked as and when specific reinvestment schemes materialize. The agreement with Zurich represents a key strategic alliance for Banco Sabadell and its customers. Moreover, Zurich s solvency levels and its sophisticated and prudent risk policy represent important growth prospects for the bank s bancassurance business, especially in the present climate of heightened uncertainty. The bank s commercial activities have focused on attracting investable customer deposits, to enable it to continue to meet credit demand, thus generating a positive liquidity gap. Thus, on-balance-sheet customer funds totalled Euros 38, million, with a 23.1% increase in customer deposits (excluding the effect of deconsolidation of the bancassurance businesses). Discounting the increase resulting from the deconsolidation of the bancassurance business, fixed-term deposits grew by 62.4% on a year earlier. Loans and advances rose by 6.8%. Working capital financing shows good growth, both in percentage terms and by business volume, especially factoring and confirming which record overall growth of 10.6% versus end-september The liquidity surplus resulting from the favourable performance of the deposit/loan gap, together with the assets eligible for rediscounting, mean that the bank s liquidity position is more than sufficient to meet its maturity schedule through As of 30 September, Banco Sabadell continues to be one of the financial institutions with the lowest NPL levels in the industry (1.59%); in fact the gap between Banco Sabadell and the industry average has widened. The bank s provisioning levels represent a coverage ratio of 140%. Net interest income is up 10.1% on a year earlier, whilst gross operating income (before provisions) is up 3.8% at Euros million. This has been achieved thanks to strict cost control that has enabled the bank to offset the deterioration expected in fee income and income from financial transactions as a result of the global financial situation. In the first nine months of the year, Banco Sabadell allocated Euros million to loan loss provisions; of this total, Euros 235 million represent advance coverage, applying the criteria of prudence, in light of the foreseeable deterioration in the economic situation in the months ahead. At the end of the third quarter the cost/income ratio stood at 43.02%, an improvement of four percentage points in the year. Banco Sabadell s enhanced solvency levels are reflected in its Tier I capital ratio, which now stands at 7.24%. Third quarter,

6 Extraordinaries and profit excluding extraordinaries ( mn) Change (%) (net of tax) 3Q08 3Q07 3Q08 YoY Capital gain Zurich Credit risk provision Book profit % Other writedowns Other extraordinary items 47.9 Extraordinaries Extraordinaries Profit excl. extraord % Excellent performance of Optima 09 Master Plan As of 30 September, the two-year Optima 09 Master Plan, focused on operating efficiency and commercial productivity, is progressing according to plan and significant progress has been made in the different cost and revenue programmes. Two of the most noteworthy achievements are the introduction of the CARs (regional administrative centres), centralizing the network s administrative tasks, and the organizational resizing of the corporate centre units; both these measures are aimed at increasing the number of persons involved in the commercial side of the business. Ratings In its latest report dated 29 July, Fitch affirmed Banco Sabadell s long-term issuer default rating (IDR) at A+. Standard & Poor s had similarly confirmed its ratings in March. Quality leader According to the latest figures published by the Bank of Spain s Complaints Service, Banco Sabadell is, for the sixth consecutive year, the Spanish bank recording the lowest number of complaints filed with the central bank, by business volume. The Complaints Service establishes a ratio between the complaints filed and average business volume. On this basis, Banco Sabadell, with 0.2%, records the lowest ratio overall of all the Spanish banking institutions. Two interim dividends On 27 July 2008 the Board of Directors of Banco Sabadell resolved to raise the number of interim dividends for 2008 from one to two, in addition to the final dividend. The first interim dividend, amounting to Euros 0.08 per share, was paid on 29 August. Third quarter,

