Banco Sabadell, S.A.

Transcription

1 CREDIT OPINION 25 September 218 Banco Sabadell, S.A. Update following affirmation of deposits at Baa2 and debt at Baa, outlook changed to stable Update Summary On Wednesday 19 September 218, we affirmed Banco Sabadell, S.A. ratings and changed the outlook to stable from positive to reflect our assessment of a slower-than-anticipated improvement in Banco Sabadell s credit profile. RATINGS Banco Sabadell, S.A. Domicile Spain Long Term CRR Baa1 Type LT Counterparty Risk Rating - Fgn Curr Not Assigned Long Term Debt Baa Type Senior Unsecured Dom Curr Stable Long Term Deposit Baa2 Type LT Bank Deposits - Fgn Curr Stable Please see the ratings section at the end of this report for more information. The ratings and outlook shown reflect information as of the publication date. Analyst Contacts Banco Sabadell s long-term Baa2 deposit ratings and its Baa long-term senior debt ratings with a stable outlook, reflect (1) the bank s BCA; (2) the uplift from our Advanced Loss Given Failure (LGF) analysis, which results in a two-notch uplift for deposits and one-notch uplift for senior debt; and () one notch of uplift for the deposit and senior debt ratings from our assumptions of moderate support from the Government of Spain (Baa1, stable). Banco Sabadell s standalone BCA reflects (1) the bank s moderate asset risk profile which has materially improved after the divestment of the bulk of its foreclosed real estate assets portfolio and declining trend in the stock of non-performing loans (NPLs) and which we expect to continue to reduce further in line with its strategic plan; (2) the group s modest although weaker capital and profitability indicators following the extraordinary items recorded in H1 218, that were namely related to the losses at the group's subsidiary TSB Bank plc (TSB, Baa2 negative, baa2) and one-off provisions due to the sale of problematic assets, which we expect to gradually recover on the back of further balance sheet de-risking, growing business volumes and market shares in Spain as well as improving efficiency levels by optimizing resources and new IT capabilities; () and its adequate liquidity position. Exhibit 1 Carola Schuler Managing Director - Banking carola.schuler@moodys.com Banco Sabadell, S.A. (BCA: ) Median -rated banks 14% 1% 12% % 29% 1% 28% 8% 27% 6% 26% 4% 25% 2% 6.2% 7.% Asset Risk: Problem Loans/ Gross Loans Capital: Tangible Common Equity/Risk-Weighted Assets % CLIENT SERVICES Americas Asia Pacific Japan EMEA Solvency Factors (LHS) Source: Moody's Financial Metrics.1% Profitability: Net Income/ Tangible Assets.% 26.6% Funding Structure: Market Funds/ Tangible Banking Assets Liquid Resources: Liquid Banking Assets/Tangible Banking Assets 24% 2% Liquidity Factors (RHS) Liquidity Factors Alberto Postigo VP-Sr Credit Officer - Banking alberto.postigoperez@moodys.com Rating Scorecard - Key Financial Ratios Solvency Factors Maria Jose Mori VP-Sr Credit Officer mariajose.mori@moodys.com

2 Credit Strengths» Sound brand name recognition and market positioning» Significant balance sheet de-risking, which has translated into stronger asset-quality metrics» Positive evolution of the Spanish operations should be underpinned by the reduction in the stock of problematic assets» Adequate liquidity position Credit Challenges» Capital assessment constrained by low leverage ratio» Downside risks to TSB's franchise could affect the group's future profits The outlook on Banco Sabadell s deposit and senior debt ratings is stable. Moody s expects Banco Sabadell s credit profile to remain commensurate with a BCA over the next 128 months, with an expected gradual improvement of its credit profile that will be aided by the group s accelerated de-risking strategy. Factors that Could Lead to an Upgrade Banco Sabadell s BCA could be upgraded as a consequence of an improvement in the bank s key financial factors, in particular (1) a net profit over tangible assets at or above.5% on a sustained basis and (2) a Moody's defined tangible common equity (TCE) to risk weighted assets (RWA) ratio persistently above 9%. Banco Sabadell s deposit and senior debt ratings could experience upward pressure from movements in the loss-given-failure faced by these securities. Factors that Could Lead to a Downgrade Downward pressure on the bank s BCA could result from: (1) a reversal in current asset risk trends with an increase in the stock of NPLs and/or other problematic exposures; (2) a weakening in Banco Sabadell s internal capital-generation and risk-absorption capacity as a result of subdued profitability levels; and/or () a deterioration in the bank s liquidity position. As the bank s debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history September 218

