Report from the Board of Directors of Banco De Sabadell, S.A
REPORT FROM THE BOARD OF DIRECTORS OF BANCO DE SABADELL, S.A. REGARDING THE PROPOSAL TO ISSUE SUBORDINATED BONDS MANDATORILY CONVERTIBLE INTO SHARES ENVISAGED IN ITEM TWO OF THE AGENDA OF THE EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS CONVENED ON 16 SEPTEMBER, AT FIRST CALL, AND 18 SEPTEMBER AT SECOND CALL.
I. PURPOSE OF THE REPORT
This report has been drafted in connection with the proposed motion to issue subordinated bonds (the "Mandatorily Convertible Subordinated Bonds " or the "Bonds") that are mandatorily convertible into newly-issued shares of Banco de Sabadell, S.A. (hereinafter, "Banco de Sabadell", the "Bank" or the "Company") subject to approval under item two of the agenda of the Extraordinary General Meeting of Shareholders, to be held at second call on 18 September 2010, since it will foreseeably not be quorate at first call, which is also hereby scheduled for the same location and time, on 16 September 2010 (hereinafter, the "General Meeting").
This report is issued in compliance with the provisions established, in connection with the conditions and forms of bond conversion, in article 292 of Royal Legislative Decree 1564/1989, of 22 December, approving the consolidated text of the Spanish Public Companies Act (hereinafter, the "Spanish Public Companies Act"), and article 144.1.a) in connection with article 153.1.a) of the Spanish Public Companies Act.
Neither shareholders of the Bank nor holders of convertible bonds will have pre-emptive subscription rights to the Bonds whose issuance is proposed to the Extraordinary General Meeting of Shareholders (see Section III below).
With a view to setting out the reasoning behind the proposed issuance of the Bonds, below in first place is an explanation and justification, for shareholders, of the issuance of the Bonds. The reports envisaged in compliance with the Spanish Public Companies Act are issued together, although set out in separate sections. The proposed motion to issue the Bonds, subject to approval by the General Meeting, is also included.
II. CONTEXT OF THE OPERATION
On 25 June 2010, the Board of Directors of the Bank decided to make a Takeover Bid (the "Bid" or the "Takeover Bid") for 100% of Banco Guipuzcoano, S.A., in exchange for a mixed consideration consisting in shares of Banco Sabadell and Mandatory Convertible Subordinated Bonds, calling for such purposes an Extraordinary General Meeting of Shareholders to increase capital and issue the Subordinated Bonds Mandatorily Convertible into shares of Banco Sabadell.
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The consideration offered in the Bid has been set at (i) five newly-issued or pre-existing shares of Banco de Sabadell and five Subordinated Bonds Mandatorily Convertible into shares of the Bank for eight ordinary shares of Banco Guipuzcoano, S.A. and (ii) six newly-issued or pre-existing shares of Banco de Sabadell, S.A. and five Subordinated Bonds Mandatorily Convertible into shares of the Bank for eight preference shares of Banco Guipuzcoano, S.A. In determining the foregoing exchange ratio, the Board of Directors took into account that the consideration offered for shares of Banco Guipuzcoano, S.A. resulting from the exchange ratio is fair.
The shareholders of Banco Guipuzcoano that accept the Bid with a number of shares leading to other than a whole number of shares or bonds after applying the share exchange ratio will receive a consideration in cash for the remainder. The calculation of the remainder will be performed in accordance with the Bid Prospectus.
Significant shareholders of Banco Guipuzcoano, S.A., accounting for 45.61% of that bank's capital, have signed an agreement to exchange their respective holdings in the above-mentioned Bid, which has been authorised by the Board of Directors of the Bank.
The above-mentioned Bonds are being issued with the exclusive purpose of the exchange for shares of Banco Guipuzcoano, S.A. The Board of Directors of Banco de Sabadell considers that the issuance of the proposed Bonds is appropriate for the partial exchange of shares deriving from the Takeover Bid and will contribute to adequately remunerating the shareholders of Banco Guipuzcoano, S.A. and safeguarding the solvency of Banco de Sabadell, S.A.
The Board of Directors of Banco de Sabadell considers the terms of the issue to be in accordance with the new international regulation on financial entities' own funds; specifically, there has been an increase in minimum own fund requirements for banks and more stringent requirements applied to securities and financial instruments issued for computation as basic or Tier 1 equity. The fact that the Bonds are subordinated and mandatorily convertible, together with the regime envisaged for setting and paying their coupons, will allow them to qualify as basic own funds of the Bank, enabling it to comply with the new bank solvency regulations.
