Sabadell Quells Investors' Concerns With Boost to Capital

(Bloomberg) -- Banco de Sabadell SA eased concerns about its capital levels that surfaced earlier this year as a key measure of financial strength rapidly improved.

The bank’s CET1 capital ratio climbed by 21 basis points in the third quarter and then jumped by a further 40 points this month, Sabadell said on Friday. The gain, mainly the result of asset sales, should ease concerns that Sabadell may need to raise capital after a poorly-managed IT platform migration at its U.K. unit TSB saddled it with unexpected costs last year.

Sabadell’s shares have rallied in recent months after the lender made a series of moves to alleviate investor anxiety, including the sale of its land developer SDIN Residencial to Oaktree Capital Group. A stronger capital cushion may also strengthen its hand as speculation mounts that Spain’s smaller lenders will need to consolidate as Europe’s negative interest rates erode profitability.

Sabadell rose by as much as 3.6% in Madrid trading and was up 1.2% at 1.025 euros as of 9:44 a.m. The shares have rallied by 14% in the month through yesterday. Still, the bank underscored its tight capital position by paying its dividend in treasury shares and cash, a shift from its previous cash policy.

Sabadell in July cut its forecast for net interest income, saying it will now fall by as much as 1% this year after previously forecasting an increase of 1% to 2%. Spain’s retail banks are feeling the pinch from the extension of the European Central Bank’s monetary policy, which has already seen Europe’s banks contend with negative rates for half a decade.

The lender last year was hit by costs originating from an error-strewn migration of its IT platform at its U.K. unit, TSB Bank Group Plc. The subsidiary’s new chief executive officer, Debbie Crosbie, is expected to announce restructuring plans for TSB next month.

Here are some highlights from Sabadell’s third-quarter earnings report:

• Net income rose 98% to 251 million euros, beating the analyst consensus of 241.5 million euros
• The bank’s fully-loaded CET1 ratio rose 21 basis points to 11.4% in the third quarter; its pro-forma CET1 ratio was 11.8% as of Oct. 25
• Net interest income of 906 million euros beat the consensus of 896.8 million euros; commissions also beat the 356 million-euro estimate of forecasts
• The bank will pay a dividend in stock of 0.02 euros per share payable on Dec. 24

To contact the reporter on this story: Charlie Devereux in Madrid at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Charles Penty

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