Sabadell forecasts higher profit, lending income after margin squeeze
Sabadell's Financial Performance and Outlook
By Jesús Aguado
Second-Quarter Results and TSB Sale Impact
MADRID, July 24 (Reuters) - Sabadell expects lending income and profitability to rise in 2026 and 2027 after reporting lower second-quarter lending income on Friday as the Spanish bank shifts to a standalone strategy after its sale of TSB in Britain.
Spain's fourth-largest bank by market value posted a 28% rise in net profit to €624 million ($711 million) in the April to June period thanks to capital gains of €322 million from the TSB sale, compared to forecasts of €653 million.
Analyst Reactions and Growth Prospects
Analysts are now watching if Sabadell will be able to maintain growth rates and protect profitability without TSB.
Interest Rate Environment and Lending Margins
Spanish banks benefited from variable-rate lending when interest rates rose, but recent lower rates squeezed margins. Geopolitical tensions have since pushed market rates higher.
Net Interest Income Performance
Sabadell's net interest income, or earnings on loans minus deposit costs, fell 0.4% year-on-year to €902 million, above analysts' forecasts of €895 million and rose 3.4% against the first quarter. It expects NII to grow by more than 1% this year.
Market Response
At 0801 GMT, shares in Sabadell rose 4% after the results and its announcement of a €331 million share buyback programme.
Revenue, Profitability, and Cost Management
Revenue and Profit Analysis
Broker Renta 4 said revenues were higher than expected, though profit came in slightly below due to higher provisions.
Profitability Targets
Sabadell said it aims to reach a return-on-tangible-equity ratio, a profitability measure, of 16% by end-2027 and of 14.5% by end-2026 compared to a recurrent ROTE of 13.6% at end-June.
Cost Structure and Savings Initiatives
The bank said its costs rose 12.7% year-on-year mainly due to €37 million in non-recurrent expenses, linked to an early retirement plan in Spain.
Sabadell expects annual gross savings of €40 million from 2027 onwards from this plan, with €20 million to materialize in the second half of 2026, above initial estimates. It expects recurrent costs to grow by less than 3% by the end of 2026.
Additional Information
($1 = 0.8779 euros)
(Reporting by Jesús Aguado; Additional reporting by Emma Pinedo; Editing by Ronojoy Mazumdar and Alexander Smith)
