Spain's Sabadell profit falls as lower rates hit lending income, costs spike
First Quarter Financial Performance and Strategic Shifts
By Jesús Aguado
Net Profit Decline and Contributing Factors
MADRID, May 5 (Reuters) - Sabadell reported a drop in net profit in the first quarter on Tuesday, as lower interest rates weighed on its income from loans, while the Spanish bank shifts its focus to a standalone strategy after the sale of its British unit TSB.
Profit Figures and Analyst Expectations
Spain's fourth-largest lender in terms of market value reported a net profit of 347 million euros ($405.16 million) in the January to March period, missing an analysts' average of 424 million euros in a poll by Reuters.
Rising Costs and One-Off Expenses
Overall 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.
Market Environment and Lending Margins
Impact of Interest Rates and Geopolitical Tensions
Spanish banks have benefited from higher loan costs, mostly tied to variable rates, but lower client borrowing costs are squeezing margins. Recent geopolitical tensions stemming from the U.S.-Israeli war on Iran are driving inflation higher, and markets now expect three European Central Bank hikes.
TSB Sale and Pro Forma Comparisons
Though the sale of TSB was not closed until May 1, 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 and Outlook
Year-on-Year and Quarter-on-Quarter NII Changes
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.
Bank's Expectations for NII Growth
The bank expects NII to grow above 1% this year.
Leadership Changes and Future Prospects
New CEO Appointment
In February, the lender appointed Marc Armengol as its new chief executive, and analysts are now watching if Sabadell will be able to maintain growth rates and protect profitability without TSB following BBVA's failed bid.
Exchange Rate Information
($1 = 0.8565 euros)
Reporting Details
(Reporting by Jesús Aguado; Editing by Emma Pinedo and Rashmi Aich)