7 Key figures Change (%) YoY Balance sheet ( '000) Total assets 75,361,319 76,776,002 80,379, Gross loans and advances to customers 61,855,061 63,219,330 66,048, On-balance sheet funds 63,786,469 65,620,880 66,083, Of which: Customer deposits (ex-repos) 27,421,974 30,651,756 35,479, Mutual funds 16,641,377 15,548,492 10,894, Pension funds 3,380,206 3,502,159 2,839, Funds under management 85,844,241 86,578,086 84,587, Shareholders' equity 4,276,193 4,501,383 4,875, Profit and loss account ( '000) Net interest income 979,473 1,316,662 1,078, Gross operating income 1,624,051 2,161,816 1,662, Net income before provisions 813,210 1,017, , Attributable net profit 604, , , Ratios (%) ROA ROE Cost / income (ex amortisation) (1) Core capital (2) Tier I (2) BIS ratio (2) Risk management Non-performing loans ( '000) 287, ,673 1,172,342 Provisions for NPLs ( '000) 1,239,279 1,307,765 1,641,271 NPLs / Gross loans (%) Coverage ratio (%) Balance sheet provisions as % of gross loans Share data (period end) Number of shareholders 79,343 80,669 85,811 Number of shares 1,224,013,680 1,224,013,680 1,224,013,680 Share price ( ) Market capitalisation ( '000) 8,262,092 9,069,941 6,670,875 Earnings per share annualised (EPS) ( ) Price /earnings ratio (P/E) (times) Book value per share ( ) Price /Book value (times) Other data Domestic branches 1,208 1,225 1,237 Employees 10,282 10,234 10,015 ATMs 1,454 1,474 1,469 (1) Personnel and other general administrative expenses / gross operating margin. (2) Ratio as of calculated according to Basel II criteria with Bank of Spain approved models and saving limited by a 90% floor. Third quarter,

8 Profit & loss account Profit & loss account Change (%) ( '000) 9M07 9M08 YoY Interest and related income 2,655,339 3,273, Interest and related charges -1,675,866-2,194, Net interest income 979,473 1,078, Dividend income 8,267 6, Income from equity method 39,752 38, Net fees and commissions 463, , Results from financial transactions (net) 76,709 58, Foreign exchange (net) 40,839 39, Other operating income/expense 15,068 16, Gross operating income 1,624,051 1,662, Personnel expenses -486, , Other general expenses -226, , Amortization & depreciation -97, , Net income before provisions 813, , Other results 73, Provisions for NPLs and others -94, , Net result from discontinued transactions (after taxes) 14, , Income tax -197,367-68, Consolidated net profit 608, , Minority interest 3,674 2, Attributable net profit 604, , Pro memoria: Average total assets 72,355,368 79,834,204 Earnings per share ( ) Profit & loss account, quarterly Change (%) ( '000) 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 YoY Interest and related income 811, , ,412 1,033,469 1,034,879 1,073,886 1,164, Interest and related charges -498, , , , , , , Net interest income 313, , , , , , , Dividend income 679 6, ,199 1, , Income from equity method 10,339 16,675 12,738 12,465 13,499 18,778 6, Net fees and commissions 163, , , , , , , Results from financial transactions (net) 23,732 18,425 34,552 18,324 27,014 13,855 17, Foreign exchange (net) 14,623 11,740 14,476 15,503 10,417 14,196 14, Other operating income/expense 7,236 7, ,994 6,501 2, Gross operating income 533, , , , , , , Personnel expenses -153, , , , , , , Other general expenses -74,170-75,593-76,895-94,438-72,222-78,227-81, Amortization & depreciation -29,250-30,650-38,022-30,422-31,793-33,831-37, Net income before provisions 276, , , , , , , Other results -1,014 49,835 24,326 46,430 20,878 3,557-24, Provisions for NPLs and others -13,599-57,490-23,904-90,932-40,897-42, , Net result from discontinued transactions (after taxes) 4,600 4,931 4,616 5,695 5,569 5, , Income tax -58,491-63,231-75,645 14,133-55,703-46,811 34, Consolidated net profit 207, , , , , , , Minority interest 320 2,208 1,146 1, Attributable net profit 207, , , , , , , Pro memoria: Average total assets 70,804,807 71,986,038 74,237,537 75,556,977 77,645,228 79,870,549 81,657,859 Earnings per share ( ) Third quarter,

