Banco Sabadell 1Q08 Results Optima 09 24th April 2008
Disclaimer Banco Sabadell cautions that this presentation may contain forward looking statements with respect to the business, financial condition, results of operations, strategy, plans and objectives of the Banco Sabadell Group. While these forward looking statements represent our judgement and future expectations concerning the development of our business, a certain number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market. Macroeconomic, governmental, political and regulatory trends, (2) movements in local and international securities markets. currency exchange rate, and interest rates, (3) competitive pressures, (4) technical developments, (5) changes in the financial position or credit worthiness of our customers, obligors and counterparts. These risk factors could adversely affect our business and financial performance published in our past and future filings and reports, including those with the Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores). Banco Sabadell is not nor can it be held responsible for the usage, valuations, opinions, expectations or decisions which might be adopted by third parties following the publication of this information. Financial information by business areas is presented according to GAAP as well as internal Banco Sabadell group s criteria as a result of which each division reflects the true nature of its business. These criteria do not follow any particular regulation and can include forecasts and subjective valuations which could represent substantial differences should another methodology be applied. The distribution of this presentation in certain jurisdictions may be restricted by law. Recipients of this presentation should inform themselves about and observe such restrictions. These slides do not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe to any securities nor shall they or any one of them form the basis of or be relied on in connection with any contract or commitment whatsoever. 22
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1Q08 results 5. Optima 09 update 6. Outlook 33
Trends and strategy Enhancing our conservative management profile Funding our loan growth with customer deposits through a positive commercial gap Resilient net interest income in a more competitive environment; our balance sheet flexibility allows us to offset higher deposit costs with asset repricing Cost management a result of the operational efficiency gains driven by our Optima 09 business plan Non-performing loans increase in line with our change of economic cycle expectation 4
Activity levels consistent with the new environment YoY percentage change 22.6% 23.1% 20.0% 20.8% 16.5% 15.7% 15.8% Customer deposits 12.8% 13.6% Loans to customers 11.9% Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Customer deposits includes sight and term deposits 5
managing volumes Mar-07 Mar-08 % Var. Gross loans to clients 57,530 64,391 11.9% Loans to companies 27,965 32,216 15.2% On-BS customer funds 59,306 64,889 9.4% Customer deposits 26,355 31,838 20.8% Euros in millions 6
and the profit and loss account Mar-07 Mar-08 var. Net interest income ex-div 306.7 340.4 11.0% Net interest income 313.3 346.6 10.6% Equity Method 0.9 3.0 240.1% Commissions 167.9 146.0-13.1% Insurance Activ. 16.8 21.8 30.1% Trading income & Forex 38.4 34.9-9.0% Gross Oper. Income 537.2 552.3 2.8% Other oper. income 6.2 4.0-35.4% Operating expenses -229.8-229.2-0.3% Depreciation -29.3-31.8 8.7% Net oper. Income 284.3 295.3 3.9% Asset los. & others -17.8-40.1 125.3% Other income 3.7 23.2 --- Profit before taxes 270.2 278.5 3.1% Attributable Profit 207.6 217.3 4.7% 7
with efficiency and profitability Mar-07 Mar-08 Cost / Income ratio 42.8% 41.5% NPL ratio 0.39% 0.62% Coverage ratio 453% 295% ROE 21.6% 20.4% Core Capital 6.06% 6.05% 85
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1Q08 results 5. Optima 09 update 6. Outlook 39 9
A balanced mix of loan and deposit growth 4,000 3,000 2,000 1,000 0-1,000-2,000 1Q07 2Q07 3Q07 4Q07 1Q08-3,000-4,000 Créditos de clientes Depósitos de clientes GAP Euros in millions Créditos Loans tode customers clientes Depósitos Customerde deposits clientes GAP 10
FINANCIACIÓN Y LIQUIDEZ We prioritise liquidity... Focus on aggressive deposit gathering campaigns Customer deposits evolution (Mar06 - Mar08) 30,652 31,838 26,485 26,355 27,048 27,422 21,574 22,303 24,350 Euros in millions Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 11
gaining market share in deposits 3.6% 2.5% 3.5% 3.4% 2.1% 2.1% 2.2% 3.41% 2.3% 3.49% 3.45% 3.46% 3.41% 2.15% 2.11% 2.10% 2.27% 2.31% 3.3% 3.30% 3.38% 3.35% 2.0% 3.27% 3.2% Loans to customers (lhs) Deposits (rhs) 3.1% Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Feb-08 1.5% Source: Bank of Spain. 12