III. BOARD OF DIRECTORS REPORT FOR THE PURPOSES OF INDICATING THE INTENDED RECIPIENTS OF THE BOND ISSUE
The Board of Directors of Banco Sabadell informs that the proposed issuance of Subordinated Bonds Mandatorily Convertible into newly-issued shares fully complies with the substantive requirements established under the law and, in particular, with those related to the corporate interest. This is because the purpose of the proposed issue, which is intended for the shareholders of Banco Guipuzcoano, S.A. that accept the Bid, which will allow for a highly appropriate transaction with regard to enhancing the bank's financial soundness in view of the unique growth opportunity that the Bid for Banco
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Guipuzcoano, S.A. offers, enabling the bank to preserve its net worth and potential for future development and, therefore, the corporate interests.
Those corporate interests are based on (i) the purpose of the newly-issued bonds, (ii) the fact that it allows for a transaction that is highly appropriate for the corporate interests; and (iii) the fact that the operation is not only appropriate, but also necessary to attain the goal being pursued.
The final purpose of the proposed issue as explained above is to cover part of the payment required for the exchange with shareholders of Banco Guipuzcoano, S.A. that accept Banco Sabadell's Takeover Bid.
The Board of Directors of Banco Sabadell considers that the bond issue is justified for reasons of corporate interest.
This Issue of bonds under the terms set out enable the Bank to perform a highly appropriate transaction, providing it with a growth opportunity in Spain's lending market; strengthening and consolidating its position among the market leaders, which is especially important in view of the intense competition in the market and the current economic situation in the Spanish and international financial markets; and enabling Banco de Sabadell to maintain an appropriate financial structure and level of own funds to weather the challenges of future development of the business; accordingly, the transaction described is necessary for all of the above reasons.
With regard to the conversion price and yield that the Bonds will accrue, the Board of Directors refer to items four and seven in the following section on "yields" and "conditions and forms of conversion", respectively.
The Board of Directors of Banco Sabadell has engaged the independent expert designated by the Mercantile Register to issue a report on the conditions and forms of conversion, in accordance with article 292.2 of the Spanish Public Companies Act and, with the goal of offering greater protection to Banco Sabadell shareholders and, in view of the possible interpretations of the current legislation, the Board of Directors has opted for a more conservative and prudent alternative in requesting that the report include an opinion on the reasonableness of the data in the Directors' Report, on the appropriateness of the conversion ratio and, where appropriate, on adjustment formulas so as to offset possible dilution of shareholders, as provided for under article 293.2 of the Spanish Public Companies Act.
IV. REPORT BY THE BOARD OF DIRECTORS FOR THE PURPOSES OF ARTICLE 292 OF THE SPANISH PUBLIC COMPANIES ACT
If the motion submitted for approval to the Extraordinary General Meeting of Shareholders of Banco Sabadell is approved, subordinated bonds mandatorily convertible into shares will be issued by Banco Sabadell.
Under the provisions of article 292.2 of the Spanish Public Companies Act, a
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report is to be drafted by the directors and made available to shareholders explaining the conditions and forms for conversion of the bonds, which are detailed below, together with the most important data on the issue, as set out in the proposed motion.
To that end, the Board of Directors of Banco Sabadell provides the following information:
One Issuer
The issuing company is Banco de Sabadell, S.A., domiciled in Sabadell, Plaza de Sant Roc, 20, with Tax ID no. A-08000143. Its capital stock currently stands at Euros 150,000,000 and is represented by 1,200,000,000 ordinary shares, with a par value of Euros 0.125 each, all of which are fully paid and have identical rights.
Two Amount of issue
The nominal amount of the issue is Euros four hundred and sixty-eight million (€468,000,000), i.e. less than the paid up capital stock together with reserves reflected in the most recent approved balance sheet included in the Bank's consolidated financial statements for the year ended 31 December 2009, which are attached, with the auditor's report, as an Annex. At all events, in accordance with the provisions of article 111 bis of Securities Market Act 24/1988, of 28 July, and Additional Provision four of Act 26/1998, of 29 July, on discipline and intervention of credit institutions, the limit noted in article 282.1 of the Spanish Public Companies Act does not apply to this issue.
The possibility of incomplete subscription exists, and the Board of Directors, the Executive Committee, the Chairman of the Board of Directors, Mr José Oliu Creus, and Managing Director, Mr Jaime Guardiola Romojaro, are empowered jointly and severally to declare the Bond issue closed and subscribed for the amount actually subscribed and paid.
Three Rate of issue and face value
The Bond issue is at par, i.e. at 100% of face value. The Bonds have a nominal value of five euros (€5), i.e. greater than the nominal value of the shares of Banco de Sabadell (Euros 0.125 each).