3 Key indicators Exhibit 2 Banco Sabadell, S.A. (Consolidated Financials) [1] Total Assets (EUR million) Total Assets (USD million) Tangible Common Equity (EUR million) Tangible Common Equity (USD million) Problem Loans / Gross Loans (%) Tangible Common Equity / Risk Weighted Assets (%) Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) Net Interest Margin (%) PPI / Average RWA (%) Net Income / Tangible Assets (%) Cost / Income Ratio (%) Market Funds / Tangible Banking Assets (%) Liquid Banking Assets / Tangible Banking Assets (%) Gross Loans / Due to Customers (%) ,95 252,116 6,628 7, ,48 265,794 8,6 9, ,71 222,268 7,821 8, , ,26 7,411 8, CAGR/Avg. 16,94 194,78 5,25 6, [1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [] May include rounding differences due to scale of reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latest accounting regime. [6] Simple average of Basel III periods presented Source: Moody's Financial Metrics Profile Banco Sabadell has a sound franchise, underpinned by its position as Spain s fourth-largest banking group with EUR216 billion of total assets at end-june 218. The group is a universal bank that provides commercial banking, corporate banking, private banking and asset management services. It also offers investment banking, retail banking, international trade, consumer finance, treasury and capital market, and corporate and structured finance products. The acquisition of TSB in the United Kingdom in 215 enabled it to become a more diversified banking group after years of acquisitions in the Spanish market. Banco Sabadell s acquisition strategy, has enabled the bank to consolidate its market position in Spain, where it held a nationwide franchise of 8.2% market share in loans and 7.6% in deposits as of end-march 218 (last available data). On 5 October 217, Banco Sabadell approved the relocation of its headquarter from Catalunya (Ba negative) to neighbouring Valencia following Catalunya's referendum vote in favour of independence from Spain (Baa1 stable) on October 1. Detailed Credit Considerations Accelerated decline in problematic assets has significantly improved asset risk profile We assign a baa2 score to Banco Sabadell s asset risk, which stands three notches above its macro adjusted score of. We have made this positive adjustment to reflect the rapid decline in the stock of non-performing assets (NPAs; measured as NPLs + foreclosed real estate assets), which accelerated in late July 218 following the disposal of the bulk of Banco Sabadell's portfolio of real estate assets. Our asset risk assessment also incorporates our expectation of a further decline in the stock of NPAs over the outlook period, with Banco Sabadell committed to the target included in its strategic plan of reducing NPAs by EUR2 billion every year by 22 that should be underpinned by the recovery of Spain s real estate market and favourable economic conditions. In July 218, Banco Sabadell announced the disposal of several portfolios of NPAs, being the most relevant deal the one agreed with the US private-equity firm Cerberus Capital Management, L.P. The real estate assets included in the transaction have a gross book value of around EUR9.1 billion and will be held in a newly created company that will be 8%-owned by Cerberus. This will allow Banco Sabadell to deconsolidate the assets, limiting its exposure to a 2% ownership stake in the new company. The bank's fully owned real estate servicer Solvia Servicios Inmobiliarios, S.L.U. will continue to manage on an exclusive basis the real estate assets that will be offloaded at the closing of the sale. 25 September 218

