Banco Sabadell Results 1H08 Optima 09 24th July 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. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 33
Trends and strategy We continue enhancing our conservative management profile Funding our loan growth with customer deposits through a positive commercial gap Covered bond issue: 1.25bn, reopening a closed market. Net interest income improvement in a more competitive environment, thanks to our balance sheet flexibility Cost management as a result of the operational efficiency gains driven by our Optima 09 business plan We still have a NPL ratio much lower than the system 4
Activity levels consistent with the new environment YoY percentage change 22.6% 23.1% 20.0% 20.8% 22.9% 16.5% 15.7% 15.8% 12.8% 13.6% 11.9% 7.3% Customer deposits Loans to customers Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Customer deposits includes sight and term deposits 5
managing risk and liquidity Jun-07 Jun-08 % Var. Gross loans to customers 60,912 65,362 7.3% On-BS customer funds 62,567 66,031 5.5% Customer deposits 27,048 33,245 22.9% Euros in millions 6
and the profit and loss account Jun-07 Jun-08 var. Net Interest Income 640.0 710.2 11.0% Dividend and Equity method income 34.6 34.1-1.4% Net Fees and commissions 321.6 289.6-9.9% Trading income & Forex 68.5 65.5-4.4% Other operating income/expense 14.5 14.5 0.2% Gross Operating Income 1,079.2 1,113.9 3.2% Operating expenses -462.8-467.1 0.9% Amortization & depreciation -59.9-65.6 9.6% Asset losses & others -71.1-83.9 18.0% Net Operating Income 485.3 497.3 2.5% Other results 48.8 24.4-49.9% Profit before tax 534.1 521.8-2.3% Net result from disc. transactions 9.5 11.0 15.1% Attributable net profit 419.4 428.5 2.2% 7
with efficiency and profitability Jun-07 Jun-08 Cost / Income ratio 42.9% 41.9% NPL ratio 0.39% 0.85% Coverage ratio 452% 218% ROE 21.7% 20.2% Core Capital 6.01% 6.38% * * Calculated under Basel II criteria, with models approved by Bank of Spain (5.75% with Basel I) and 90% saving floor 85
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 39 9
Generating a positive commercial gap 4,000 3,000 2,000 1,000 0-1,000 2Q07 3Q07 4Q07 1Q08 2Q08-2,000-3,000 Loans to customers Customer deposits GAP Euros in millions 10
FINANCIACIÓN Y LIQUIDEZ... taking advantage of our network capillarity Focus on aggressive deposit gathering campaigns Customer deposits evolution (Jun06 - Jun08) 31,838 30,652 33,245 26,485 26,355 27,048 27,422 24,350 22,303 Jun-06 Set-06 Dic-06 Mar-07 Jun-07 Set-07 Dic-07 Mar-08 Jun-08 Euros in millions 11
still having a deposits share below our natural share 4.23% 4.16% 4.16% 4.18% 3.98% 3.97% 4.00% Mutual Funds 3.53% 3.54% 3.49% 3.45% 3.46% 3.41% 3.38% 3.40% 3.37% 3.27% 3.41% 3.30% 3.44% 3.08% 3.20% 3.20% 3.17% 3.11% 3.03% 3.08% Gross loans to customers Sight deposits 1.86% 1.93% 2.05% Deposits 1.34% 1.32% 1.39% 1.35% 1.45% 1.25% jun-06 sep-06 dic-06 mar-07 jun-07 sep-07 dic-07 mar-08 May-08 Source: Bank of Spain (resident private sector) and Inverco 12
FINANCIACIÓN Y LIQUIDEZ improving our funding mix Funding structure Commercial paper 9.0% Repos 2.8% Preferent shares 0.4% Wholesale 34.4% Wholesale funding breakdown Preferent shares 2.3% Securitisat ion 13.9% Customer deposits 53.4% % Wholesale funding 32.8% 34.3% 36.5% 37.1% 38.8% 39.9% Covered bonds 45.9% Sub. debt 6.9% 39.9% 37.2% 34,7% Senior debt 30.9% 34.4% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 In June, an ECP program up to 2.5bn is set up Data as of June 2008 13
with a comfortable wholesale maturity calendar FINANCIACIÓN Emisiones en mercados de capitales (no incluye las titulizaciones) Wholesale funding maturity calendar. June 2008 565 408 104 533 138 91 96 279 317 133 209 68 65 147 58 55 406 20 21 19 66 468 517 15 0 033 315 1,653 1,077 1,631 1,110 1,894 1,298 1,092 1,127 1,572 1,520 1,769 1,516 2008 2,218M 2009 3,649M 2010 3,246M 2011 3,608M 2012 825M 2013 1,914M 2014 666M 2015 1,580M 2016 2,820M 2017 1,846M 2018 33M 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) 3Q08 3T08 19,7% 19.7% >12 >12 months meses 51.1% 51,1% 4T08 4Q08 11,3% 11.3% Data as of June 2008 1T09 1Q09 9,4% 9.4% 2T09 2Q09 8,5% 8.5% 15
