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Banco Sabadell2Q14 Results
July 24th, 2014
Disclaimer
Banco Sabadell cautions that this presentation may contain forward looking statements with respect to the business. financial condition. results of operations. strategy. plans and objectives of the Banco Sabadell Group. While these forward looking statements represent our judgement and future expectations concerning the development of our business. a certain number of risks. uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include. but are not limited to. (1) general market. Macroeconomic. governmental. political and regulatory trends. (2) movements in local and international securities markets. currency exchange rate. and interest rates. (3) competitive pressures. (4) technical developments. (5) changes in the financial position or credit worthiness of our customers. obligors and counterparts. These risk factors could adversely affect our business and financial performance published in our past and future filings and reports. including those with the Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores).
Banco Sabadell is not nor can it be held responsible for the usage. valuations. opinions. expectations or decisions which might be adopted by third parties following the publication of this information.
Financial information by business areas is presented according to GAAP as well as internal Banco Sabadell group´s criteria as a result of which each division reflects the true nature of its business. These criteria do not follow any particular regulation and can include forecasts and subjective valuations which could represent substantial differences should another methodology be applied.
The distribution of this presentation in certain jurisdictions may be restricted by law. Recipients of this presentation should inform themselves about and observe such restrictions.
These slides do not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe to any securities nor shall they or any one of them form the basis of or be relied on in connection with any contract or commitment whatsoever.
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1. Quarterly highlights
2. 2Q14 Results
3. Commercial activity and liquidity
4. Risk and capital management
5 Managing real estate assets
3
Quarterly highlights
� Recovery in credit demand with a noticeable pick up in SME and companies. Net loan growth at the closing of the quarter
� Further increase in net interest income and continued reduction in the cost of funding
� Current balance sheet structure allows for further growth in NII in a low interest rate environment
� Proactive asset and liability management has continued to contribute positively to the P&L
� Significant improvement in commission income driven by strong growth in banking services and off-balance sheet funds
� Third sequential decline in the stock of NPLs. Reduction in the NPL ratio and lower stock of non performing assets
� Solvia is consolidating its position as a leader in the real estate market, boosting asset sales
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1. Quarterly highlights
2. 2Q14 Results
3. Commercial activity and liquidity
4. Risk and capital management
5. Managing real estate assets
5
2Q14 results
Note: 2014 includes BMN-Penedés network, Lloyds Spain and Banco Gallego, and 2013 includes 1 month of BMN-PenedésEuros in million
Jun. 13 Jun. 14% var 14/13
Net Interest Income 865.8 1,076.0 24.3%
Equity Method & Dividends 3.4 8.5 153.3%Commissions 356.6 414.5 16.2%Trading Income & Forex 1,046.3 1,171.2 11.9%Other Operating Results -74.9 -72.1 -3.7%Gross Operating Income 2,197.2 2,598.1 18.2%
Personnel Costs -524.9 -609.7 16.2%Administrative Costs -285.2 -293.4 2.9%Depreciations -105.5 -135.9 28.9%Pre-provisions Income 1,281.6 1,559.0 21.6%
Total Provisions & Impairments -1,073.3 -1,415.3 31.9%Gains on sale of assets -6.2 82.1 ---Profit before taxes 202.2 225.8 11.7%Taxes and others -78.8 -58.1 -26.3%
Attributable Net Profit 123.4 167.7 35.9%
6
Further increase in net interest income …
Net interest income evolutionEuros in million
* Excludes BMN-Penedés network, Lloyds Spain and Banco Gallego