FINANCIACIÓN Y LIQUIDEZ improving our funding mix Funding structure Wholesale funding breakdown Repos 3.6% Commercial paper 9.4% Preference shares 0.4% Wholesale 34.7% Covered bonds 40.1% Preference shares 2.3% Securitisati on 15.2% Customer deposits 51.9% Subordinate d debt 6.8% Senior debt 35.5% % Wholesale funding 32.8% 34.3% 36.5% 37.1% 38.8% 39.9% 39.9% 37.2% 34,7% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 As of March 2008 13
with a comfortable wholesale maturity calendar FINANCIACIÓN Emisiones en mercados de capitales (no incluye las titulizaciones) Wholesale funding maturity calendar, March 2008. 577 437 127 559 673 152 120 115 290 326 143 213 154 131 73 85 23 222 21 20 19 60 508 510 309 103 1.184 1,700 1,119 1,660 1,143 1,324 1,127 1,145 1,579 1,520 1,769 1,510 2008 3,461M 2009 3,775M 2010 2,095M 2011 3,716M 2012 874M 2013 2,077M 2014 403M 2015 1,580M 2016 2,847M 2017 1,922M Diversified maturity calendar 14
and capacity to transfer price increases to customers FINANCIACIÓN Emisiones en mercados de capitales (no incluye las titulizaciones) Loans with renegotiable pricing (in percentage of total book) >12 months 50.0% 2Q08 17.9% 3Q08 9.7% 4Q08 9.8% 1Q09 12.6% 15
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1Q08 results 5. Optima 09 update 6. Outlook 3 16
Non performing loans increase according to our expectations 10 30 9 8 7 1Q08 NPL ratio: 0.62% 25 20 6 5 4 15 10 3 2 1 5 0 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Mar- System NPL ratio Banco Sabadell NPL ratio 08 GDP growth Euribor 12 months Unemployment -5 17
with higher specific provisions offset by lower generic Quarterly cost of risk (in bp) 80 70 60 60 61 Generic Specific 50 40 37 30 20 10 0 35-1 3 3 34 13 5 8 3 10 8 19** 10 18 13-10 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 ** adjusted for the 41.8m extraordinary provision in 4Q07 18
Nuestra cartera está diversificada We have a diversified portfolio Loan distribution by sector Services and others 35% Other loans to individuals 4% Mortgages to individuals 21% Developers 13% Pure mortgage Low exposure to pure mortgages Geographic distribution biased towards our natural market Primary sector 1% Industry 21% Construction 5% As of 31/03/2008 pure mortgage: mortgage loans to individuals and real estate developers 19
with a market share below our natural share Market share evolution 6.59% 7.90% 7.28% 7.57% 3.23% 3.25% 3.49% 3.38% 2.65% 2.44% 2.33% 2.28% 2004 2005 2006 2007 working capital pure mortgage loans to customers 20
which reiterates our conservative profile Mortgage book LTV breakdown 46.4% 15.9% 5.8% (with additional collateral) 31.9% Very low exposure to high loan-tovalues <= 30% > 30% y <= 60% > 60% y <= 80% >80% As of 31/3/2008 21
In individuals, the bias towards the affluent segment Product segmentation Income segmentation Rest 8.5% Consumer credit 5.5% Private banking 6% Medium low income 8% Medium income 20% High income 32% Mortgages 86.0% (85% first residence) Medium high income 34% As of 31/3/2008 22
lowers risk profile in a turn of the cycle Debt/income evolution 29.4% 27.4% 27.9% 27.7% 27.2% 27.6% 28.4% 28.5% 28.7% Loan to value Stock 55.7% New 63.8% production 2000 2001 2002 2003 2004 2005 2006 2007 Mar- 08 Debt/income sensitivity +1% 32.0% - 1% 26.7% Average mortgage ( 000 ) Stock 90.7 New 153.3 production New production over the last 3 months 23
In developers, we are comfortable with our risk profile Construction and sales status Land financing breakdown Construction 1 st home 2 nd home 71.8% 71.1% 75.3% Rural 0.4% Finalista* 22.3% Pre-sale 1 st home 2 nd home 60.9% 62.3% 54.6% Urban 77.3% Geographic distribution biased towards our traditional natural market (Catalonia / city / first residende) As of 31/03/2008. *Finalist: Land already approved to be classified as urban. 24
and we have built a sizable generic provisioning buffer Generic provision fund evolution 1,140.8 1,155.5 1,170.6 1,184.2 1,071.2 1,077.9 989.1 902.5 832.1 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Euros in millions 25
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1Q08 Results 5. Optima 09 update 6. Outlook 3 26
Growing net interest income 313.3 332.9 333.8 337.3 346.6 6.3 0.6 6.2 12.2 6.6 340.4 333.2 331.1 320.6 306.7 1Q07 2Q07 3Q07 4Q07 1Q08 313.3 346.6 6.6 6.3 306.7 340.4 + 10.6 % + 11.0 % Mar-08 NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Mar-07 Mar-08 Net interest income ex-dividends Dividends 27 26
repricing assets and with lower weighting of wholesale funding 32.8% 34.3% 36.5% 37.1% 38.8% 39.9% 39.9% 37.2% 34,7% % of wholesale funding 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2.62% 2.88% 3.23% 3.87% 3.57% 4.11% 4.45% 4.81% 4.78% Cost of wholesale funding 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 1.90% 1.80% 1.68% 1.66% 1.76% 1.79% 1.78% 1.74% 1.76% Net interest margin 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 In percentage 27 28