The Subordinated Mandatory Convertible Bonds are all of the same class and series and have the same terms and conditions, providing holders with identical rights.
The Bonds will be represented by book entries and will be registered in the corresponding accounting registries governed by the Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, Sociedad Anónima (hereinafter, "IBERCLEAR") and its authorised Participating Entities.
Four Yield
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The yield applicable for remuneration which, if declared by the Board of Directors, the Executive Committee or any other person to whom the Board of Directors delegates its powers, will accrue on the face value of the bonds up to the time of their amortisation due to conversion, whether voluntary or mandatory, will be 7.75% p.a. of the nominal value of the Subordinated Mandatory Convertible Bonds.
For the purposes of determining the annual nominal yield applicable to the nominal value of the Subordinated Mandatory Convertible Bonds, which will accrue, if declared, up to the time of amortisation through conversion, whether voluntary or necessary, the duration of the issue will be divided into remuneration accrual periods of one quarter each.
Five Maturity date
The Bonds will be obligatorily converted into newly-issued shares of the Bank upon maturity, which will take place in accordance with the procedures of conversion set out in the proposed motion. Any bonds not previously converted and outstanding at the maturity date must obligatorily be converted into shares.
Six Intended recipients of the issue
The issue of Subordinated Bonds Mandatorily Convertible into shares is aimed exclusively at the shareholders of Banco Guipuzcoano, S.A. to whom is addressed the takeover bid for 100% of Banco Guipuzcoano, S.A.'s capital, made by Banco de Sabadell, S.A. in the following ratio: (i) five shares of Banco Sabadell, either newly-issued or pre-existing, and five Subordinated Bonds Mandatorily Convertible into shares of Banco Sabadell for every eight ordinary shares of Banco Guipuzcoano, S.A. and (ii) six shares of Banco Sabadell, either newly issued or pre-existing, and five Mandatory Convertible Subordinated Bonds for every eight preference shares of Banco Guipuzcoano, S.A.
Shareholders and bondholders of the Bank may not exercise their pre- emptive subscription rights with respect to the Bond issue proposed to the Meeting.
Seven Conditions and forms of conversion
The Bonds will be necessarily convertible into newly-issued shares of Banco Sabadell in accordance with the conversion process set out in the proposed motion. In the final instance, any Bonds outstanding at the date of maturity and not previously converted must obligatorily be converted into shares.
For the purposes of conversion: – the bonds will be valued at face value; and
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– the shares of Banco Sabadell will be valued at the fixed price (the "Conversion Price"), initially set at Euros 5 per share. In no event may the value of the share used for converting the Bonds into shares be less than their nominal value, i.e. Euros 0.125 per share.
The number of shares which will correspond to each holder of a Bond as a result of the conversion will be the result of dividing the nominal value of the Bonds by the Conversion Price, to be adjusted where necessary in accordance with anti-dilution mechanisms set out in section Eleven below. If, as a result of the calculation, holders are due fractions of shares, the number of shares will be rounded down and Banco Sabadell will pay the difference in cash. For the purposes of that cash payment, the shares will be valued at the Conversion Price, without prejudice to the application of the above-mentioned anti-dilution mechanisms.
The holders of the Bonds will have the same rights as holders of ordinary shares of Banco Sabadell as from the date that the Board of Directors, the Executive Committee or any other person empowered by the Board of Directors decides to execute the capital increase for the conversion of said bonds.
In view of the fact that the definitive number of Bonds to be issued will depend on the acceptance rate of the Bid by Banco Guipuzcoano shareholders, it was not possible, at the time this report was drafted, to determine the amount of capital stock to be issued to cater for full conversion of the Bonds. However, for purely informational purposes, assuming that the Bid is accepted by 100% of the shareholders of Banco Guipuzcoano, and assuming that the price of Banco de Sabadell shares for the purposes of conversion is Euros 5, the maximum number of shares to be issued to attend to the conversion of the Bonds would be 93,600,000, with a total nominal value of Euros 11,700,000.
Moreover, it is hereby noted that, at the date this report was drafted, Banco de Sabadell has 500,000 Subordinated Mandatory Convertible Bonds I/2009 outstanding and pending conversion into shares; those bonds were issued by the Bank on 21 July 2009 by virtue of the Securities Note inscribed in the official register of the Spanish National Securities Commission (CNMV) on 25 June 2009, the exact number of shares to be issued for conversion being 100,341,159 and a total nominal value of Euros 12,542,644.87.