Net interest income 1H14:+24.3% YoY
Net interest income 1H14 like-for-like*:
+17.9% YoY
451.2414.6
451.2497.7
530.0 545.9
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
3.94%3.66% 3.49% 3.51% 3.50% 3.47%
2.19% 2.07%1.87%
1.65%1.44%
1.25%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
1.75%
1.59%1.62%
1.86%
2.06%
2.22%
1.14%1.00% 1.05%
1.17%1.29%
1.36%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
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… with continued improvement in customer spreads and lower cost of funding
Margin evolutionIn percentage
Customer spreadNet interest margin
Net interest margin ex-APS: 1.96%
Cost of customer fundsCustomer loan yield
Customer loan yield and cost of customer funds in percentage
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Continued repricing of term deposits drives down the cost of the back book …
Contractual rates on term depositsIn percentage
Stock New production/renewals
New term deposits at 1%
3.26% 3.35%3.58%
3.36%3.13%
2.84%
2.37%2.16%
1.83%2.50%
3.06%
3.39%
2.16%1.85%
1.61%1.51%
1.29%1.05%
Jun-12 Dec-12 Jun-13 Dec-13 Jun-14
10,0851.68%
8,2331.71%
5,8501.83% 8,115
1.78%
3,4752.18%
3,775 2.18%
8,2911.89%
0.50%
0.75%
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
0 1 2 3 4 5 6 7 8
9
… with a €300M positive contribution to NII over the next 12 months
Maturities of term deposits: volume and average int erest rate costEuros in million and percentage
3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 >4Q15The size represents the volume of term deposits maturing every quarter. The percentage number is the current average interest rate paid on the term deposits
Current interest rate level of renewals
10
Limited downward pressure on the loan yield
Evolution of loan spreads by segmentIn percentage
Spreads on new loan productionreflecting the lower cost of funding
Back book
Front book
Back book
Front book
Back book
Front book
Mortgages to individuals 88 229 87 227 89 214
SME 269 526 270 500 277 492
Corporates 268 342 268 327 266 302
4Q13 1Q14 2Q14
25.9 28.6 31.4 37.5 39.7 48.6
52.4 53.8 53.3 52.8 53.455.3
90.1105.9 108.5
119.5 107.9109.6
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
11
Commission income is growing …
Commission income evolutionEuros in million
Asset Mgmt1 ServicesLending1 Including mutual funds commissions and pension funds and non-life insurance brokerage
188.2
168.4
193.2209.8 Commission income 1H14
+16.2% YoY201.0
Commission income 1H14 like-for-like*:+8.3% YoY
* Excluding BMN-Penedés network, Lloyds Spain and Banco Gallego
213.5
2,760 2,953
3,081 3,417
4,4404,902
1,2471,531790
901
March 2014 June 2014
12
… driven by strong performance in mutual funds
Evolution by type of investment fund Euros in million
� Bias towards higher margin products
� Annualised growth rate of 53% in funds under management
12,31813,705
Equity fundsBalanced funds
Fixed income funds Guaranteed funds
SICAV, External funds and Others
+11.3%
+10.9%
+7.0%
+10.4%
+22.8%
+14.1%
258.4 261.1 283.5 287.7 292.8 286.0
1.9 3.50.2 1.9 6.0
24.9
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
13
Personnel costs are being reduced …
Personnel expenses evolutionEuros in million
* Including BMN-Penedés network, Lloyds Spain and Banco Gallego in 2013 and excluding non-recurrent costs.
260.3 264.6
Personnel expenses 1H14 on a like-for-like basis*:
-2.6% YoY
283.7
Recurrent Non-recurrent
289.5 298.8
Personnel expenses 1H14:
+16.2% YoY
310.9
147.1 138.1 146.6 149.2 148.1 139.4
6.8 3.82.2
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
14
… and so are general expenses
General expenses evolutionEuros in million
General expenses 1H14:
+2.9% YoY
General expenses 1H14 on a like-for-like basis*:
-11.0% YoY
147.1138.1
146.6
156.0
Recurrent Non-recurrent
151.9
* Including BMN-Penedés network, Lloyds Spain and Banco Gallego in 2013 and excluding non-recurrent costs.
141.6
59.4% 60.0% 61.0% 59.6%56.3% 55.6%
Mar.13 Jun.13 Sep.13 Dec.13 Mar.14 Jun.14
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The cost to income ratio is improving: in line with the Triple business plan
*Adjusting operating income for non-recurrent trading income. Same criteria applies for all quarters.