9 Net interest income Average returns st Quarter 2nd Quarter 3rd Quarter 4th Quarter ( '000) Avge.balance Rate % Income Avge.balance Rate % Income Avge.balance Rate % Income Avge.balance Rate % Income Cash and balance with central banks & financial 5,133, ,660 4,129, ,146 4,210, ,513 3,825, ,805 Loans to customers 54,764, ,034 57,510, ,810 60,142, ,074 60,937, ,968 Fixed-income securities 4,930, ,208 4,317, ,386 4,257, ,142 4,525, ,738 Subtotal 64,828, ,902 65,957, ,342 68,609, ,729 69,287, ,511 Equity securities 968, , , ,283, Tang. & intang. assets 1,629, ,675, ,708, ,687, Other assets 3,378, ,790 3,479, ,893 2,922, ,683 3,298, ,958 Total 70,804, ,692 71,986, ,235 74,237, ,412 75,556, ,033, st Quarter 2nd Quarter 3rd Quarter 4th Quarter ( '000) Avge.balance Rate % Income Avge.balance Rate % Income Avge.balance Rate % Income Avge.balance Rate % Income Cash and balance with central banks & financial 4,143, ,522 4,042, ,454 4,562, ,258 Loans to customers 62,041, ,699 63,524, ,876 64,383, ,015,691 Fixed-income securities 4,357, ,132 4,871, ,017 5,318, ,308 Subtotal 70,542, ,007,353 72,439, ,054,347 74,264, ,130,257 Equity securities 1,167, ,248, ,246, Tang. & intang. assets 1,700, ,736, ,935, Other assets 4,234, ,526 4,445, ,539 4,211, ,017 Total 77,645, ,034,879 79,870, ,073,886 81,657, ,164,274 Average cost of funds st Quarter 2nd Quarter 3rd Quarter 4th Quarter ( '000) Avge.balance Rate % Expense Avge.balance Rate % Expense Avge.balance Rate % Expense Avge.balance Rate % Expense Financial institutions 4,758, ,707 4,541, ,104 4,350, ,731 3,768, ,824 Customer deposits 26,177, ,073 27,002, ,557 26,823, ,191 29,134, ,181 Capital markets 27,061, ,067 27,833, ,048 30,098, ,395 30,712, ,038 Repos 3,399, ,603 2,893, ,171 2,730, ,796 2,390, ,537 Subtotal 61,397, ,450 62,272, ,880 64,003, ,113 66,006, ,580 Other liabilities 5,222, ,148 5,282, ,488 5,672, ,787 5,035, ,700 Shareholders' equity 4,184, ,431, ,562, ,515, Total 70,804, ,598 71,986, ,368 74,237, ,900 75,556, , st Quarter 2nd Quarter 3rd Quarter 4th Quarter ( '000) Avge.balance Rate % Expense Avge.balance Rate % Expense Avge.balance Rate % Expense Avge.balance Rate % Expense Financial institutions 3,645, ,477 3,848, ,276 4,356, ,639 Customer deposits 32,072, ,954 33,302, ,401 34,119, ,639 Capital markets 28,881, ,044 28,478, ,249 29,067, ,658 Repos 2,403, ,567 3,336, ,667 3,753, ,774 Subtotal 67,003, ,042 68,965, ,593 71,297, ,710 Other liabilities 6,175, ,695 6,413, ,249 5,854, ,691 Shareholders' equity 4,465, ,491, ,506, Total 77,645, ,737 79,870, ,842 81,657, ,401 Third quarter,

10 Customer spread (%) Customer loan yield Wholesale funding costs Customer deposit cost Net interest income as % of ATA (%) Combined customer spread (*) Customer spread Net interest income as % of ATA 5,47% 4,45% 2,53% 5,72% 5,93% 6,06% 6,28% 4,81% 4,78% 4,83% 5,06% 3,47% 3,13% 3,22% 2,79% 2,94% 2,93% 2,80% 2,84% 2,81% 1,93% 1,89% 2,02% 2,10% 2,07% 1,81% 1,77% 1,80% 1,83% 1,79% 3Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08 (*) Customer loan yield (customer deposit cost + wholesale funding cost) Net interest income at 30 September 2008 totalled Euros 1,078.1 million, up 10.1% on the same period of the previous year. In 3Q08 net interest income amounted to Euros million, an increase of Euros 4.8 million on 2Q08 that is primarily due to the Euros million growth in customer spread. The customer spread narrowed by 3 basis points to 2.81% on the back of customer deposit repricing. Average wholesale funding costs rose by 23 basis points to 5.06%. The cost of wholesale funding increased by Euros 27.4 million versus the previous quarter, due to a great extent to the higher Euribor. Average customer loan volumes rose by Euros 859 million in 3Q08, with most growth concentrated on mortgage loans and credits. The impact of this increase in loan volumes on results was Euros 13.2 million, whilst the impact of repricing loans and advances amounted to Euros 45.6 million. The average yield on customer loans was 6.28%, up 22 basis points on the previous quarter. Average customer deposit volumes also rose in the third quarter, by Euros 817 million, due to the large number of campaigns conducted, reflecting an increase in cost of Euros 6.8 million. The average cost of customer deposits was 3.47%, up 25 basis points on the previous quarter. Customer-based funding has continued to increase, coming to represent 41.8% of the total. Wholesale funding costs rose by Euros 27.4 million versus 2Q08. The average volume of wholesale funding grew by Euros 589 million, coming to represent 35.6% of the total. Repricing of various issues caused by the rise in the Euribor led to an increase in cost of Euros 20.1 million. The fixed-income portfolio spread, including the cost of repos, widened by 11 basis points versus the second quarter, to close at 0.64%, while the credit institution spread improved by 6 basis points. Overall, total net interest income represented a return on average total assets of 1.79%, that is, 4 basis points below the 2Q08 figure. Net interest income rose by Euros 28.4 million (+8.4% year-on-year) in the third quarter. The main reason for this increase is the 9.1% growth in customer spread (Euros 60.2 million), offset by the 9.6% increase (Euros 32.3 million) in wholesale funding costs. Third quarter,