4 These transactions accelerated the de-risking of Banco Sabadell's balance sheet and will reduce the stock of NPAs to around EUR1.5 billion from EUR17 billion as of the end of June 218 (as per Moody's calculation). Banco Sabadell s NPA ratio (NPAs as a percentage of gross loans plus real estate assets) will fall to around 7% from 1.8% as of the end of June 218 (see exhibit ). This compares favourably with the average of the Spanish banking system, which we estimate was around 1% at the end of 217 (latest data available). Exhibit Banco Sabadell asset risk indicators (as per Moody's calculation) NPL ratio NPA ratio NPA ratio proforma of NPL and RE portfolio sale NPL ratio proforma of NPL portfolio sale NPL ratio target 16% 14.1% 14% 12.% 12% 11.7% 1.8% 1% 8.2% 8% 7.% 6.4% 6% 5.4% 4% 4.9% 4.7% 2%.% % H Sabadell financial targets (*) (*) Note: Financial targets equal or less than the indicated levels Source: Banco Sabadell quarterly information and strategic plan The group forecasts a NPL ratio of less than % by the end of its 22 strategic plan (from a Moody's calculated 4.9% at end-june 218). Banco Sabadell displays good provisioning coverage after the effort it made to reinforce provisions in the first quarter of 218 following the implementation of the new IFRS9 accountancy rules, with the NPL coverage increasing to 56.5% at end-june 218 from 47.4% at end-december 217. The coverage of NPAs stood at 47% at the end-of June 218, which compares to an estimated system average of 5.7% at end-december 217 (latest data available). Banco Sabadell's loss-absorbing capacity (measured as NPAs/shareholders' equity + loan-loss reserves + real estate reserves) will improve as a result of the NPA disposals, with the pro-forma ratio falling to around 64% from 85% at end-june 218. This metric compares favourably to domestic peers. Capital assessment constrained by a low leverage ratio We assess Banco Sabadell s capital position at b1, one notch above the macro adjusted score. Our capital score incorporates our expectation that the bank s tangible common TCE ratio will improve above 8% from the 7.6% displayed at end-june 218 that was impacted by several extraordinary items, underpinned by the acceleration in the de-risking of the bank's balance sheet. Our capital assessment is constrained by Banco Sabadell s low leverage ratio (measured as TCE over tangible assets), which stood at.2% at endjune 218. At end-june 218, Banco Sabadell s phased-in Common Equity Tier 1 (CET 1) ratio declined by 1 bps to 11.9% compared to 12.9% at end-march 218. The bank's fully loaded CET1 ratio also declined to 11.% from 12.%. This deterioration is explained by several oneoffs recorded in the second quarter of 218, such as adjustments related to the securities portfolio and to TSB's IRB models, as well as an impartment related to the group's stake in Spain's bad bank (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria). Despite this impact, the bank's CET 1 ratio stands well above the 218 SREP requirement of 8.125% prescribed by the European Central Bank. Since year-end 217, Banco Sabadell s fully loaded CET 1, has declined by 18 bps, as at end-march 218 the group s regulatory capital had booked an impact of 78 bps (on a fully loaded basis) related to the first time adoption of IFRS 9 new accountancy rules. The regulatory capital ratios as of end-june 218 do not incorporate the impact of the sales of problematic assets that were announced in July 218. On a pro-forma basis the bank's fully loaded CET 1 ratio should improve by 25 bps to 11.2%. Over the outlook period, we 4 25 September 218

