PRELIMINARY CORPORATE STRATEGIC REPORT ON BANC DE SABADELL

Transcription

1 PRELIMINARY CORPORATE STRATEGIC REPORT ON BANC DE SABADELL Disclosure: this is a preliminary strategic report on Banco Sabadell done by Fredi Fernandez.Tthe purpose of this report is twofold, as my candidacy as Strategic Analyst at the company first I wanted to understand deeper the structure, culture and strategy of the company and second, demonstrate my analytical skills and business acumen during the selection process. COMPANY PROFILE Banco de Sabadell SA, as a Spain-based financial institution primarily engaged in the banking sector. The Company is structured in five areas, retail banking, corporate banking, private banking, asset management, real estate division; as well as other Businesses. Its services and products include saving accounts, fixed-term deposits, consumer and commercial loans, financial assessment, private banking, corporate finance and other banking operations to businesses and individuals. VALUES Banco Sabadell is comprised of different banks, brands, subsidiaries and part-owned companies covering all areas of the financial business sector under a common denominator: professional performance and quality. 1

2 CAPABILITIES It has a global offer of products and services at its disposal, a human resources team qualified in assessment, with a permanent orientation towards the search for quality all of these being factors that reinforce long-term relationships with clients and redound to mutual benefit. Its adaptation to market needs is represented by different brands, which stand for differentiated value proposals. They permit clear identification by the markets and are internally reflected in organizational and management differences. OPPORTUNITIES - JGB Bank (Florida) There s a great opportunity to diversify and expand operations after the agreement to acquire the JGB Bank of Miami. This entity was acquired by 56 million dollars GNB Holdings Trust, whose main shareholder Jaime Gilinski is also significant shareholder Banco Sabadell. In the past six years, Sabadell United Bank and branch International Bank Sabadell have increased eight times its presence in Florida in terms of assets. - BStartup This program allows tracking business trends and potential disruptor factors in several industries. It is highly important given the amount of technological startups, mostly founded in Silicon Valley, focusing in e-transactions and crowdlending platforms that might substitute current financial products in the future. SUSTAINABLE VALUE BS contemplates a complete range of products and services which, in the long term, strengthens customer relations and is mutually beneficial. Profitability for the Bank is justified by customer loyalty and long-term returns, through permanent cross selling and initiatives to improve the relationship. The management model of the Bank aims at long-term client retention through a constant activity of building up the customer loyalty of its client portfolio on the basis of initiative and innovation. MULTI - BRAND STRATEGY Adaptation to the demands of the market is reflected through different brands, which represent different value proposals and which are clearly identified by the markets, with internal organizational differences, administrative processes, dedication to service and commercial processes. 2

3 Retail Banking Small businesses and reference model for personal banking. Companies and individuals for all income levels in Asturias and Leon. Corporate Banking Medium sized businesses segment. Point of reference for large corporations. All segments in Asturias and Leon Private Banking Asset Management Real Estate Management Expertise in asset management for both individuals and corporations, within a collaborative framework with the Group s Corporate Banking Unit and in competition with the Commercial Banking Unit. The aim of Solbank is to become a leader in the market for foreigners resident in Spain, whether temporarily or permanently, concentrating its activity on geographical areas where this segment has most impact and orientated towards personalized customer attention and services. Reference brand in the Spanish on-line banking market, with a value proposal based on high quality products, tending towards medium-high and high-level income segments, although competitive at all levels. ActivoBank s role in the Group is to complement the offer by its presence in a market segment with important growth expectations and to serve as a I+D tool for product development and commercial procedures within the on-line sector. 3

4 Complimentary Business Lines BancAssurance Asset Management BS Capital BS International Treasury & Capital Markets Retail Banking Corporate Banking Private Banking Asset Management Real Estate Management Provides the Group with insurance products helping to obtain a better value proposal for the group s target markets Mutual funds, portfolio management and specialist advisory services for individuals and companies, through other business units and external distributors. Carries out business investments in private capital and aims to obtain Synergies within the traditional derivative business (in holding companies and creation of Private Banking products). Develops the Group s Real Estate activity. Offers products and services and technical support for Investment Banking when required by our customers of Corporate Banking. Within the financial sector, develops the necessary international collaborations required in order to diversify business outside Spain. Develops its own business in the financial sector in areas that are important due to their economic relationship with Spain or where there exists an intrinsic economic potential. Offers a range of products with a high level of added value: products orientated towards savings for individuals, products designed for corporate cash management, coverage instruments for interest rates and exchange rates. Offers a personalized service to customers of a high level of added value. Provides support to Account Managers within the commercial activity when the complexity of an operation so requires. - Trains and advices the branch network on determined products. 4

5 Profits per Division 2013 ( in '000 ) Revenue in size R --> Revenue (Size) P --> Profits (Y -axis) Retail Corporate Private Asset Real Estate Banking Banking Banking Management Management R 3,187,569 R 435,969 R 63,305 R 77,645 R 456,346 P P 79,122 P 9,122 P 25,338 P (1,016,940) Data in Exhibit B Observing the figure Profits per division above, we can see that most of the profits impacting the bottom line for 2013 come from Retail Banking which is the core business unit of the bank. The rest of the units are profitable with lesser success. This can be explained by the focus of the bank in the internal market which is more intensive in commercial banking, still finding hard the recovery since the strong recession started in Divisions like Corporate Banking, private banking and asset management had good returns given the amount the resources dedicated, especially Asset Management which had an ROE of 80.50%. Real Estate management which is still affected by the stall in the Spanish real estate market is the only business unit with losses. After the burst of the real state bubble, the market has dropped significantly causing impairments in assets. Added to the amount of resources dedicated to this unit ROE has been the worst of the units with %. This scenario can shift quickly if the recovery starts in full gear in the domestic market which will depend deeply in the evolution of the unemployment rate. 5