Eight Guarantees
The Mandatory Convertible Subordinated Bonds will be backed by the full faith and net worth of Banco Sabadell, in accordance with the rank and order of precedence as set out in section Nine below, and will not be covered by a special guarantee.
Nine Order of Precedence
The bonds will be subordinated, and will rank as follows in order of precedence: a) below all common and subordinated creditors of Banco
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Sabadell; below holders of preference shares or comparable securities that the Bank has issued or may issue, and the obligations derived from guarantees that the Bank has provided or may provide with respect to the preference shares or comparable securities issued by its subsidiaries: c) pari passu with any other series of convertible bonds issued or to be issued by the Bank, especially with the Mandatory Convertible Subordinated Bonds I/2009; and d) before ordinary shares of Banco Sabadell. In the event of liquidation of Banco de Sabadell, the bonds would be converted obligatorily and the holders of the bonds would have the same rights as other shareholders.
Ten Date or dates of execution of the decision to issue
The date or dates set by the Board of Directors, or by the Executive Committee or any other person to whom the Board of Directors delegates its powers, in accordance with the terms of the issue decision presented for approval to the General Meeting.
Eleven Anti-dilution mechanisms
Section (I) of the proposed motion establishes anti-dilution mechanisms which seek to (i) ensure that, in the event of corporate transactions (M&A) or if agreements are adopted which may dilute the bondholder, such operations and agreements will affect shareholders of Banco de Sabadell and holders of the Bonds equally, and (ii) adjust the Conversion Price for the impact that may arise from the possible decision of the Bank not to declare a coupon on the Bonds despite there being sufficient distributable profit to do so.
Twelve Applicable law
The Bond issue is subject to Spanish legislation.
Thirteen Listing
The bank will list the Bonds on the Stock Markets in Barcelona, Madrid and Valencia and on the Electronic Market (Sistema de Interconexión Bursátil Español).
Fourteen Bondholders’ Syndicate and Provisional Trustee
A Bondholders’ Syndicate will be created and will operate in accordance with its Statutes and the Spanish Public Companies Act; its provisional trustee will be appointed by the General Meeting of Shareholders. The Statutes of the Bondholders’ Syndicate are set out in section [(N)] of the proposed motion submitted to the Meeting.
Fifteen Delegation to the Board of Directors
The Board of Directors is empowered, with the power to sub-delegate to one or more directors, without distinction, the powers necessary to execute the decision to issue the Bonds.
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Sixteen Other conditions of the issue
The conditions of the Bond issue will be governed by the provisions of the Spanish Public Companies Act, Banco Sabadell's Articles of Association and the agreement to be adopted by the Extraordinary General Meeting of Shareholders of the Bank, scheduled for 16 September 2010, at first call or, in the event it is not quorate, on 18 September at second call, under item two if the Agenda.
Seventeen Significant events following closure of the consolidated financial statements
Following closure of the audited consolidated financial statements for 2009, the following significant events occurred:
(i) On 11 January 2010, Banco Sabadell issued Euros 1.000 billion in mortgage covered bonds aimed at institutional investors (domestic and international);
(ii) On 15 January 2010, Banco Sabadell completed the agreement by which it acquired 100% of the shares of Mellon United National Bank (a Florida subsidiary of the Bank of New York Mellon Corporation), for a final price of Euros 111 million (USD 160.6 million);
(iii) On 25 March 2010, Banco Sabadell held its General Meeting of Shareholders;
(iv) On 8 April 2010, Banco de Sabadell announced plans to perform a swap of Series I/2006 preference shares and Series I/2006 subordinated bonds for newly-issued subordinated bonds; settlement took place on 26 April 2010;
(v) On 14 June 2010, Ibersecurities Socieded de Valores, S.A.U. was merged into Banco Sabadell;
(vi) On 25 June, the Board of Directors of Banco de Sabadell resolved to make a Takeover Bid for 100% of Banco Guipuzcoano, S.A. in exchange for consideration consisting of shares of Banco de Sabadell and Mandatory Convertible Subordinated Bonds.
V. BOARD OF DIRECTORS REPORT FOR THE PURPOSES OF ARTICLE 144.1.a) OF THE SPANISH PUBLIC COMPANIES ACT
The Board of Directors reports that, with a view to providing the Bank with the necessary flexibility and capacity to attend to requests for conversion by
8 holders of the Bonds, it proposes that the Extraordinary General Meeting of Shareholders approve an increase of the Bank's capital in the amount necessary to attend to requests for conversion from holders of the Bonds through the issuance of new shares of the Bank up to initially envisaged maximum of Euros 15,394,736.87, corresponding to the maximum number of shares to be issued by the Bank on the basis of the Conversion Price (123,157,895 shares).