5 expect an improvement of Banco Sabadell's capital as it will benefit from the forecast further decline in the stock of problematic assets and the bank s improved earnings generation capacity. Our more conservative capital assessment relative to regulators' capital ratios is primarily explained by (1) regulators not deducting convertible DTAs from the capital base while we give benefit, as a capital component, to only a share of them; and (2) a more conservative risk weighting that we apply to the sovereign exposures compared with regulators' risk weighting of % (see Moody s Adjustment to Increase the Risk Weightings of Sovereign Debt Securities in the Analysis of Banks: Frequently Asked Questions, published 18 September 21). Exhibit 4 Banco Sabadell s solvency ratios 1, Moody's TCE ratio (%) Moody's TCE ratio ( mio.) Phased-in CET1 ratio (%) Fully loaded CET1 ratio (%) 16% 9, 12.5% 14% 8, 12% 7, 1% 6, 5, 8% 4, 6%, 4% 2, 2% 1, % H target Source: Banco Sabadell quarterly information and strategic plan Profitability impacted by NPA sales and IT issues at TSB, but we expect it to improve aided by the recovery of the domestic operations We assess Banco Sabadell s profitability at ba, which stands three notches above its macro adjusted score of b. This positive adjustment incorporates our expectation that the bank will be able to improve its profitability metrics and achieve a net profit over tangible assets of at least.25% over the outlook period. We expect that this performance will be underpinned by the cost savings derived from the de-risking of the bank s balance sheet and improved recurring earning namely stemming from the domestic operations. At end-june 218, Banco Sabadell reported a net profit of EUR124 million, a 72% decline compared to end-june 217and the equivalent to.1% of tangible assets, which corresponds to a b profitability score. This weak performance is explained by a number of extraordinary items recorded during the first six months of 218, which have had a substantial impact on the group s bottom line results. Banco Sabadell s results were impacted by the losses booked by its subsidiary TSB Bank plc, which reported a loss of EUR192 million at end-june 218. In April 218, TSB Bank plc faced significant challenges related to the migration of its IT system to that of Banco Sabadell, which led to the recognition of EUR294.7 million of migration and post migration costs at end-june 218. Post migration costs are related to customer compensation, additional resources, and foregone income because of waived overdraft fees and interest charges. The group s domestic operations, were also impacted by EUR177 million of extraordinary provisions linked to the sale of NPAs. More positively, we should note the improving trends of the commercial activity of the banking business in Spain, with the net interest margin resilient despite ongoing low interest rates supported by lower funding costs and increased loan growth, and fee and commission growing 9% year-on-year September 218

6 Exhibit 5 Banco Sabadell s profitability metrics PPI Net income Net income/tangible assets,5.4%,.5%.% 2,5.25% 2,.2% 1,5.15% 1,.1% 5.5%.% H218* *Annualised Source: Banco Sabadell quarterly information Over the outlook period we expect a gradual recovery of Banco Sabadell s profitability metrics namely supported by the positive evolution of the domestic operations on the back of the bank s further balance sheet de-risking as well as strategic focus to achieve growing business volumes and market shares in Spain, while improving efficiency levels by optimizing resources and new IT capabilities. However, downside risks to the group s profitability prevail, and these are namely linked to the performance of TSB. While we acknowledge the temporary nature of the majority of the post migration costs, we remain concerned on the medium-term risks to the subsidiary s franchise and the possibility of a related regulatory penalty that could affect TSB s profits in a future period. Adequate liquidity profile We assess Banco Sabadell s combined liquidity profile as ba1, based on its wholesale funding structure and stock of liquid assets. These ratios are calculated for Banco Sabadell excluding TSB based on our assessment that liquidity between the group and its subsidiary is not fungible and that the group intends to keep TSB's funding totally independent of its parent. We also make a negative adjustment to Banco Sabadell s liquid asset ratio of one notch due to asset encumbrance. The adjusted market funds-to-tangible banking assets ratio stood at 28.4% at end-june 218, which is equivalent to a ba1 score. The bank suffered some limited deposit outflow in early October 217 following political tensions in Catalunya, but that stopped once the bank redomiciled outside the region. The bank since then has reinforced its liquidity position by increasing the stock of available liquid assets. Banco Sabadell reported a loan to deposit ratio of 1.7% at end-june 218, broadly stable relative to recent quarters. Customer deposits represented on a consolidated basis 68.% of total funding. Wholesale debt (i.e. excluding ECB, Bank of England, REPOs and interbank funds), is mainly composed of mortgage covered bonds (6.5% of the total), securitizations (12.8%), subordinated debt and AT1 securities (12.4%), commercial paper (9.%) and senior debt (5.%). The bank displays very modest debt redemptions of EUR1.6 billion (the bulk being mortgage covered bonds) for the remainder of 218 and 219. Reliance on ECB funding stood at EUR2.5 billion at end-june 218 (the bulk of it being TLTRO II), representing 9% of the bank s total assets and standing above the Spanish system average of around 6%. The bank disclosed in May 218 the minimum MREL requirement determined by the SRB, which stands at 22.7% based on RWAs as of end-216 and a transition period until January 1, 22. The bank announced that the MREL decision is aligned with its forecasts and included in its strategic plan for 22 and that it intended to fill its Tier 2 bucket (the AT1 is already filled) and keep a regular presence in the capital markets with a couple of senior unsecured benchmark transaction every year until the MREL buffer was built. In late August 218, the bank issued EUR75 million of senior unsecured bonds. As mentioned, we have adjusted the liquid assets to tangible banking assets ratio to exclude TSB and also to exclude encumbered assets, which results in a liquid resources score of ba1 two notches below the macro adjusted score of baa September 218