11 Fees Change (%) Change (%) ( '000) 3Q07 2Q08 3Q08 3Q07 2Q08 Asset transactions 20,069 30,634 27, Guarantees 16,923 18,556 19, Transferred to other entities Lending commissions 36,389 48,527 46, Cards 16,212 13,998 15, Payment orders 9,589 10,675 10, Securities 11,754 9,213 8, Demand accounts 8,631 14,183 8, Other transactions 7,629 13,445 8, Commissions for services 53,815 61,514 51, Mutual funds 42,919 31,432 27, Pension funds and insurance brokerage 9,260 9,356 9, Mutual and pension fund and insurance commissions 52,179 40,788 37, Total 142, , , Net fees amounted to Euros million in 3Q08, down 10.7% on the second quarter due both to the summer period and the further deterioration in the economic situation and the financial markets. In year-on-year terms, net fees overall decreased by 5.4%. Fees from risk transactions fell by 4.2% versus the second quarter, due to the decrease in volumes over the summer period. This slowdown is particularly noticeable in fees linked to specialist corporate financing products. Fees linked to guarantees rose by 5.3% versus 2Q08. Commissions for services or service fees fell by 16.8% overall, also as a result of the slowdown in activity in the quarter. However card fees rose by 14.1% in quarterly terms, due to the positive performance of fees charged to retailers in general and growth in ATM transactions, inter alia. Mutual fund fees fell by 12.8% in 3Q08, on the back of the adverse market situation recorded since August 2007 that has led to a reduction in the volume of assets managed and sold in favour of more attractive investment alternatives for customers (mainly fixed-term deposits). Thus, total asset volume in mutual funds managed and sold as of 30 September 2008 amounted to Euros 10, million, versus Euros 12, million three months earlier. Fees from the sale of pension funds and insurance rose by 2.8% on the previous quarter, due to formalization of a number of multi-investment transactions. In comparison with end-september 2007, fees from risk transactions rose by 27.8% (Euros million), thanks to the higher contribution of fees from loan transactions, up 37.6% primarily as a result of higher volumes in specialist corporate financing products. Fees linked to guarantees also rose, in this case by 15.4%, due to the sustained strength recorded by guarantees in Commissions for services or service fees fell by 4.9% overall, impacted by the decline in securities fees (both the number of securities transactions and the transaction volume decreased sharply in the 12 months from end- September 2007). Mutual fund fees and fees from the sale of pension funds and insurance record a decline of 29.0%, chiefly as a result of the Euros million decrease (-36.1%) in mutual fund fees, as the volume of funds managed and/or sold decreased in a similar amount (-34.5%). By contrast, fees from the sale of pension funds and insurance record year-on-year growth of 3.8%. Third quarter,