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Employee and branch evolutionIn number
Cost income evolution *
In percentage
Branches Employees
1,383
10,550
2,202
16,754
Banco CAM
16,413
2,2041,898
15,596 14,957
1,889
2,382
17,253
BMN-Penedés & Lloyds Spain
17,233
2,2542,418
18,077
BancoGallego
2,343
17,924
2,336
17,698
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1. Quarterly highlights
2. 2Q14 Results
3. Commercial activity and liquidity
4. Risk and capital management
5. Managing real estate assets
17
Improving balance sheet dynamics
Customer funds and loans evolutionEuros in million
1 Other on-balance sheet term funds include term deposits and other funds placed in the retail network. Exclude reposNote Organic variation excludes Banco Gallego.
Jun-13 Mar-14 Jun-14% Var.
YoY% Org.
YoY% Var.
QoQ
Total assets 170,751 161,094 161,557 -5.4% -7.2% 0.3%Of which:
Gross loans to customers ex repos 125,893 123,510 122,838 -2.4% -4.0% -0.5%ALCO Portfolio 28,952 20,623 21,858 -24.5% -24.5% 6.0%
Total liabilities 161,560 150,529 150,719 -6.7% -8.6% 0.1 %Of which:
On-balance sheet customer funds 92,951 94,690 95,043 2.3% -0.1% 0.4%Other on-balance sheet term funds1
58,408 57,608 55,625 -4.8% -7.2% -3.4%Sight deposits 34,543 37,082 39,418 14.1% 11.9% 6.3%
Wholesale funding 25,460 24,701 24,364 -4.3% -4.3% -1.4%ECB Funding 18,000 5,500 5,500 -69.4% -69.4% 0.0%
Off-balance sheet funds 22,090 26,866 28,597 29.5% 26.9% 6.4%Of which:
Mutual funds 9,693 12,318 13,705 41.4% 35.5% 11.3%Pension funds 3,716 4,314 4,375 17.7% 17.7% 1.4%Third party insurance products 7,289 7,973 7,916 8.6% 8.6% -0.7%
28,894
28,350
27,943 27,881 27,898 27,932
28,298
Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-140
20
40
60
80
100
120
140
160
180
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
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Loan growth is being reactivated
SME and company loans evolutionEuros in million
Monthly residential mortgage productionEuros in million
In 1H14 the number of new mortgages increased by 54% YoY with volume growth of 61% YoY(43% and 50% like-for-like *)
During the month of June the SME and company loans book grew by €366M; +1.5% QoQ
* Excludes BMN-Penedés network, Lloyds Spain and Banco Gallego in 2014
Jun-14
Note: SME and company loans includes loans to SMEs, corporates and public sector
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Strong growth in investment funds …
Off-balance sheet fundsEuros in billion
Commercial focus in the network to attract off-balance sheet funds
+12.7%
Investment fundsEuros in billion
+24.4%
11.012.3
13.7
7.5
10.0
12.5
15.0
4Q13 1Q14 2Q14
25.426.9
28.6
20.0
22.5
25.0
27.5
30.0
4Q13 1Q14 2Q14
27,085 28,874 34,543 33,902 36,862 37,082 39,418
53,095 53,81958,408 57,953 57,635 57,608 55,625
8,5858,987
9,693 10,05211,019 12,318 13,705
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
20
… contributing to the increase in customer funds
Note: On-balance sheet term funds include term deposits and other funds placed in the retail network: preference shares, mandatory convertible bonds, senior debt, commercial paper and other. Exclude repos. Loan to deposit ratio excludes provisions and third party loans
Evolution of customer funds and off-balance sheet funds Euros in million
Continued increase in customer funds
Loan to deposit ratioIn percentage
Demand deposits On-balance sheet term funds
Mutual funds/investment funds
121.9%
116.6%
111.0%109.2%
107.3%104.6%
103.6%
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
14.218.7 15.6
12.1
7.0
7.9
4.17.5
2.3
2.4
2.0 2.3
Dec-12 Jun-13 Dec-13 Jun-14
21
Fixed income portfolio remains unchanged
Fixed income portfolio evolutionEuros in million
Spanish government debt Other
