How Sabadell will approach its future

BarcelonaThe failure of BBVA's takeover bid for Banc Sabadell opens a new scenario for the Catalan financial institution and the Spanish sector. Experts predict future movements in the mid-sized banking sector that could be led by the Vallesan bank, now smaller following the agreement to sell its British subsidiary TSB to Santander, which provides a fifth of its profits. The objective is to strengthen the bank's profile "focused on Spain, one of the countries with the best economic prospects in the European Union," which means "having predictable income and a controlled cost of risk," explained the financial director, Sergi Palavecino, to present the strategic plan until 2027 in July.

The takeover bid has accelerated the process of establishing a regional bank while also recovering the headquarters of one of the largest Spanish banks for Catalonia. Until now, the bank has grown through integrations that generally maintain their regional specificities. It incorporated the NatWest Spain group, renamed Solbank; later, it added Banco Herrero (Asturias), Atlántico, Urquijo, TransAtlantic Bank of Miami in the US; and, after the financial crisis, Guipuzcoano, CAM and the branch network of Caixa Penedès in Catalonia and Aragon, Banco Gallego, and Lloyds' business in Spain. In 2015, it took control of TSB in the United Kingdom and the following year created a bank in Mexico.

The new scenario will also revive potential alliances and agreements that had been stalled because the takeover bid acted as a "stopper," in the words of the bank's chairman, Josep Oliu. As a result of the takeover bid, it had to freeze, for example, the sale of its payments business, Paycomet, to the payment technology company Nexi for €350 million. Further agreements may also be in the works, such as the insurance deal it has with Zurich, the bank's second-largest shareholder with 4.947%, which rejected the takeover bid. It also currently has agreements with BNP as a depositary and with Amundi for asset management.

There are also possibilities of incorporating new shareholders who held back their intentions due to the takeover bid, according to financial sources. One of the lessons learned from this transaction has been the need to have a stable core shareholder base, especially now that it is smaller and, therefore, be easier to buy. But Oliu already tried it in 2006, at a time when the bank surpassed eight euros per share, with representatives of important families in the business world, such as the Laras (Planeta), Andic (Mango), Folch-Rusiñol (Titán), and Colonques (Porcelanosa). This alliance dissolved in 2018 with heavy losses. Currently, more than 50% of the capital is in the hands of institutional investors, very interested in making short- or medium-term profits. One of them, the Mexican investor and director of the bank, David Martínez Guzmán, with 3.495% of the capital, joined BBVA's takeover bid and is now in a compromised situation.

Succession to the Presidency

One of the enigmas is whether Oliu (Sabadell, 1949), one classic of the bank, whether or not she plans to continue after this long, seventeen-month battle. Some sources explain that, with the takeover bid, she was concerned about the succession. "I want to pass the baton to someone from Sabadell, not BBVA," she is reported to have said. Oliu—who joined the bank in 1986, replaced his father as CEO in 1990, and was promoted to chairman in 1999—defends the CEO, César González-Bueno, with whom he has teamed up against the takeover bid, and the "young and dynamic" management team who have served alongside the young woman. The replacement will come "from within."

The strategy of continuing alone with a smaller footprint entails strengthening businesses such as SMEs and the self-employed, where it is already strong, and deepening its digitalization. It's about improving results and convincing the markets. In the strategic plan, it hopes to achieve a profitability (ROTE) of 16%. Given that it has committed to distributing the surplus of 13% of CET1 capital (the highest quality) to shareholders, it expects to distribute 6.45 billion until 2027. A portion will come from the extraordinary dividend of 2.5 billion (0.50 gross cents per share). endorsed by the shareholders' meeting in August due to the sale of TSB to Santander.

According to the strategic plan, it will reach a profit of €1.6 billion in 2027, without TSB. With the British business, it earned €859 million in 2022; in 2023, €1.332 billion, and in 2024, €1.827 billion. And by June of that year, €975 million. And how will it achieve these milestones? Its roadmap involves increasing commercial activity at a rate higher than the market average and increasing the loan portfolio by 5% annually, with a better risk profile, higher income, including fees, and with strong expense containment.