Spain's Sabadell Pays the Price for TSB Computer Meltdown

(Bloomberg) -- Spain’s Banco de Sabadell SA is paying the price for the failures of its U.K. unit.

As well as doing business in an ultra-low interest rate environment that continues to sap revenue, Sabadell has been grappling with problems caused by migrating to new computer systems at TSB Banking Group Plc that enraged British clients and politicians. The shares fell as much as 7.3 percent, the biggest intraday drop since December 2016, as the bank was hit by a 203.1 million-euro ($236 million) charge related to the business in the second quarter and saw a key measure of its financial strength fall.

TSB Chief Executive Officer Paul Pester repeatedly apologized to lawmakers in May and will relinquish part of his bonus after the bungled roll-out of a new computer system left hundreds of thousands of customers unable to access services. The charge detailed by Sabadell on Friday included 40 million euros from fraud losses and 92 million euros to cover future customer claims. U.K. politician John Mann called the incident a “shambles.”

“Additional provisions in Spain and negative impact from TSB are behind the weak results, Daragh Quinn, an analyst at Keefe, Bruyette & Woods, said in a note to clients. The company has an underperform rating on the shares.

Sabadell said in a presentation that it expected 2019 to be a “normalized” year for TSB. The lender acquired the British bank in 2015 for 1.7 billion pounds ($2.2 billion) to help diversify its business outside Spain.

The shares were down 7 percent at about 1.32 euros at 10:06 a.m. in Madrid. The bank had a 138.7 million-euro loss for the quarter, compared with estimates for profit of 63.3 million euros.

Sabadell sold real estate assets with gross book value of 9.1 billion euros to Cerberus Capital Management earlier this month. It has also agreed to transfer about 3 billion euros of loans to Deutsche Bank AG and CarVal Investors.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, ;Vidya Root at vroot@bloomberg.net, Andrew Blackman, Jon Menon

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