12 Administrative expenses Change (%) Change (%) ( '000) 3Q07 2Q08 3Q08 3Q07 2Q08 Personnel expenses -173, , , IT -12,654-12,788-11, Communications -5,796-5,622-6, Advertising -7,419-8,208-7, Premises -14,265-16,097-17, Stationery and office supplies -2,633-2,539-2, Taxes other than income tax -11,726-11,323-13, Others -22,402-21,650-22, Other general expenses -76,895-78,227-81, Total -250, , , In 3Q08 administrative expenses amounted to Euros million, reflecting continued strict control of personnel and other general expenses made possible by the introduction of operating efficiency improvements. The graphs record the quarterly performance of administrative (personnel and general) expenses, broken down between recurrent and non-recurrent items. The changes in personnel expenses versus 2Q08 reflect the impact of the acquisition of BBVA s private banking business in Miami and the incorporation of BS Fincom (100%-owned). Excluding these effects, recurrent personnel expenses in 3Q08 would be very similar to those recorded in 3Q07. In the case of other general expenses, the 4.1% increase versus 2Q08 and the 5.9% increase versus 3Q07 are both a result of the increase in the stakes held in BS Fincom and Tecnocredit which are now both fully consolidated. Personnel expenses ( mn) Other general expenses ( mn) Recurrent Non-recurrent Recurrent Non-recurrent Q07 4Q07 1Q08 2Q08 3Q08 3Q07 4Q07 1Q08 2Q08 3Q08 Third quarter,

13 Provisions for NPLs and other provisions Change (%) Change (%) ( '000) 3Q07 2Q08 3Q08 3Q07 2Q08 Generic provisions -15,967-3,797 10, Specific provisions -12,181-39, , Others 1,426-17,869-6, Provisions for NPLs (net) -26,722-61, , Other provisions 2,818 18,048-35, Total -23,904-42, , At the end of the third quarter of the year, provisions for NPLs amounted to Euros million. Generic provisions recorded a release of Euros 10.1 million, thanks to the 1- basis point reduction in average alpha as a result of the efforts made to improve the quality of loans and advances. The bank has not needed to have recourse to generic provisions. Specific provisions in the quarter totalled Euros million. This increase is chiefly due to extra provisions made by the bank, ahead of a possible deterioration in the economic environment, taking advantage of the capital gains obtained from the sale of the Group insurance businesses. Moreover the increase in NPLs, although below the sector average, has raised the need for specific provisions. During the quarter a total of Euros 8.3 million was written off directly against results. Third quarter,

14 Balance sheet Change (%) ( '000) YoY Cash and balance with Central Banks 713,935 1,220, , Trading and derivatives portfolios and other financial assets 973,979 1,035, , Available-for-sale financial assets 5,094,669 5,420,592 3,868, Loans and advances 65,578,487 66,163,819 70,421, Balances with financial institutions 4,870,871 4,164,457 5,901, Loans to customers 60,707,616 61,999,362 64,519, Investments in associated companies 329, , , Property, plant and equipment 971, ,465 1,011, Intangible assets 716, , , Inventories 2,547 2, , Other assets 965, ,917 1,490, Non-current assets held for sale 14,583 10,615 14, Total assets 75,361,319 76,776,002 80,379, Trading and derivatives portfolios and other financial liabilities 886, , , Financial liabilities at amortised cost 66,131,448 67,434,369 73,857, Central banks and credit institutions 4,087,885 3,954,502 6,841, Customer deposits 30,098,194 33,350,687 37,831, Capital markets 28,197,613 27,039,762 26,023, Subordinated liabilities 2,519,506 2,211,978 2,115, Other financial liabilities 1,228, ,440 1,045, Liabilities under insurance contracts 2,971,156 3,018, , Provisions 448, , , Other liabilities 567, , , Subtotal liabilities 71,004,591 72,171,498 75,714, Shareholders' equity 4,276,193 4,501,383 4,875, Valuation adjustments 59,053 81, , Minority interest 21,482 21,250 18, Equity 4,356,728 4,604,504 4,664, Total liabilities and equity 75,361,319 76,776,002 80,379, Contingent risks 7,595,432 7,575,190 7,700, Contingent liabilities 22,662,660 23,291,982 21,753, Total memorandum accounts 30,258,092 30,867,172 29,453, Third quarter,