6 GLOBAL REPRESENATION AND SUBSIDIARIES Consolidated Interest and Returns by geographic scope (2013) ( 000) Percentage Spain ,31% European Union ,54% OCDE ,80% Rest of the countries ,36% TOTAL ,00% 6

7 From the map above we can observe, how Banc de Sabadell is very dependent in the domestic economy. More than 95% of the revenue comes from the domestic market. Diversifying the revenue source is required to smooth the volatility of operating cash flows. As the major competitors have executed the last years, BS has opened representative offices in different regions. This will be paramount for a global expansion and monitoring opportunities in the so called first world as well as in emerging markets like India, Brazil, China, So far the strongest attempt to conquer foreign markets has been US (Miami), which is a good choice for the political and legal stability. Nevertheless, in US there is really tough competition and number of local and foreign players in their market. COMPETITION Shown in the graph below are the main competitors quoted in the IBEX 35 as financial institutions. Relative to its peers Banc de Sabadell has performed worse given his dependency in the local market, as commented before. BBVA and Santander are the banks with more assets and resources to expand overseas, foreign markets have been a great revenue stream for their businesses which can be accounted for as much as 50%. This has set them with an advantage position. 6000, , , , , ,00 BBVA P 2,228 A 582,575 ROE 4.97% BANKIA P A 251, ROE 4.39% BANKINTER P A 2, ROE 6.33% CAIXABANK P 503 A 340,190 ROE 2.07% B POPULAR P A 147, ROE 2.80% B SANTANDER P 4,370 A 1,115,637 ROE 5.47% BBVA BANKIA BANKINTER CAIXABANK BANCO POPULAR BANC SABADELL SANTANDER 0, ,00 P --> Profits A --> Assets (in millions) Data in Exhibit A 7

8 GLOBAL REVENUE SHARE BBVA; 26,58% SAN; 50,09% BKIA; 4,62% BKT; 1,53% CABK; 8,07% SAB; 4,42% POP; 4,69% Taking into account that Revenue share shown in the figure above comes from the overall revenue earned by the listed banks in You can see clearly how Santander and BBVA have been able to recollect more revenue given their global expansion. BS has 4.42% of the revenue collected in 2013 among all the listed banks. The figure below shows performance indicators. The average profit margin for the period 2013 has been 6.69% and asset turnover 4.11%. This puts BS below the average performance with 4.64% and 3.54% respectively. 12,00% 10,71% 10,00% 8,00% 6,00% 6,39% 8,41% 4,75% 5,29% 4,64% 6,65% 4,00% Profit Margin 2,00% Asset Turnover 0,00% 8

9 Financial Leverage SANTANDER BANC SABADELL BANCO POPULAR CAIXABANK BANKINTER 13,96 15,71 12,72 13,98 16,20 BANKIA 21,71 BBVA 12,99 0,00 5,00 10,00 15,00 20,00 25,00 The figure above, Financial Leverage shows BS with which is quite close to the average of Although we cannot assess the quality of the debt from this indicator this shows a normal trend in the market for a financial institution. CONCLUSIONS / SUGGESTIONS Banc Sabadell needs to focus its global expansion one region at a time. Miami (US) seems to be elected the focus of such expansion. Emerging economies have been proven good markets for direct competitors and are worth monitoring and prospecting operations in such regions to diversify revenue streams. Besides the core business unit, developing complementary business lines to that of banking distribution ensures a better level of profitability from customer related business, this helps attracting new customers and offers opportunities for non-organic growth. Technology - One major factor affecting the industry is the fast evolving technology. Internet has greatly increased the ease and reduced the cost for consumers to compare the prices of opening/holding accounts as well as the rates offered at various banks. ActivoBank is key to maintain a compelling IT structure and making switching costs very low in terms of time and capital so other customers can benefit from BS services. Potential Disruptions - Some of the banking industry's largest threats of substitution are not from rival banks but from non-financial competitors. The industry does not suffer any real threat of substitutes as far as deposits or withdrawals; however insurances, mutual funds, and fixed income securities are some of the many banking services that are also offered by nonbanking companies. Crowdlending platforms will become a factor to consider as they gain credibility and volume. Also the threat of payment method substitutes and loans are relatively high for the industry. 9

10 Exhibit A 2013 ('in millions) FOCAL FIRM PROFITS REVENUE EQUITY ASSETS # SHARES Profit Margin Asset Turnover Leverage ROE ROA EPS MARKET SHARE BBVA BBVA 2228, , , , ,39% 5,98% 12,99 4,97% 0,38% 0, ,58% BANKIA BKIA 508, , , , ,41% 2,41% 21,71 4,39% 0,20% 0, ,62% BANKINTER BKT 215, , , , ,71% 3,65% 16,20 6,33% 0,39% 0, ,53% CAIXABANK CABK 503, , , , ,75% 3,11% 13,98 2,07% 0,15% 0, ,07% BANCO POPULAR POP 325, , , , ,29% 4,16% 12,72 2,80% 0,22% 0, ,69% BANC SABADELL SAB 268, , , , ,64% 3,54% 15,71 2,58% 0,16% 0, ,42% SANTANDER SAN 4370, , , , ,65% 5,89% 13,96 5,47% 0,39% 0, ,09% ,73 6,69% 4,11% 15,32 4,09% 0,27% 19,87% 100,00% Exhibit B Consolidated Data from 2013 ('000) Total Revenue Total Margin Profit before taxes Employees ROE Retail Banking ,60% Corporate Banking ,70% Private Banking ,70% Asset Management ,50% Real Estate Management ,70% 10