Sabadell's first quarter profit slumps on higher costs and lower lending income
First Quarter Financial Performance and Strategic Outlook
By Jesús Aguado
Profit Decline and Contributing Factors
MADRID, May 5 (Reuters) - Spanish bank Sabadell's first-quarter earnings slid 29% mainly due to rising costs and lower lending income, creating a challenge as the lender shifts focus to a standalone strategy after the sale of British unit TSB.
Net Profit and Analyst Expectations
Spain's fourth-largest lender by market value reported on Tuesday a net profit of 347 million euros ($405.16 million) in the January to March period, missing analysts' average forecast of 424 million euros in a poll by Reuters.
Rising Costs and Non-Recurrent Expenses
Costs rose 13.4% year-on-year in the quarter due to 55 million euros in non-recurrent expenses, linked to an early retirement plan in Spain, and a 14 million euro charge related to the sale of TSB.
Future Cost Projections
The bank expects those retirement costs to rise to 90 million euros in 2026, with annual gross savings of 40 million euros from 2027 onwards, and one-third to be materialised in 2026.
Share Performance and Market Reaction
Shares in Sabadell, which have fallen more than 3% this year, slipped 0.4%, with RBC Capital highlighting lower than expected revenues.
Share Trends and Economic Context
The shares surged 80% in 2025 as Spanish banks benefited from higher loan growth on the back of solid economic growth in Spain. However, the bank has more recently felt the impact of European Central Bank rate cuts between June 2024 and June 2025, with lower client borrowing costs squeezing margins.
Strategic Focus After TSB Sale
Analysts will be watching to see if the bank's incoming CEO Marc Armengol can maintain growth rates without TSB, which accounted for 18% of the group's net profit in the quarter.
Profitability Targets and Loan Growth
In 2027, Sabadell aims to reach a return-on-tangible-equity ratio (ROTE), a measure of profitability, of 16% compared to a recurrent ROTE of 14.1% currently, backed by higher loans in Spain.
Pro-Forma Comparison Excluding TSB
Though the sale of TSB only closed at the start of this month, the bank provided a pro-forma comparison to strip out TSB for net interest income, or earnings on loans minus deposit costs.
Net Interest Income Performance
Sabadell's net interest income (NII) fell 3.5% year-on-year in the first quarter to 872 million euros, in line with analysts' forecasts. NII fell 2.5% against the previous quarter.
Outlook for NII Growth
The bank expects NII to grow by more than 1% this year.
Additional Information
($1 = 0.8565 euros)
(Reporting by Jesús Aguado; Editing by Emma Pinedo, Rashmi Aich and Susan Fenton)