15 Loans and advances Change (%) ( '000) YoY Loans to customers 61,421,059 62,895,634 64,715, Mortgage loans & credits 27,956,062 28,815,335 30,352, Other secured loans & credits 5,086,379 4,981,963 4,816, Commercial loans 3,685,537 3,579,153 3,255, Other loans 7,649,008 7,713,254 8,886, Other credits 10,422,626 10,531,338 10,316, Leasing 3,573,241 3,591,491 3,601, Factoring 1,379,106 1,793,136 1,386, Confirming 839, ,474 1,066, Overdrafts and sundry accounts 772, ,015 1,034, Reverse repos 57,854 54, Non-performing loans 276, ,226 1,139, Accruals 157, , Gross loans and advances to customers 61,855,061 63,219,330 66,048, NPL and country-risk provisions -1,147,445-1,219,968-1,528, Loans to customers 60,707,616 61,999,362 64,519, Pro memoria: total securitisation 4,887,986 5,898,276 8,297, Of which: mortgage backed 2,824,862 3,280,729 4,687, Other securitised assets 2,063,124 2,617,547 3,609, Of which: securitised after ,519,579 5,558,048 8,063, Of which: mortgage backed 2,505,875 2,981,089 4,475, Other securitised assets 2,013,704 2,576,959 3,587, Customer loans as of 30/09/07 (%) Customer loans as of 30/09/08 (%) Other secured loans & credits 8% Commercial loans 6% Other loans 12% Reverse repos 0% Other credits 17% Other secured loans & credits 7% Commercial loans 5% Other loans 14% Reverse repos 0% Other credits 16% Overdrafts and sundry accounts 1% Leasing 6% Overdrafts and sundry accounts 2% Leasing 6% Mortgage loans & credits 46% Factoring and confirming 4% Mortgage loans & credits 46% Factoring and confirming 4% Third quarter,

16 Gross loans and advances to customers ( mn) Gross loans and advances to customers by economic sectors as of 30/09/08 (%) Services & other 36% Agriculture & fisheries 1% Mortgage loans to individuals 21% 3Q07 4Q07 1Q08 2Q08 3Q08 Property developers 14% Construction 5% Industry 19% Other credit to individuals 4% At the close of the third quarter, gross loans and advances to customers totalled Euros 66, million, an increase of Euros 4, million on end-september 2007, representing year-on-year growth of 6.8%. Growth was general across the majority of loans and advances. In particular we highlight the increase in mortgage loans, which grew by Euros 2, million (+8.6%), and other loans, which grew by Euros 1, million (+16.2%). Specialist corporate financing products recorded growth of 4.5% overall; among these products we highlight confirming, which posted an especially good performance, up 27.1%. Analysis of loans and advances by quarters shows a consolidated sustained growth trend, in all cases within a set of selective growth parameters designed to reinforce the bank s sound liquidity position. Gross loans and advances record growth of Euros 2, million (+4.5%) on the 2007 close; in the third quarter they grew by Euros million. Third quarter,

17 Credit risk management Change (%) ( '000) YoY Opening balance (1st January) 250, , , Increase due to new loan defaults 257, ,055 1,082, Recoveries on loans previously written off -178, , , Write-offs -41,796-60, , Total bad and doubtful debts 287, ,673 1,172, Gross loans and advances to customers 61,855,061 63,219,330 66,048, Contingent risks 7,595,432 7,575,190 7,700, Total risks 69,450,493 70,794,520 73,748, Specific provisions 83, , , Generic provisions 1,155,527 1,170,619 1,183, Total provisions for NPLs 1,239,279 1,307,765 1,641, NPLs / Gross loans (%) Coverage ratio (%) NPLs/Gross loans and coverage ratio (%) 430, , , , , , ,85 0, ,41 0, Q07 4Q07 1Q08 2Q08 3Q08 1,3 1,2 1,1 1,0 0,9 0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0,0 The NPLs/gross loans ratio rose by 74 basis points in the third quarter, below the average industry increase. Some 58% of all doubtful debt balances are secured by mortgages and the other 42% by various kinds of personal guarantees or warranties. Of these latter, 78% correspond to exposure to companies for which, in light of its focus on corporate clients, the Group has a highly specialized recovery platform. NPLs / Gross loans (%) Coverage ratio (%) Third quarter,