with a positive effect on margin via funding mix 2.94% 2.92% 2.89% 2.91% 2.94% 2.94% 2.94% 2.93% 2.80% Customer spread 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2.32% 2.23% 2.14% 2.10% 2.11% 2.06% 1.93% 1.89% 2.02% Combined customer spread (*) 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 1.90% 1.80% 1.68% 1.66% 1.76% 1.79% 1.78% 1.74% 1.76% Net interest margin 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 (*) Combined spread: asset yield (cost of customer funds + cost of wholesale funding). In percentage 27 29
Fees driven by lower activity in asset management Lending Services 167.9 161.7 148.2 152.5 146.0 36.3 71.9 38.5 36.4 39.7 40.4 63.9 55.4 53.8 54.7 Mar-08 NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Asset Mgmt 1 59.7 59.3 58.0 57.4 50.9 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 1Q07 2Q07 3Q07 4Q07 167.9 1Q08 146.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Lending Services Asset Mgmt 1 36.3 71.9 59.7 40.4 54.7 50.9-13.1% Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Mar-07 Mar-08 1 Includes asset management funds, pension funds and non-life insurance commissions 30 28
Strong momentum in life insurance Mar-08 NII 346.6 Equity-acc hold. 3.0 16.8 20.3 19.1 22.2 21.8 Commissions 146.0 Insurance activit 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 1Q07 2Q07 3Q07 4Q07 1Q08 Depreciation -31.8 Other Op. costs -4.3 + 30.1% Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 16.8 21.8 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Mar-07 Mar-08 29 31
Stable recurrent trading and forex 38.3 30.3 47.4 33.6 34.9 Mar-08 29.8 21.5 9.7 18.3 18.2 20.6 17.6 16.7 16.8 15.3 1Q07 2Q07 3Q07 4Q07 1Q08 38.3 34.9 21.5 18.2 16.8 16.7 Mar-07 Mar-08-9,0% - 15,4 % - 0,8 % NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Client-driven business Other 32 26
Discipline in both staff costs 154.2 160.7 174.1 209.9 155.0 51.7 4.1 15.5 6.0 148.2 156.6 158.6 158.2 155.0 1Q07 2Q07 3Q07 4Q07 1Q08 154.2 155.0 6.0 148.2 155.0 + 0.6 % + 4.5% Mar-08 NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Mar-07 Mar-08 Recurrent Non-recurrent 33 32
and administrative expenses 75.6 11.6 77.1 78.8 83.0 74.2 1Q07 2Q07 3Q07 4Q07 1Q08 75.6 74.2 Mar-07 94.6 Mar-08-2.0 % Mar-08 NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions Recurrent Non-recurrent 34 35
Provisioning with a higher specific bias Cost of risk 17.8 57.5 56.4 27.3 16.0 7.2 11.4 5.0 12.2-0.8-3.9-0.9 104.5 15.5 30.8 41.8 16.4 40.1 20.2 28.3-8.4-8.4 1Q07 2Q07 3Q07 4Q07 1Q08 13bp 38bp 17bp 66bp 25bp Generic Specific Specific others* Rest Mar-08 NII 346.6 Equity-acc hold. 3.0 Commissions 146.0 Insurance activity 21.8 Trading income 24.5 Forex 10.4 Gross Oper.Inc. 552.3 Rev. non fin op 8.3 Personnel exp. -155.0 Admin.exp. -74.2 Depreciation -31.8 Other Op. costs -4.3 Net Oper.Inc. 295.3 Asset los. & other -40.1 Other income 23.2 Inc.Before Taxes 278.5 Corporate taxes -60.3 Consol.Net Prof. 218.1 Minority interests -0.9 Net Profit 217.3 Euros in millions. * Specific provisions over and above the required calendar 35
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1Q08 results 5. Optima 09 update 6. Outlook 3 36
We reiterate Optima 2009 s mission Boosting the value creation of our business model through the optimisation of our operational model 37
both in branch operational optimisation FTE* reduction 1Q08 Back-office FTE per branch 2.25 Optimising communication with branches Improving the document delivery to customers - 9 FTE - 38 FTE 2.00 1.95 1.84 1.75 Changing operational circuits in international business -79 FTE Total - 126 FTE 2004 2006 2007 1T08 2008e *FTE= Full Time Equivalents 38
as well as improvements in the corporate centre FTE* 1Q08 Outsourcing operational processes - 10 FTE Reorganising structure - 51 FTE Total - 61 FTE *FTE= Full Time Equivalents 39
using our already announced discretionality in costs management Active branch network expansion management: Selecting 22 best choices of branch openings: Higher probability of shortest break even under current environment Branch mergers to generate sinergies Organisational commercial network improvements Unit resizing based on revised expectations of future levels of activity and profitability 40 mm cost reduction from 2008 Cost and investment decisions based on project and process profitability Specific actions on unit costs 40
1. Trends and strategy 2. Liquidity 3. Risk management 4. Resultados 1T08 5. Actualización Optima 09 6. Outlook 3 41
Thinking ahead Our conservative management will allow us to reinforce our market position We continue to optimise liquidity Increasing assets spreads Cost control Delivering Optima 09 Reinforcing risk management systems A more solid position after the market adjustment 42
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