Furthermore, the Board of Directors proposes that the Extraordinary General Meeting of Shareholders empower the Board of Directors (pursuant to the provisions of article 153.1.a of the Spanish Public Companies Act), with express powers to sub-delegate to one or more of its members, without distinction, to execute the decision to increase capital, whenever the Bank decides to attend to conversion requests from the holders of the Bonds via the issuance of new shares of the Bank, in the manner and method which they consider advisable, and to decide the date(s) on which to increase capital. Moreover, it is proposed that the Board of Directors be empowered, with express powers to sub-delegate in one or more of its members, without distinction, to decide the conditions of the capital increase in all aspects not envisaged by the General Meeting of Shareholders, with the limit of the number of shares it is necessary to issue to cater for the conversion requests from holders of the Bonds at any given time by issuing new shares.
In congruence with this, it is proposed that the Board of Directors be empowered, with express powers to sub-delegate to any of its members, to amend the wording of article 7 of the Company's Articles of Association to adapt it to the amount of share capital resulting from each of the capital increases.
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ANNEX
AUDITORS' REPORT AND FINANCIAL STATEMENTS OF BANCO DE SABADELL AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2009
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Directors’ statement of responsibility Statutory information Statutory Banco Sabadell Annual Report 2009 Annual Report
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Auditors’ report Statutory information Statutory Banco Sabadell Annual Report 2009 Annual Report
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Consolidated Annual Accounts of the Banco Sabadell group for the year 2009 - Contents
Note Title
Financial statements
Balance sheet Income statement Statement of changes in equity Cash flow statement Notes to the Accounts
1 Principal business and accounting policies and practices 2 Banco Sabadell group 3 Proposed distribution of profits and basic earnings per share 4 Loans and advances to credit institutions 5 Debt securities 6 Equity instruments information Statutory 7 Trading derivatives (assets and liabilities) 8 Loans and advances to other debtors 9 Financial asset transfers 10 Changes in the fair value of hedged items in portfolio hedges of interest rate risk 11 Hedging derivatives (assets and liabilities) 12 Non-current assets held for sale and liabilities associated with non-current assets held for sale 13 Investments 14 Tangible assets 15 Intangible assets 16 Other assets 17 Deposits from credit institutions 18 Deposits from other creditors 19 Debt certificates including bonds 20 Subordinated liabilities 21 Other financial liabilities 22 Liabilities under insurance contracts 23 Provisions 24 Fair value of financial assets and liabilities 25 Foreign currency transactions
26 Own funds Banco Sabadell 27 Valuation adjustments 28 Minority interests 29 Contingent exposures
30 Contingent commitments 2009 Annual Report 31 Off-balance sheet customer funds 32 Income statement 33 Taxation (income tax) 34 Segmental information 35 Financial risk management 36 The environment 37 Related party transactions 38 Agents 39 Customer Service Department 40 Remuneration paid to directors and senior management group 41 Directors' duty of loyalty 42 Post-balance sheet events Annex Banco Sabadell group undertakings
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Consolidated balance sheet of the Banco Sabadell group As at 31 December 2009 and 31 December 2008
€'000 Assets 2009 2008 (*)
Cash and deposits with central banks 1,820,157 2,357,573
Financial assets held for trading 1,140,441 1,296,991 Loans and advances to credit institutions 0 0 Loans and advances to other debtors 0 0 Debt securities (note 5) 91 2,894 Equity instruments (note 6) 19,917 7,640 Trading derivatives (note 7) 1,120,433 1,286,457 Memorandum item: Loaned or advanced as collateral 0 0
Other financial assets at fair value through profit or loss 182,166 161,733
Statutory information Statutory Loans and advances to credit institutions 0 0 Loans and advances to other debtors 0 0 Debt securities 0 0 Equity instruments (note 6) 182,166 161,733 Memorandum item: Loaned or advanced as collateral 0 0
Available-for-sale financial assets 8,031,761 5,759,158 Debt securities (note 5) 6,934,750 5,138,548 Equity instruments (note 6) 1,097,011 620,610 Memorandum item: Loaned or advanced as collateral 4,291,570 3,382,442
Loans and receivables 65,777,852 65,629,692 Loans and advances to credit institutions (note 4) 2,544,962 2,623,491 Loans and advances to other debtors (note 8) 63,232,890 63,006,201 Debt securities 0 0 Memorandum item: Loaned or advanced as collateral 969,672 823,081