18 Customer funds under management Change (%) ( '000) YoY Customer deposits 30,098,194 33,350,687 37,831, Current accounts 13,648,552 13,095,918 12,635, Savings accounts 1,920,753 1,861,113 1,803, Fixed-term deposits 11,852,669 15,694,725 21,040, Repos 2,449,556 2,493,544 2,083, Accruals 128, , , Derivative hedging adjustments 97,809 94,984-3, Debt and other tradable securities 28,197,613 27,039,762 26,023, Subordinated liabilities 2,519,506 2,211,978 2,115, Liabilities under insurance contracts 2,971,156 3,018, , On-balance sheet funds 63,786,469 65,620,880 66,083, Pro memoria: Customer deposits (ex-repos) 27,421,974 30,651,756 35,479, Mutual funds 16,641,377 15,548,492 10,894, Equity funds 1,619,450 1,425, , Balanced funds 1,867,465 1,489, , Fixed-income funds 4,012,494 3,628,342 3,158, Guaranteed return funds 3,005,546 2,845,384 2,546, Real estate funds 906, ,807 1,039, Hedge funds 0 0 3, Dedicated investment companies 2,456,708 2,208,415 1,772, Third-party funds 2,772,861 3,032,626 1,271, Pension funds 3,380,206 3,502,159 2,839, Individual 2,141,518 2,268,461 1,691, Company 1,205,111 1,195,745 1,112, Group 33,577 37,953 34, Third-party insurance products 0 0 3,415, Managed accounts 2,036,189 1,906,555 1,354, Funds under management 85,844,241 86,578,086 84,587, Customer funds as of 30/09/07 (%) Customer funds as of 30/09/08 (%) Savings accounts 6% Fixed-term deposits 40% Fixed-term deposits 55% Savings accounts 5% Current accounts 46% Repos 8% Current accounts 34% Repos 6% Third quarter,

19 Customer deposits (ex repos) ( mn) Q07 4Q07 1Q08 2Q08 3Q08 At end-september 2008, customer deposits (ex repos) amounted to Euros 33, million, an increase of Euros 8, million (+29.4%) on end-september This growth in customer deposits is higher than that recorded by gross loans and advances (which rose by Euros 4, million year-on-year); this places the Group in a comfortable position regarding funding of new loans and advances and at the same times reinforces its already sound liquidity position. Growth in customer deposits was focused chiefly on fixedterm deposits, which as of 30 September 2008 recorded a balance of Euros 21, million (+77.5% year-on-year). Debt and other tradable securities were down 7.7% in yearon-year terms. The key issues and maturities in the last 12 months were: a Euros 1,016 million commercial paper issue (net increase) and maturity of a 400 million Banco Sabadell unsecured debentures issue in 3Q08; a Euros 1,250 million mortgage-backed securities issue and maturity of Euros 1,000 million in Banco Sabadell unsecured debentures in 2Q08; maturity of Euros 1,500 million in Banco Sabadell unsecured debentures in 1Q08; a Euros 400 million mortgage-backed securities issue and maturities of Euros 1,250 million in unsecured debentures and of Euros 450 million in commercial paper in 4Q07; and a Euros 400 million unsecured debentures issue in 3Q07. At the end of the third quarter, total Group on-balancesheet funds amounted to Euros 66, million, up 3.6% on end-september Total funds under management closed the quarter at Euros 84, million, down 1.5% on the 3Q07 figure (Euros 85, million). This decline is due to the lower asset balances held in mutual funds (-34.5%) and pension funds (-16.0%) as a consequence of the global financial and stock market crisis that began in the second half of Equity Change (%) ( '000) YoY Shareholders' equity 4,276,193 4,501,383 4,875, Issued capital 153, , , Reserves 3,750,929 3,753,530 4,184, Less: treasury shares -73,086-29, , Attributable net profit 604, , , Less: dividends and payments -159, ,164-97, Valuation adjustments 59,053 81, , Minority interest 21,482 21,250 18, Equity 4,356,728 4,604,504 4,664, Third quarter,

20 BIS ratio BIS II (*) Change (%) ( '000) YoY Issued capital 153, , , Reserves 4,021,625 4,157,521 4,529, Minority interest 18,614 19,793 20, Deductions -601, , , Core capital 3,591,410 3,734,537 4,069, Core capital (%) Preference shares 750, , , Valuation adjustments , Deductions , Primary capital 4,341,410 4,484,537 4,418, Tier I (%) Generic provisions 728, , , Subordinated debt 1,642,000 1,630,000 1,330, Valuation adjustments 74,983 91, Deductions -191, , , Secondary capital 2,254,192 2,263,420 1,494, Tier II (%) Total capital 6,595,602 6,747,957 5,913, Minimum capital requirement 4,817,054 4,968,512 4,883, Capital surplus 1,778,548 1,779,445 1,030, BIS ratio (%) Risk weighted assets (RWA) 59,326,481 61,351,915 61,040, (*) Calculated according to Basel II criteria, with Bank of Spain approved models and saving limited by a 90% floor. Credit ratings Agency Date Long term Short term Individual Support Outlook Strength Fitch A+ F1 A/B 3 Stable Standard & Poor's (1) A+ A1 Stable Moody's Aa3 Prime 1 Stable B- (1) Copyright by Standard & Poor s, A division of the McGraw-Hill Companies, Inc. Reproduced with permission of Standard & Poor s. Third quarter,

