- The costs/income ratio is now 39.46%, excluding extraordinary expenses and revenues.

- The core capital ratio is 7.66% and the Tier I ratio is 9.10%.

- At 3.73%, the NPL ratio is still among the lowest in the Spanish financial sector. NPL coverage is also among the highest: 69.03%, or 125.11% including mortgage collateral.

- Funds for investment increased by 5.9% year-on-year and gross lending by 0.5%.

In a general context that was negative for the normal course of the banking business, Banco Sabadell and its group met their goals, revealing once again in 2009 their ability to effectively weather adverse situations and attain positive results on a recurrent basis, beating market expectations.

As a result, the bank ended its 128th year with consolidated results that were in line with the budget, evidencing the soundness of its core business and also highlighting the efforts made to further strengthen the balance sheet while maintaining excellent risk quality and remaining in the lead in terms of service quality among Spain´s financial institutions.

At 31 December, total assets had increased by 3.0% with respect to 2008, to Euros 82,822.9 million. Net attributable income amounted to Euros 522.5 million, 22.5% less than in 2008, when income included Euros 418.4 million in capital gains on the sale of 50% of the insurance business to Zurich group.

Balance sheet

At year-end, gross lending to customers amounted to Euros 65,012.8 million, i.e. a 0.5% increase year-on-year in line with expectations due to lower demand for credit.

Mortgage lending performed well, rising 3.0% year-on-year, as did specialist finance for business (confirming and factoring), which expanded by 9.6% in the last 12 months.

The ratio of NPLs to total computable loans was 3.73%, far below the Spanish industry average. Coverage of doubtful and delinquency assets stood at 125.11% including mortgage collateral (otherwise, 69.03%).

The group´s capacity and commercial efficacy plus a strong focus on fundraising increased customer funds under management to Euros 82,247.1 million at the end of 2009. Time deposits expanded by 4.2% in the period, while investible funds grew by 5.9% year-on-year to Euros 42,045.5 million.

The balance of insurance products and pension plans increased by 25.2% year-on-year, evidence that the 2008 alliance with Zurich is producing the expected multiplier effect on the volume of insurance and other providential products.

Income and profit performance

In a situation of a sharp slowdown in financial activity and intense competition, with record-low interest rates, skilful management of margins and hedges plus strict control over recurrent costs played a vital role in the notable performance by margins in 2009.

Net interest income amounted to Euros 1,600.6 million in 2009, 10.2% more than in 2008.

The contribution to results from equity-accounted affiliates rose by 13.0% in 2009 to Euros 71.9 million, including a significant contribution from the bancassurance affiliates and Dexia Sabadell.

Net fee revenues confirmed the recovery first observed in the third quarter and amounted to Euros 511.2 million; as a result, gross income, including the Euros 248.2 million of income from financial transactions, amounted to Euros 2,505.0 million, 12.5% more than in 2008.

As a result of strict control of expenditure and the intensive application of the operating efficiency measures under the Optima plan, operating costs amounted to Euros 1,036.8 million. In recurrent terms, operating costs were 1% lower than in 2008.

The costs/income ratio now stands at 41.39%. Excluding non-recurrent expenses and the gain on the redemption of preference shares, that ratio would be 39.46%, a notable improvement on the 43.12% registered at 31 December 2008.

Good revenue performance coupled with containment and reduction of costs resulted in a 18.9% year-on-year increase in income before provisions, to Euros 1,325.5 million.

NPL provisions and other writedowns in 2009 amounted to Euros 837.7 million.

Capital gains on asset disposals amounted to Euros 83.6 million in 2009, including Euros 67.5 million from real estate.

After applying the Euros 61 million tax credit for reinvestment of capital gains, net income in 2009 amounted to Euros 522.5 million, compared with Euros 673.8 million in 2008, although the latter figure included Euros 418.4 million in capital gains on the sale of 50% of the insurance business to the Zurich group.

Strengthened capital ratios

Banco Sabadell was appropriately capitalised at 2009 year-end, when equity amounted to Euros 5,226.3 million, 12.9% more than at the end of 2008.

The core capital ratio is 7.66% and the Tier I ratio is 9.10%. The capital ratio calculated according to the BIS standards is 10.80% (9.78% in 2008).

Other significant events

Acquisition of Mellon United National Bank

In 2009, Banco Sabadell acquired 100% of Mellon United National Bank (MUNB), a retail bank established in Miami, Florida, from The Bank of New York Mellon. The acquisition of MUNB, which was established in 1978, is a major step towards strengthening Banco Sabadell´s operating base in Florida as part of its international development strategy at a time when interesting opportunities are becoming available in the US market. As a result of this acquisition, Banco Sabadell, which has been operating in Miami since 1993, now ranks sixth among local banks in terms of deposits.

Bonds issued without a government guarantee

As part of the steps taken to adapt the capital ratios to new market requirements and attain sufficient flexibility to address future growth in lending, Banco Sabadell issued a number of different securities aimed at institutional investors in Spain and other countries; apart from Spain´s two big banking groups, Sabadell was the only other Spanish financial institution to issue bonds without the need for a government guarantee.

Excellent mutual fund management

In 2009, Banco Sabadell headed the league table of quality mutual fund management drawn up by Standard & Poor´s from a sample of Spain´s leading investment funds. Half of the 22 short-listed funds are managed by the Sabadell group. Additionally, unlike other institutions, Banco Sabadell kept its Sabadell BS Inmobiliaria real estate fund open for both subscriptions and redemptions. The bank also commissioned a special appraisal of the fund to highlight the high quality and diversification of the rental assets in its portfolio and also as an exercise in transparency vis-à-vis investors.

International network expands to include Casablanca and Dubai

During the year, Banco Sabadell expanded its international network by opening two new branches: in Casablanca, Morocco´s main commercial and business city and a strategic market for Spanish companies, and in Dubai, the economic hub of the Middle East and a strategic enclave in the United Arab Emirates. The Casablanca office has a full bank charter, while Dubai is a representative office whose aim is to broker contacts and commercial transactions. As occurred in the case of Algeria, Turkey and India, Banco Sabadell is the first Spanish financial institution to set up shop in those countries.

Optima Plan: greater efficiency and productivity

Actions taken in the last 12 months under the Optima Plan have had a direct impact on reducing administrative work in the network and increasing commercial productivity. Optimisation of administrative processes, the application of the new operational model and the impact of the cost-cutting programme provided savings of Euros 78 million in 2009.

Leader in customer service quality

Once again, Banco Sabadell and its group headed the Spanish financial sector in terms of service quality according to advance results of an objective quality survey of bank branch networks; Sabadell obtained 7.71 points out of 10, compared with the industry average of 6.94. Additionally, the Bank of Spain Complaints Unit again ranked Banco Sabadell as the financial institution about which the fewest complaints are made.

28 January 2010

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