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Banco Sabadell Jumps as Profit Beats Estimates on Revenue

Jan. 23 (Bloomberg) -- Banco Sabadell SA, Spain’s fifth-biggest bank, surged the most in four months after increased revenue from loans helped it beat analysts’ estimates for fourth-quarter earnings.

The shares climbed as much as 6.5 percent in Madrid, the biggest gain since Sept. 11. They rose 6.1 percent to 2.15 euros at the close, extending an increase this year to 14 percent and valuing the company at 8.6 billion euros ($11.7 billion). The Sabadell-based bank said today that net income was 61.7 million euros compared with a loss of 8.73 million euros in the year-ago period. That beat the average 57.5 million-euro estimate in a Bloomberg survey of five analysts.

Spanish banks’ share prices have jumped this year as investors anticipated that an economy that’s growing after two recessions will generate more revenue and help stem the flow of loan defaults. Sabadell said today it will seek to triple its return on equity, a measure of profitability, to more than 10 percent over the medium term, saying earnings reached an “inflection point” in 2013.

“There was good margin progression in the quarter, which is likely to be taken positively by the market,” Daragh Quinn, an analyst at Nomura International in Madrid, said in an e-mailed report to clients after the earnings were published.

Net interest income, or the revenue from interest earned on assets minus payments to depositors, increased to 497.7 million euros in the fourth quarter from 451.2 million euros in the third quarter and 414.6 million euros in the previous three months. Sabadell said its fee income climbed 20 percent from a year earlier and trading revenue jumped 38 percent.

Bad Loans

Chief Executive Officer Jaime Guardiola underlined the bank’s commitment to a new medium-term business plan in which it will strive for efficiency and profitability gains. The firm will shed about 1,000 employees within three years, bringing its workforce below 17,000, Guardiola said at a news conference in Barcelona today.

Sabadell’s bad loans as a proportion of total lending rose to 13.6 percent at the end of the fourth quarter from 12.6 percent in September, it said. Provisioning charges to cover impaired assets rose to 429.4 million euros from 261 million euros in the third quarter, Sabadell said.

“The outlook for profitability is still facing headwinds,” Nomura’s Quinn said.

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

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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