21 Results by business units This section discusses performance by the Group s individual business units. The information presented here is based on the individual financial statements of each Group company, after the corresponding consolidation eliminations and adjustments and with analytical accounting of revenues and expenses in cases in which a business is spread over more than one legal entity, to enable customer revenues and costs to be assigned to specific units. Each business unit is treated as an independent business and transfer prices are charged in cases in which one business unit distributes products, services or systems for another. The ultimate impact on the Group profit and loss account is zero. Each business bears its own direct costs, on the basis of general and analytical accounting, as well as the indirect costs of the corporate units. Moreover, capital is assigned such that each business has capital equivalent to the regulatory amount required to reach the Group s target ratios on the basis of its assets at risk. The following table shows the key figures for each individual business unit: Profit ROE Cost / income Employees Domestic before tax ratio branches ( '000) Commercial banking 330, % 53.7% 6,661 1,126 SME banking 332, % 20.5% 1, Banco Urquijo 24, % 46.3% Asset management 36, % 24.4% Profit ROE Cost / income Employees Domestic before tax ratio branches ( '000) Commercial banking 332, % 49.4% 6,421 1,155 SME banking 360, % 19.0% 1, Banco Urquijo 17, % 58.3% Asset management 23, % 35.2% Third quarter,

22 Commercial banking Change (%) ( '000) 9M07 9M08 YoY Net interest income 590, , Net fees and commissions 268, , Results from financial transactions (net) 11,880 16, Foreign exchange (net) 14,430 13, Other operating income/expense -7,247-8, Gross operating income 878, , Personnel expenses -249, , Other general expenses -48,090-48, Amortization & depreciation -21,709-23, Indirect costs -197, , Provisions (net) Impairment losses -31, , Net operating income 330, , Other results Profit before tax 330, , Ratios (%) ROE 20.3% 20.1% -- Cost / income (ex amortisation) 53.7% 49.4% -- Other data Employees 6,661 6, Domestic branches 1,126 1, Loans ( million) 27,983 29, Deposits ( million) 32,405 33, Commercial banking is one of the key lines of Banco Sabadell s business structure, focused on financial services and products for private customers, SMEs and small businesses. This specialisation enables it to provide tailormade services to meet their needs through specialist staff working in the branch networks of the Group s different brands and channels in place to facilitate relations and operations with customers. Commercial banking comprises the entire domestic banking business (SMEs, small businesses and private customers) of SabadellAtlántico, Solbank, Banco Herrero and ActivoBank. The effective development of our business model, with increases in all segments and application of pricing and fee policies enabled a year-on-year growth of 8.4% in gross operating income. Financial revenues grew 24.6% more than in the first nine months of 2007, which together with good on-balance-sheet fund management led to a 12.8% year-on-year increase in net interest income. Increased productivity together with strict cost control led to higher business volume in Commercial banking, with operating costs (except provisions) 0.2% lower than in same period of last year. These recurrent results have driven the profit obtained by Commercial banking as of 30 September to Euros million, 0.5% up over the previous year. Attracting new customers was without doubt one of the key priorities in commercial activity through the third quarter which saw more than 21,500 new companies and 115,000 new private customers. The micro-enterprise and SME segment has continued its intense activity, enabling it to sustain growth in both funds and lending. As of end-september 2008 and in comparison with the same period of last year, we highlight among working capital products the year-on-year increases recorded in confirming and factoring, totalling 106.9% and 20.7% respectively. In the case of medium- and long-term products, special mention should be made of the Euros 520 million arranged in subsidized lines of finance, especially important in the current market situation, as they are funds from official bodies and therefore represent no consumption of funds for the bank. The marked increase throughout this year indicates the upward trend of this product group in which the chief factor is the ICO PYME line, which with Euros 320 million is the chief means of modernizing the production assets of our SMEs. Overall, the Banco Sabadell Group consolidates a commendable 7% of the total of the Spanish banking sector, reflecting our sustained increase in the share associated with these operations. Mention should also be made of the Euros 160 million in funds with European Investment Bank operations. The pace of marketing of interest rate hedging products was notable as shown by the more than Euros 2,400 million in 7,200 operations, well accepted by SMEs to Third quarter,