Those responsible for Banco Sabadell do not share the scariest predictions and they deny that the Spanish economy could fall into recession. They believe it will regain traction next year despite inflation and higher interest rates. If their internal projections are any guide, demand for mortgages and other loans remains robust, contrary to some forecasts that suggested activity would weaken after the summer, with September and October still showing strength.
This stance was presented during a results briefing for the bank’s third quarter, which showed a profit of 709 million euros, up 92% from the same period in 2021. The figures came as the bank emphasized that higher profits do not justify new taxes proposed by government officials, who argue the sector has already paid substantial taxes and has not yet achieved a satisfactory return on capital. The tone suggested that markets remain demanding while the industry continues to face regulatory pressures.
“At the moment, there are no signs of weakness in the economy. Inflation raises questions about the future, but the results speak for themselves. We anticipated a dip in activity after the holidays, yet September and October showed resilience,” the executives noted, while acknowledging a potential recession next year that many national and international organizations are predicting. They expect growth in Spanish GDP of around 1% to 2% depending on the scenario.
Sabadell’s finance team also commented on the effects of eroding purchasing power, while noting that unemployment has not surged and employment indicators remain solid for now.
From Sabadell’s Alicante headquarters, the leadership conveyed a cautiously optimistic outlook about possible government measures to shield vulnerable groups. They highlighted that more than half of the bank’s mortgage portfolio is at a fixed rate, with most of the remainder already exceeding ten years in duration, which reduces the impact of rate hikes on depreciation and cash requirements.
Calviño’s warning that the bank sector seeks a comprehensive set of measures for distressed borrowers was acknowledged, but Sabadell’s managers also stressed that the focal point remains customers’ ability to meet loan obligations. They pointed out the provisional bank tax currently under consideration by Congress, which would impose a 4.8% levy on commissions and interest margins for large banks in 2019, affecting institutions with turnover above a defined threshold.
Impartiality in taxation
Despite Calviño’s position, Sabadell’s chief executive argued that increases in industry profits should not automatically justify higher taxes. He cited Sabadell’s own tax contributions, noting that the bank paid more than 800 million euros in taxes last year, compared with earnings of 530 million euros in the previous period. He warned that a tax of that nature should be temporary and applied impartially so as not to distort competition and should consider multiple operating criteria, including commissions and interest income in the Spanish market.
Leopoldo Alvear, the group’s finance director, stressed the cost-efficiency of the bank, reporting a return on tangible equity that remains well below the broader cost of capital. He highlighted that funding conditions in recent years have been challenging, with negative rates and subdued sector performance. This environment, he noted, has complicated the bank’s ability to raise capital and extend lending, reinforcing the need for prudent financial management.
Legacy matters and capital management
Despite these challenges, Sabadell’s leadership indicated a deliberate plan to resolve legacy issues, including the consolidation of assets inherited from past mergers. They suggested that the tax should be temporary and broadly applicable to maintain fair competition, while also applying consistent criteria to asset evaluation and income streams across the Spanish market.
Looking ahead, Sabadell does not anticipate a short-term decline in lending activity. They described the competitive landscape as a steady contest among banks to attract customer deposits by offering higher fees, noting ample liquidity remains in the market.
Work conditions and compensation
On wage growth and potential compensation adjustments to offset inflation, the leadership indicated that bonuses for the British subsidiary TSB are shaped by the specifics of the UK labor market, while no comparable plan exists in Spain. They called for moderation and suggested that excessive pay increases could undermine the profitability gains achieved through recent workforce changes.
Overall, the bank’s executives conveyed a message of cautious optimism. They emphasized the importance of balancing profitability with prudent risk management as the market evolves and policy responses unfold. Citations: Sabadell press briefing, quarterbacked by senior executives, and subsequent market commentary from related financial briefings.