7 Banco Sabadell displays good liquidity position, underpinned by a buffer of EUR7.1 billion at end-june 218 (EUR2 billion of total liquid assets available1and EUR5.1 billion of other assets eligible as ECB collateral). This accounted for 17.2% of total consolidated assets up from 15% at year-end 217. The bank's LCR excluding TSB stood at 166% at end-june 218. According to our liquidity stress test, Banco Sabadell displays a net positive funding gap (as of end-june 218) with excess liquidity of around EUR21 billion (accounting for 9.7% of total assets) in the event capital markets remain closed for a period of one year. Support and structural considerations Loss Given Failure Banco Sabadell is subject to the EU Bank Recovery and Resolution Directive, which we consider to be an Operational Resolution Regime. We assume a residual TCE ratio of % and losses post-failure of 8% of tangible banking assets, a 25% run-off in junior wholesale deposits, a 5% run-off in preferred deposits, assign a 25% probability to deposits being preferred to senior unsecured debt and a 26% proportion of junior deposits. These metrics are in line with our standard assumptions. For Banco Sabadell's deposits and senior unsecured debt, our Loss-Given Failure (LGF) analysis indicates a very low and low loss-givenfailure for deposits and senior unsecured debt, respectively, which leads us to position Banco Sabadell's Preliminary Rating Assessment (PRA) two notches above the Adjusted BCA for deposits and one notch above the adjusted BCA for senior debt. Please refer to the Loss Given Failure and Government Support table at the bottom of the scorecard. Government Support We assign a moderate probability of government support for the fourth-largest bank in Spain, resulting in one notch of uplift for the deposit and senior debt ratings. Counterparty Risk Ratings (CRRs) CRRs are opinions of the ability of entities to honor the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honored. CRRs are distinct from ratings assigned to senior unsecured debt instruments and from issuer ratings because they reflect that, in a resolution, CRR liabilities might benefit from preferential treatment compared with senior unsecured debt. Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. Banco Sabadell' CRR are positioned at Baa1/Prime 2. The CRRs are positioned four notches above the Adjusted BCA of, reflecting the extremely low loss given failure from the high volume of instruments that are subordinated to CRR liabilities which leads to three notches of uplift and one notch of uplift from a moderate likelihood of systemic support. Under our methodology, a bank's CRR will typically not exceed the sovereign rating by more than two notches. Spanish banks' maximum achievable CRR is therefore A2/Prime. Counterparty Risk Assessment CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss suffered in the event of default, and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. The CR Assessment is positioned at Baa1(cr)/Prime-2(cr). The CR Assessment, prior to government support, is positioned three notches above the Adjusted BCA of, based on the cushion against default provided to the senior obligations represented by the CR Assessment by subordinated instruments amounting to of Tangible Banking Assets. The main difference with our Advanced LGF approach used to determine instrument ratings is that the CR 7 25 September 218

8 Assessment captures the probability of default on certain senior obligations, rather than expected loss, therefore we focus purely on subordination and take no account of the volume of the instrument class. The CR Assessment benefits from one notch of government support uplift, in line with our support assumptions on deposits and senior unsecured debt. Our moderate probability of government support reflects our view that any support provided by governmental authorities to a bank which benefits senior unsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with our belief that governments are likely to maintain such operations as a goingconcern in order to reduce contagion and preserve a bank's critical functions. Methodology and scorecard About Moody's Bank Scorecard Our Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read in conjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecard may materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strong divergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down to reflect conditions specific to each rated entity September 218

