Slimmed-down Sabadell reports sharp fall in Q1 profit

(Sharecast News) - Banco Sabadell reported a sharper-than-expected fall in first-quarter profit on Tuesday, as lower interest rates weighed on lending income and costs rose because of one-off charges linked to restructuring and the sale of its UK unit TSB.

Spain's fourth-largest listed bank said net profit fell 29% year on year to €347m in the January-to-March period, below the €424m expected by analysts in a Reuters poll.

Excluding TSB on a pro forma basis, profit fell 28.1% to €284m, also below expectations of €335m.

Net interest income, which measures earnings from loans minus deposit costs, fell 3.5% year on year to €872m, in line with forecasts, and was down 2.5% from the previous quarter.

Sabadell said lower loan yields and reduced income from credit institutions reflected the softer interest-rate environment, although the impact was partly offset by lending growth and lower funding costs.

Fees and commissions declined 2.2% to €315m, while total costs rose 13.4% to €624m.

The increase included €55m of non-recurring expenses tied to an early retirement plan in Spain and a €14m charge related to the TSB sale.

The results come as Sabadell refocussed on its standalone strategy after BBVA's failed takeover attempt and the disposal of TSB to Santander UK, which was completed on 1 May.

The sale was expected to generate a capital gain of more than €300m and provide a significant boost to Sabadell's capital ratio.

The bank said profitability remained solid despite the earnings decline, with return on tangible equity at 13.3%.

Asset quality improved, with the non-performing loan ratio falling to 2.5%, while performing loans rose 5.6% year on year.

Sabadell said it expected net interest income to grow by more than 1% this year, supported by continued loan growth, although it flagged pressure from lower rates and macroeconomic uncertainty linked to geopolitical tensions.

At 1117 CEST (1017 BST), shares in Banco de Sabadell were down 0.52% in Madrid at €3.234.

Reporting by Josh White for Sharecast.com.