with a positive effect on margin via funding mix 2.92% 2.89% 2.91% 2.94% 2.94% 2.94% 2.93% 2.80% 2.84% Customer spread 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 2.23% 2.14% 2.10% 2.11% 2.06% 1.93% 1.89% 2.02% 2.10% Combined customer spread (*) 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 1.83% 1.79% 1.82% 1.81% 1.71% 1.77% 1.80% 1.83% 1.69% Net interest income as % of ATA 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 (*) Combined spread: Asset yield (cost of customer funds + cost of wholesale funding). In percentage 27 16
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 3 17
We still have a NPL ratio below the system 10 9 8 Morosidad BS jun-08: 0.85% Morosidad sistema may-08: 1.53% 7 6 5 4 3 2 1 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Jun- 08 System NPL ratio BS NPL ratio Source: Bank of Spain, Bloomberg, INE and EPA 18
by segments NPL ratio Companies SME Small retailers and self-employed 0.37% 0.35% 0.52% 0.56% 0.84% 1.07% 0.78% 1.04% 1.10% Dec-07 Mar-08 Jun-08 Dec-07 Mar-08 Jun-08 Dec-07 Mar-08 Jun-08 Developers Mortgages to individuals Individual others 0.42% 0.95% 0.43% 0.47% 0.57% 3.72% 3.99% 4.10% 0.14% Dec-07 Mar-08 Jun-08 Dec-07 Mar-08 Jun-08 Dec-07 Mar-08 Jun-08 19
with higher specific provisions offset by lower generic Quarterly cost of risk (in pb) 80 70 60 50 40 30 20 10 0-10 60 61 Generic Specific 37 35 34 19** 18 24 8 10 13 5 8 10 13 3 2-1 3 3 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 ** Adjusted by the extraordinary provision of 41.8m in 4Q07 20
and we have built a sizable generic provisioning buffer Generic provision fund evolution 1,071.2 1,077.9 1,140.8 1,155.5 1,170.6 1,184.2 1,192.0 1.8% As of gross loans to customers 989.1 902.5 832.1 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 Euros in millions 21
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 3 22
CNMV new format The new reporting format Does not change the bottom line; it is therefore a restatement Changes some captions and contents of the previous P&L Must be implemented most likely before year-end (December 2008) What is the biggest difference between the old and new format? Operating profit is lower because provisions for non-performing loans are now included as operating income Which are the main caption changes? Previous name New name In English Margen de intermediación Margen de intereses Net interest income Margen ordinario Margen bruto Gross operating income Margen de explotación Resultado de explotación Net operating profit A guide to the new format is available in our website (www.bancsabadell.com) 23
Growing net interest income 313.1 326.9 339.5 337.2 347.1 363.0 Jun-08 NII 710,2 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 710.2 640.0 + 11.0 % Equity method 32,3 Commissions 289,6 Trading income 40,9 Forex 24,6 Other op. Results 14,5 Gross Op. Inc. 1.113,9 Personnel exp. -316,6 Admin. Exp. -150,4 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 Net Op. Inc. 497,3 Other results 24,4 Profit bef. tax 521,8 Income tax -102,5 Prof. after tax 419,3 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Jun-07 Jun-08 Attr. Net Prof. 428,5 Euros in millions 24 26
repricing assets and with lower weighting of wholesale funding 34.3% 36.5% 37.1% 38.8% 39.9% 39.9% 37.2% 34.7% 34,4% % of wholesale funding 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 2.88% 3.23% 3.57% 3.87% 4.11% 4.45% 4.81% 4.78% 4.83% Cost of wholesale funding 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 1.83% 1.79% 1.82% 1.81% 1.71% 1.77% 1.80% 1.83% 1.69% Net interest income as % of ATA 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 In percentage 25 27