9 Rating methodology and scorecard factors Exhibit 6 Banco Sabadell, S.A. Macro Factors Weighted Macro Profile Strong - Factor Historic Ratio Initial Score Expected Trend Assigned Score Key driver #1 Solvency Asset Risk Problem Loans / Gross Loans 6.2% baa2 Non lending credit risk Capital TCE / RWA 7.% b2 b1 Nominal leverage Profitability Net Income / Tangible Assets.1% b ba Expected trend Combined Solvency Score Liquidity Funding Structure Market Funds / Tangible Banking Assets.% ba1 Market funding quality Liquid Resources Liquid Banking Assets / Tangible Banking Assets 26.6% baa2 ba1 Asset encumbrance ba1 Balance Sheet in-scope (EUR million) 51,9 19,54 81,6 28,48, ,15 5, ,16 25 September 218 Key driver #2 b1 Combined Liquidity Score Financial Profile Business Diversification Opacity and Complexity Corporate Behavior Total Qualitative Adjustments Sovereign or Affiliate constraint: Scorecard Calculated BCA range Assigned BCA Affiliate Support notching Adjusted BCA Other liabilities Deposits Preferred deposits Junior Deposits Senior unsecured bank debt Dated subordinated bank debt Preference shares (bank) Equity Total Tangible Banking Assets 9 1% ba1 Baa1 ba1-ba % in-scope 29.9% 6.7% 47.1% 16.6% 2.%.5%.7%.% 1% at-failure (EUR million) 62,56 98,67 77,7 21,6, ,15 5, ,16 % at-failure 6.4% 57.2% 44.8% 12.4% 2.%.5%.7%.% 1%

10 Debt class De Jure waterfall De Facto waterfall Notching LGF Assigned Additional Preliminary LGF notching Rating Instrument Sub- Instrument SubDe Jure De Facto Notching Guidance notching Assessment volume + ordination volume + ordination vs. subordination subordination Adjusted BCA Counterparty Risk Rating baa2 Counterparty Risk Assessment baa2 (cr) Deposits 4.2% 6.4% baa Senior unsecured bank debt 4.2% 6.4% 4.2% ba1 Dated subordinated bank debt 4.2%.7% 4.2%.7% ba Non-cumulative bank preference shares.7%.%.7%.% -2 b2 (hyb) Instrument class Counterparty Risk Rating Counterparty Risk Assessment Deposits Senior unsecured bank debt Dated subordinated bank debt Non-cumulative bank preference shares Loss Given Failure notching 2 1 Additional Preliminary Rating Notching Assessment -2 baa2 baa2 (cr) baa ba1 ba b2 (hyb) Government Support notching Local Currency Rating Baa1 Baa1 (cr) Baa2 Baa Ba B2 (hyb) Foreign Currency Rating Baa1 -Baa [1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information. Source: Moody's Financial Metrics 1 25 September 218

11 Ratings Exhibit 7 Category BANCO SABADELL, S.A. Counterparty Risk Rating Bank Deposits Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Senior Unsecured -Dom Curr Senior Subordinate -Dom Curr Pref. Stock Non-cumulative -Dom Curr Moody's Rating Stable Baa1/P-2 Baa2/P-2 Baa1(cr)/P-2(cr) Baa (P)Ba B2 (hyb) TSB BANK PLC Counterparty Risk Rating Bank Deposits -Dom Curr Baseline Credit Assessment Adjusted Baseline Credit Assessment Counterparty Risk Assessment Issuer Rating -Dom Curr Negative Baa1/P-2 Baa2/P-2 baa2 baa2 A(cr)/P-2(cr) Baa2 TSB BANKING GROUP PLC Issuer Rating -Dom Curr Subordinate -Dom Curr Negative Baa Baa BANCO SABADELL S.A., LONDON BRANCH Counterparty Risk Rating Bank Deposits -Dom Curr Counterparty Risk Assessment Commercial Paper Stable Baa1/P-2 Baa2/P-2 Baa1(cr)/P-2(cr) P- CAM GLOBAL FINANCE Bkd Senior Unsecured Stable Baa Source: Moody's Investors Service September 218

12 Endnotes 1 As defined by Banco Sabadell in its financial statements September 218

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL 6969 and/or Moody s Analytics Australia Pty Ltd ABN AFSL 8569 (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act 21. By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act 21. MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY2, to approximately JPY5,,. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER 1 25 September

14 CLIENT SERVICES 14 Americas Asia Pacific Japan EMEA September 218