Sabadell targets profitability ratio of 16% in 2027 without TSB

Spain's Sabadell unveiled a new 2025-2027 strategic plan, targeting an increase in its return on tangible equity (ROTE) to 16% by 2027 from 14.6% in 2024, alongside a net profit exceeding €1.6 billion, driven by cost controls and 5% accumulated annual loan growth. This strategy is presented amidst a €13 billion takeover bid from rival BBVA, and includes the proposed £2.65 billion sale of its UK unit TSB to Santander, which will finance a €2.5 billion extraordinary cash dividend. The bank also reported a Q2 net profit of €486 million, up 0.6%, beating analyst forecasts.

Analysis

Sabadell has announced a new three-year strategic plan for 2025-2027, projecting an increase in its return on tangible equity (ROTE) to 16% by 2027 from a forecasted 14.6% in 2024. This plan, which aims for a net profit exceeding €1.6 billion in 2027, is underpinned by targeted cost controls in its Spanish operations and a 5% accumulated annual growth in its overall loan portfolio. The strategy is being presented as a defense against a hostile €13 billion takeover bid from rival BBVA. A cornerstone of this defensive maneuver is the agreed-upon sale of its British unit, TSB, to Santander for £2.65 billion. The proceeds are earmarked to fund a substantial €2.5 billion extraordinary cash dividend, a move designed to enhance shareholder value and present a compelling alternative to BBVA's offer. The bank's operational credibility is supported by its recent performance, having reported a Q2 net profit of €486 million, a 0.6% year-over-year increase that surpassed analyst forecasts of €444 million.

Key Decisions for Investors

• Sabadell shareholders must weigh the potential long-term value of the new strategic plan, including the 16% ROTE target and the €2.5 billion special dividend, against the immediate certainty of BBVA's €13 billion takeover offer.
• Investors should monitor for any revised bid from BBVA, as Sabadell's defensive sale of TSB and its shareholder-friendly dividend plan may compel the suitor to increase its offer price.
• The feasibility of Sabadell's standalone strategy hinges on execution; therefore, investors should closely track its ability to achieve the targeted 5% accumulated annual loan growth and deliver on its cost-control initiatives.