with a positive effect on margin via funding mix 4.81% 4.38% 4.54% 3.59% 3.22% 2.92% 2.91% 5.17% 3.82% 2.94% 5.32% 4.06% 2.94% 5.93% 5.47% 5.72% 6.06% 4.86% 4.50% 4.72% 4.48% 3.13% 3.22% 2.94% 2.93% Customer loan yield 3M Euribor Cost of customer funds 2.89% 1.46% 2.89% 1.65% 1.90% 2.23% 2.38% 2.53% 2.79% 2.80% 2.84% Customer spread 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 27 26
with a stable contribution from participated companies and dividends 11.0 23.6 13.3 18.7 14.6 19.6 Jun-08 NII 710,2 Equity method 32,3 6.9 0.8 Commissions 289,6 Trading income 40,9 6.2 1.1 Forex 24,6 0.6 18.8 Other op. Results 14,5 0.7 16.7 12.7 12.5 13.5 Gross Op. Inc. 1.113,9 10.3 Personnel exp. -316,6 Admin. Exp. -150,4 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 34.6 34.1-1.4 % Net Op. Inc. 497,3 7.6 1.9 Other results 24,4 Profit bef. tax 521,8 Income tax -102,5 32.3 Prof. after tax 419,3 27.0 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Jun-07 Jun-08 Attr. Net Prof. 428,5 Euros in millions Equity method Dividends 27 26
fees driven by lower activity in asset management 163.4 158.2 142.4 147.2 138.8 150.8 Jun-08 NII 710,2 Lending 36.3 38.5 36.4 39.7 40.4 48.5 Equity method 32,3 Commissions 289,6 Trading income 40,9 Services 71.9 63.9 53.8 55.4 54.7 61.5 Forex 24,6 Other op. Results 14,5 Asset Mgmt 1 Lending Services Asset Mgmt 1 Euros in millions 55.2 55.8 52.2 52.1 1Q07 2Q07 3Q07 4Q07 74.8 135.8 111.0 Jun-07 89.0 116.2 84.5 Jun-08 43.7 40.8 1Q08 2Q08 321.6 289.6-9.9% Gross Op. Inc. 1.113,9 Personnel exp. -316,6 Admin. Exp. -150,4 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 Net Op. Inc. 497,3 Other results 24,4 Profit bef. tax 521,8 Income tax -102,5 Prof. after tax 419,3 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Attr. Net Prof. 428,5 1 It includes mutual funds commissions and pension funds and non-life insurance brokerage 28
trading and forex 38.4 30.2 49.1 33.8 37.4 21.5 16.9 20.7 9.5 18.5 11.2 20.7 31.0 37.4 Jun-07 31.5 17.6 15.3 31.8 33.7 Jun-08 16.7 16.9 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 68.4 65.5 28.1-4.4 % +2.4 % - 10.1 % Jun-08 NII 710,186 Equity method 32,277 Commissions 289,608 Trading income 40,869 Forex 24,613 Other op. Results 14,495 Gross Op. Inc. 1113,909 Personnel exp. -316,613 Admin. Exp. -150,449 Amort.&Deprec. -65,624 Prov. & fin. los. -83,889 Net Op. Inc. 497,334 Other results 24,434 Profit bef. tax 521,768 Income tax -102,514 Prof. after tax 419,254 Disc. Trans. 10,973 Cons. Net Prof. 430,227 Minorities -1,743 Attr. Net Prof. 428,484 Euros in millions Customer-driven business Other 29 26
discipline in both staff costs 153.2 159.8 173.2 208.8 153.6 163.0 Jun-08 51.7 NII 710,2 6.0 4.1 15.5 7.2 Equity method 32,3 Commissions 289,6 Trading income 40,9 Forex 24,6 147.3 155.7 157.7 157.0 153.6 155.8 Other op. Results 14,5 Gross Op. Inc. 1.113,9 Personnel exp. -316,6 Admin. Exp. -150,4 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 313.1 316.6 + 1.1 % Net Op. Inc. 497,3 10.1 7.2 Other results 24,4 Profit bef. tax 521,8 + 2.1% Income tax -102,5 303.0 309.4 Prof. after tax 419,3 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Jun-07 Jun-08 Attr. Net Prof. 428,5 Euros in millions Recurrent Non-recurrent 30 32
and administrative expenses 94.4 11.6 74.2 75.6 76.9 82.8 72.2 78.2 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 149.8 150.4 Jun-07 Jun-08 +0.5 % Jun-08 NII 710,2 Equity method 32,3 Commissions 289,6 Trading income 40,9 Forex 24,6 Other op. Results 14,5 Gross Op. Inc. 1.113,9 Personnel exp. -316,6 Admin. Exp. -150,4 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 Net Op. Inc. 497,3 Other results 24,4 Profit bef. tax 521,8 Income tax -102,5 Prof. after tax 419,3 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Attr. Net Prof. 428,5 Euros in millions Recurrent Non-recurrent 35 31