Held-to-maturity investments 0 0 Memorandum item: Loaned or advanced as collateral 0 0
Banco Sabadell Changes in the fair value of hedged items in portfolio hedges of interest rate risk (note 10) 0 0
Hedging derivatives (note 11) 668,081 500,768
Annual Report 2009 Annual Report Non-current assets held for sale (note 12) 71,546 21,111
Investments (note 13) 706,075 587,966 Associates 706,075 587,966 Jointly controlled entities 0 0
Insurance contracts linked to pensions (note 23) 209,484 228,019
Reinsurance assets 0 8
Tangible assets (note 14) 1,140,190 1,080,917 Property, plant and equipment 962,709 999,869 For own use 866,693 907,867 Leased out under operating leases 96,016 92,002 Investment property 177,481 81,048 114 Memorandum item: Acquired under finance leases 0 0
Intangible assets (note 15) 669,980 718,536 Goodwill 490,930 527,893 Other intangible assets 179,050 190,643
Tax assets 984,448 1,114,582 Current 303,859 235,527 Deferred (note 33) 680,589 879,055
Other assets (note 16) 1,420,705 921,011 Inventories 1,330,844 776,469 Other 89,861 144,542
Total assets 82,822,886 80,378,065
(*) Presented for comparative purposes only. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 115
Consolidated balance sheet of the Banco Sabadell group As at 31 December 2009 and 31 December 2008
€'000 Liabilities 2009 2008 (*)
Financial liabilities held for trading 1,118,743 1,242,257 Deposits from central banks 0 0 Deposits from credit institutions 0 0 Deposits from other creditors 0 0 Debt certificates including bonds 0 0 Trading derivatives (note 7) 1,118,743 1,239,651 Short positions 0 2,606 Other financial liabilities 0 0
Other financial liabilities at fair value through profit or loss 0 0 Deposits from central banks 0 0
Deposits from credit institutions 0 0 information Statutory Deposits from other creditors 0 0 Debt certificates including bonds 0 0 Subordinated liabilities 0 0 Other financial liabilities 0 0
Financial liabilities at amortized cost 74,957,805 73,348,773 Deposits from central banks 1,064,909 3,926,578 Deposits from credit institutions (note 17) 8,512,365 4,795,465 Deposits from other creditors (note 18) 39,130,722 39,199,242 Debt certificates including bonds (note 19) 22,812,447 22,024,260 Subordinated liabilities (note 20) 2,039,698 2,093,687 Other financial liabilities (note 21) 1,397,664 1,309,541
Changes in the fair value of hedged items in portfolio hedges of interest rate risk (note 10) 452,290 219,952
Hedging derivatives (note 11) 108,989 230,419
Liabilities associated with non-current assets held for sale (note 12) 0 0
Liabilities under insurance contracts (note 22) 182,186 161,763 Banco Sabadell
Provisions (note 23) 313,267 366,904 Provisions for pensions and similar obligations 189,583 202,972
Provisions for taxes and other regulatory contingencies 24,440 2,007 2009 Annual Report Provisions for contingent exposures and commitments 81,183 119,167 Other provisions 18,061 42,758
Tax liabilities 178,209 168,288 Current 75,423 40,766 Deferred (note 33) 102,786 127,522
Other liabilities 214,027 191,644
Total liabilities 77,525,516 75,930,000
(*) Presented for comparative purposes only.
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Consolidated balance sheet of the Banco Sabadell group As at 31 December 2009 and 31 December 2008
€'000 Equity 2009 2008 (*)
Own funds (note 26) 5,226,333 4,627,216 Capital 150,000 150,000 Authorized 150,000 150,000 Less: Uncalled capital 0 0 Share premium account 1,373,270 1,373,270 Reserves 2,986,777 2,646,697 Accumulated reserves (losses) 2,840,566 2,539,396 Reserves (losses) of entities accounted for by the equity method 146,211 107,301 Other equity instruments 500,000 0 Equity component of compound financial instruments 500,000 0 Other equity instruments 0 0
Statutory information Statutory Less: Treasury shares (138,203) (22,665) Profit or loss for the year attributable to parent company 522,489 673,835 Less: Dividends and other remuneration (168,000) (193,921)
Valuation adjustments (note 27) 43,656 (193,214) Available-for-sale financial assets 56,734 (133,451) Cash flow hedges (12,055) (32,991) Hedges of net investments in foreign operations 0 0 Exchange differences (2,154) 158 Non-current assets held for sale 0 0 Entities accounted for by the equity method 140 (26,930) Other valuation adjustments 991 0
Minority interests (note 28) 27,381 14,063 Valuation adjustments (3,781) (6,403) Other movements 31,162 20,466
Total equity 5,297,370 4,448,065
Total liabilities and equity 82,822,886 80,378,065 Banco Sabadell
Memorandum item
Contingent exposures (note 29) 7,658,536 7,680,760 Annual Report 2009 Annual Report Contingent commitments (note 30) 17,019,738 18,880,975
(*) Presented for comparative purposes only.