Life insurance portfolio (Mediterráneo Vida)
21.226.6
19.7 19.6
ALCO portfolioEuros in billion and in percentage
The ALCO portfolio contribution is stable
Jun-13 Dec-13 Jun-14
ALCO portfolio 26.6 19.7 19.6
% of total assets 15.6% 12.1% 12.1%
Duration (in years) 3.8 4.9 5.0
Yield 3.3% 3.9% 3.5%
ECB liquidity position 18.0 8.8 5.5
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Maintaining a balanced funding structure …
Group funding structure Group wholesale funding brea kdown
Deposits69.7%
Retail issues 0.9%
Repos5.9%
ICO financing 5.2%
Wholesale funding18.3%
Covered bonds 61.4%
Senior debt 3.9%
Prefs + Subordinated
3.9%
ECP6.1%
Securitisation 16.2%
GGB8.5%
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… and efficiently managing liquidity …
Group wholesale funding maturitiesEuros in million
ECB liquidity positionEuros in million
Maturity by product type Euros in million
23,650
18,000
8,800
5,500
Dec 2012 Jun 2013 Dec 2013 Jun 2014
3Q14 4Q14 2015 2016 2017 2018 2019 >2020 Outst. AmountCovered Bonds (CH) 764 1,323 3,057 2,870 1,937 1,558 924 2,497 14,929GGB 0 1,005 0 0 1,066 0 0 0 2,071Senior Debt 0 0 0 682 0 100 57 25 864Preferred Shares and Subordinated Debt 0 0 0 318 66 0 0 480 864Other mid- and long-term financial instruments 0 70 0 0 0 18 0 18 105Total 764 2,398 3,057 3,870 3,069 1,676 981 3,019 18,833
764
2,398
3,057
3,870
3,069
1,676
981
3,019
0
1,000
2,000
3,000
4,000
5,000
3Q14 4Q14 2015 2016 2017 2018 2019 >2020
7644.25%
2,3983.08%
3,0573.21% 3,870
2.92%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
0 1 2 3 4 5
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… allowing for lower cost of wholesale funding going forward
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Current cost of whole sale funding maturities: average coupon and sizeEuros in million and in percentage
Lower levels when issuing in capital markets allow for a reduction in wholesale funding cost over time
Potential new issues pricing
3Q14 4Q14 2015 2016
Instrument Maturity Indicative price
Covered bonds 3-10 years 1% -2 .4%
Senior debt 3-5 years 1.45%-1.9%
The size represents the volume of wholesale funding maturing every quarter. The percentage number is the current average coupon cost
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1. Quarterly highlights
2. 2Q14 Results
3. Commercial activity and liquidity
4. Risk and capital management
5. Managing real estate assets
26
Strong capital levels
Capital ratios. Core capital Basel III phase-inIn percentage
Note: According to the pending change to “circular 2/2014”
11.1%11.4%
1Q14 2Q14
22,99422,825
22,673
4Q13 1Q14 2Q14
6,973 7,037 7,185
5,506 5,570 5,602
4Q13 1Q14 2Q14RE assets ex-APS RE assets APS
16,021 15,788 15,488
8,874 8,841 8,611
4Q13 1Q14 2Q14Total NPLs ex-APS Total NPLs APS
27
The stock of NPLs continues the downward trend …NPL evolution Euros in million €300M further reduction of
NPLs, ex-APS, during 2Q14
Second consecutive quarter showing a decline in total problematic assets, ex-APS
On-balance sheet RE assets evolution Euros in million
Total problematic assets, ex-APS Euros in million
24,895 24,629 24,099
12,479 12,607 12,787
Note: NPLs include contingent risk
28
… with improved dynamics in the last quarters, like-for-like
Evolution of NPLs and RE assets. (Excluding reclassified loans and acquisitions unti l 1Q14) Sabadell ex-APS. Euros in million
Total problematic assets ex-APS are reduced by €152 M
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Ordinary net entries 388 760 365 -12 -83 -203Change in RE assets 394 1 218 400 64 148Net entries + Change in RE assets 782 761 583 388 -19 -55
Write-offs 247 305 105 51 265 97
Re assets and NPL quarterly change 535 456 478 337 -284 - 152
9121,469 1,447