provisioning with a higher specific bias Jun-08 NII 710,2 13.6 7.2 11.4-5,0 57.5 56.4 23.9 16.0 5.0 12.2-3,9-4,3 90.9 15.5 30.8 41.8 2,8 40.9 43.0 20.2 3.8 28.3 39.4-7,6-8,4-0,2 1T07 2T07 3T07 4T07 1T08 2T08 Cost of risk 13 pb 38 pb 17pb 66pb 25pb 26pb Generic Specific Specific others* Rest Equity method 32,3 Commissions 289,6 Trading income 40,9 Forex 24,6 Other op. Results 14,5 Gross Op. Inc. 1.113,9 Personnel exp. -316,6 Admin. Exp. -150,4 Amort.&Deprec. -65,6 Prov. & fin. los. -83,9 Net Op. Inc. 497,3 Other results 24,4 Profit bef. tax 521,8 Income tax -102,5 Prof. after tax 419,3 Disc. Trans. 11,0 Cons. Net Prof. 430,2 Minorities -1,7 Attr. Net Prof. 428,5 Euros in millions. * Specific provisions over and above the required calendar 32 35
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 3 33
Bancassurance Banco Sabadell benefits from the partnership Foster our business by expanding our product offering with cuttign-edge insurance products Leverage on the partners business intelligence to improve commercial and marketing capabilities Increase the risk insurance catalogue to fully cross-sell to our customer base The capability to fully exploit the new possiblities that the bancassurance sector offers 34
Bancassurance: Partnership with Zurich Banco Sabadell and Zurich sign a strategic partnership to develop projects in the insurance business Zurich acquires 50% of the insurance business Zurich will manage the three companies for a 25-year period that could be extended The price transaction will be 750 m and an earn-out of 150 m* * 75 m on year 5 and 75 m on year 10, depending on the future business evolution 35
Bancassurance: Transaction financials (1) Transaction multiples P / EV (2007) 3.2x P / NAV (2007) 6.6x P / E (2007) 39.2x Expected closing: 4T08 36
Bancassurance: Transaction financials (2) Impact on capital Net capital gains 512 m Core capital + 80 p.b. Non Core Tier I + 10 p.b. Tier II + 10 p.b. 37
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 3 38
Meaningful advance in the transformational plan Branch network 1.79 back-office FTEs* per branch (1.95 dec-07) Reduction of 455 back-office employees, increasing our commercial capability Headquarters Staff optimization by 3% Back-office 200,000 centralised operations / month *FTE= Full Time Equivalents 39
both in branch operational optimization Total 1Q08 FTE* reduction 2Q08-126 FTE Back-office FTE per branch 2.25 Centralising the branches processes - 64 FTE 2.00 1.95 Optimising the branches processes Total 2Q08 Total 1H08-34 FTE -98 FTE -224 FTE 1.84 1.79 1.75 80% of 2008 target achieved by in June *FTE= Full Time Equivalents 2004 2006 2007 1Q08 2Q08 2008e 40
as well as improvements in the corporate centre FTE* reduction 1H08 Total 1Q08-61 FTE Total 2Q08: Reorganising structure - 40 FTE Total 1H08-101 FTE *FTE= Full Time Equivalents 41
using our already announced discretionality in costs management Actions started in 2Q08 Active branch network expansion management: Selecting the best choices of branch openings: 12 of the 22 new branches opened with higher probability of shortest break even under current environment Sinergies generation by merging 5 branches Organisational commercial network improvements Creation of back-office center and document processing center Unit resizing based on revised expectations of future levels of activity Cost and investment decisions based on project and process profitability Specific actions on unit costs Mobile telephony agreement with Vodafone 42
1. Trends and strategy 2. Liquidity 3. Risk management 4. 1H08 results 5. Bancassurance partnership 6. Optima 09 update 7. Outlook 3 43
Thinking ahead We keep reinforcing our competitive position Liquidity generation + 418 m of positive commercial gap + 1,776 m of new issues Margin + 4 p.b. of customer spread Cost control + 1.1% of personnel expenses (2.1% recurrents) + 0.5% of administrative expenses NPL 0.85% BS vs. 1.53% system (may) NPL increase < system 44
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