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Consolidated income statement of the Banco Sabadell group For the years ended on 31 December 2009 and 2008
€'000 2009 2008 (*)
Interest and similar income (note 32.a) 3,166,233 4,404,539
Interest expense and similar charges (note 32.a) (1,565,586) (2,951,695)
Interest margin 1,600,647 1,452,844
Returns on equity instruments 14,598 7,163
Share of profit or loss of equity-accounted entities 71,913 63,623
Fee and commission income (note 32.b) 562,247 609,571 Statutory information Statutory Fee and commission expense (note 32.b) (51,083) (51,830)
Gains or losses on financial assets and liabilities (net) (note 32.c) 248,150 67,873 Held for trading 39,241 43,142 Other financial instruments at fair value through profit or loss 0 0 Financial instruments not measured at fair value through profit or loss 199,303 32,042 Other 9,606 (7,311)
Exchange differences (net) 49,224 51,242
Other operating income (note 32.d) 124,180 314,759 Income from insurance and reinsurance contracts 59,913 228,349 Sales and income from non-financial services 17,028 25,084 Other operating income 47,239 61,326
Other operating expenses (note 32.e) (114,846) (288,399) Expenses on insurance and reinsurance contracts (59,818) (228,242) Change in inventories (2,333) 34 Other operating expenses (52,695) (60,191) Banco Sabadell Gross income 2,505,030 2,226,846
Administrative expenses (note 32.f) (1,036,823) (979,170) Personnel expenses (715,323) (651,140)
Other administrative expenses (321,500) (328,030) 2009 Annual Report
Depreciation and amortization (142,730) (133,062)
Provisioning expense (net) 36,226 (7,682)
Impairment losses (net) (note 32.g) (644,556) (736,808) Loans and receivables (225,521) (570,896) Other financial instruments not measured at fair value through profit or loss (note 6) (419,035) (165,912)
Operating profit or loss 717,147 370,124
(*) Presented for comparative purposes only
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Consolidated income statement of the Banco Sabadell group For the years ended on 31 December 2009 and 2008
€'000 2009 2008 (*)
Losses due to impairment of other assets (net) (219,698) (134,299) Goodwill and other intangible assets (note 15) (43,641) (55,265) Other assets (note 16) (176,057) (79,034)
Gains (losses) on derecognition of assets not classified as non-current assets held for sale (note 32.h) 83,575 24,933
Negative goodwill arising in business combinations 0 0
Gains (losses) on non-current assets held for sale not classified as discontinued operations (9,678) (945)
Profit or loss before discontinued operations and taxes 571,346 259,813 Statutory information Statutory Income tax (45,037) (12,323)
Profit or loss for the year before discontinued operations 526,309 247,490
Profit or loss from discontinued operations (net) (note 32.i) 0 428,366
Consolidated profit or loss for the period 526,309 675,856
Profit or loss attributable to the parent company 522,489 673,835 Profit or loss attributable to minority interests (note 28) 3,820 2,021
Basic earnings per share (€) 0.44 0.56 Basic earnings per share allowing for effect of mandatorily convertible bonds (€) 0.41 0.56 Diluted earnings per share (€) 0.41 0.56
(*) Presented for comparative purposes only. Banco Sabadell Annual Report 2009 Annual Report
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Statement of changes in equity Consolidated statement of recognised income and expense for the Banco Sabadell Group For the years ended on 31 December 2009 and 2008
€'000 2009 2008 (*)
Consolidated profit or loss for the period 526,309 675,856
Other recognized income and expense 239,492 (280,049)
Available-for-sale financial assets: 275,444 (327,718) Revaluation gains (losses) 26,980 (425,701) Amounts transferred to income statement 248,464 90,170 Other reclassifications 0 7,813 Cash flow hedges: 29,909 (41,638) Revaluation gains (losses) 29,909 (45,994)
Amounts transferred to income statement 0 2,178 information Statutory Amounts transferred to initial carrying amount of hedged items 0 0 Other reclassifications 0 2,178 Hedges of net investments in foreign operations: 0 0 Revaluation gains (losses) 00 Amounts transferred to income statement 0 0 Other reclassifications 00 Exchange differences: (3,310) 3,895 Revaluation gains (losses) (3,310) 3,895 Amounts transferred to income statement 0 0 Other reclassifications 00 Non-current assets held for sale: 00 Revaluation gains (losses) 00 Amounts transferred to income statement 0 0 Other reclassifications 00 Actuarial gains (losses) on pension schemes 0 0 Entities accounted for by the equity method: 27,070 (24,227) Revaluation gains (losses) 27,070 (17,232) Amounts transferred to income statement 0 0 Other reclassifications 0 (6,995)
Other recognized income and expense 1,417 0 Banco Sabadell Income tax (91,038) 109,639
Total recognized income and expense 765,801 395,807 Annual Report 2009 Annual Report Attributable to parent company 759,359 398,750 Attributable to minority interests 6,442 (2,943)
(*) Presented for comparative purposes only The statement of changes in equity is made up of the consolidated statement of recognized income and expense together with the consolidated statement of aggregate changes in equity for the Banco Sabadell group.