2009 2010 2011 2012 2013 June 2014
29
Provision requirements remain affordable
Net new NPLs, ex APS, like-for-like and excluding reclassified loansEuros in million
NPLs must be fully provided for after 12 months
Evolution of new NPLs, ex-APSEuros in million
Like-for-like, excluding reclassified loans
Impact from acquiredbusinesses
Reclassified loans
1,0141,362
803
5,4095,735
-533
142
455 494356
-233-300
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
Real Estate development and/or construction purposes 38.38% 42.99% 55.73% 62.98% 63.12% 62.19%
Construction purposes non-related to real estate dev. 5.96% 7.94% 9.84% 8.26% 8.32% 8.25%
Large corporates 7.40% 7.48% 8.91% 6.05% 6.02% 6.01%
SME and small retailers and self-employed 8.98% 9.81% 10.93% 13.33% 13.31% 13.31%
Individuals with 1st mortgage guarantee assets 8.07% 8.17% 8.78% 9.86% 9.84% 9.73%
NPL ratio 9.69% 10.62% 12.61% 13.63% 13.57% 13.35%
30
NPL ratio improving at a higher pace …
Evolution of NPL ratios by segment, ex-APSIn percentage
Note: NPL ratio is calculated including contingent risk.
Second consecutive fall in the NPL ratio, with improvement across all loan categories
2Q14 BS ex-APS APS Total
Real estate assets 40.5% 50.8% 45.0%
Real estate development loans 33.8% 47.4% 40.1%
Total real estate exposure 37.0% 48.9% 42.3%
Construction 12.2% 5.3% 10.3%
Large Corporates 6.5% 46.5% 8.2%
SME and small retailers and self-employed 8.5% 20.6% 9.6%
Individuals 3.8% 12.6% 4.2%
Rest of loan book 5.6% 20.2% 6.4%
Total 9.7% 39.5% 13.8%
31
… maintaining high coverage levels
Coverage by loan segment and real estate assetsSplit between asset protection scheme and rest
Comfortable coverage levels relative to expected loss levels
13.8%Global coverage of total loans and RE
assets
9.7% Global coverage of total loans and RE
assets, ex-APS
32
1. Quarterly highlights
2. 2Q14 Results
3. Commercial activity and liquidity
4. Risk and capital management
5. Managing real estate assets
33
Real estate assets management highlights
� Maintaining good results in real estate asset disposals. Sales volume in 1H 2014 has increased by 7%, YoY, while reducing discount levels
� The Spanish real estate market is changing� There are fewer real estate assets with a selling price below €100,000� Increase in number of transactions with mortgage funding� Price increases in some developments
� New commercial initiatives: � Launch of house rentals targeting the retail market� Solvia Innova initiates modular housing concept
Maintaining good sales results
Sales evolutionEuros in million
34
826
1,237 1,319
1H2012 1H2013 1H2014
+7%
+50%
Increase in sales in 1H14
Solvia has a 12% market share in
Spanish propertysales
Real estate market turning signs
35
� Pick-up in transactions in 2014 (INE, Public works Ministry)
� Price increase in 4 regions (Madrid, Cantabria, Basque Country, Balearic Islands) in 1Q14 (INE)
� House price expectations are improving� The proportion of people expecting
house price declines has changed from over 50% in 2012 to below 25% in 2014(Social research centre)
� Rental yields are improving (BoS)
House price evolution
Source: social research centre polls, INE; Public works Ministry
-18%
-13%
-8%
-3%
2%
7%
2007 2008 2009 2010 2011 2012 2013 1Q14
0%
36
Solvia has become a leader real estate company increasing its brand recognition
Real Estate Business
Asset Management
Commercialisation andservicing
Transformation(land transformation and development capabilities)
Institutional SalesReal estate as an
investment product
�Launch of house rentals initiatives
�Third party servicing
�Institutional and retail sales
Solvia brand recognition is improving and growing significantly among potential house buyers
One of the largest sales platform in Spain
37