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Statement of changes in equity Consolidated statement of changes in total equity for the Banco Sabadell group For the years ended on 31 December 2009 and 2008
€'000 Equity attributable to parent company
Own funds Reserves Profit or Share Acumulated (losses) of Other Less: loss for the Less: Capital premium reserves entities equity Treasury period Dividends Total own Valuation Minority Total account (losses) accounted instru- shares attributable and funds adjustements Total interests equity for by the ments to parent remuneration equity method company
Closing balance at 31/12/2008 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065 Adjustments due to changes in accounting policy 0 0 0 0 000000000 Adjustments to correct errors 0 0 0 0 000000000
Adjusted opening balance 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065
Statutory information Statutory Total recognized income and expense 0 0 0 0 0 0 522,489 0 522,489 236,870 759,359 6,442 765,801
Other changes in equity 0 0 301,170 38,910 500,000 (115,538) (673,835) 25,921 76,628 0 76,628 6,876 83,504
Increases in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Reductions in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Conversion of financial liabilities to equity 0 0 0 0 0 0 0 0 0 0 0 Increases in other equity instruments equity 0 0 (6,949) 0 500,000 0 0 0 493,051 0 493,051 0 493,051 Reclassification of financial liabilities to other equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Distribution of dividends/ other remuneration to shareholders 0 0 0 0 0 0 (337,921) 25,921 (312,000) 0 (312,000) 0 (312,000) Trading in own equity instruments (net) 0 0 11,416 0 0 (115,538) 0 0 (104,122) 0 (104,122) 0 (104,122) Transfers between equity items 0 0 297,004 38,910 0 0 (335,914) 0 0 0 0 0 0 Increases (Reductions) due to business combinations 0 0 0 0 0 0 0 0 0 0 0 0 0 Discretionary transfer to welfare projects and funds 0 0 0 0 0 0 0 0 0 0 0 0 0 Payments in equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other increases (reductions) in equity 0 0 (301) 0 0 0 0 0 (301) 0 (301) 6,876 6,575
Closing balance at 31/12/2009 150,000 1,373,270 2,840,566 146,211 500,000 (138,203) 522,489 (168,000) 5,226,333 43,656 5,269,989 27,381 5,297,370
Statement of changes in equity Consolidated statement of changes in total equity for the Banco Sabadell group Banco Sabadell For the years ended on 31 December 2008 and 2007
€'000 Equity attributable to parent company
Annual Report 2009 Annual Report Own funds Reserves Profit or Share Acumulated (losses) of Other Less: loss for the Less: Capital premium reserves entities equity Treasury period Dividends Total own Valuation Minority Total account (losses) accounted instru- shares attributable and funds adjustements Total interests equity for by the ments to parent remuneration equity method company
Closing balance at 31/12/2007 153,002 1,373,270 2,358,800 21,460 0 (29,320) 782,335 (158,164) 4,501,383 81,871 4,583,254 21,250 4,604,504 Adjustments due to changes in accounting policy 0 0 0 0 000000000 Adjustments to correct errors 0 0 0 0 000000000
Adjusted opening balance 153,002 1,373,270 2,358,800 21,460 0 (29,320) 782,335 (158,164) 4,501,383 81,871 4,583,254 21,250 4,604,504
Total recognized income and expense 0 0 0 0 0 0 673,835 0 673,835 (275,085) 398,750 (2,943) 395,807
Other changes in equity (3,002) 0 180,596 85,841 0 6,655 (782,335) (35,757) (548,002) 0 (548,002) (4,244) (552,246)
Increases in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Reductions in capital (3,002) 0 (148,641) 0 0 151,643 0 0 0 0 0 0 0 Conversion of financial liabilities to equity 0 0 0 0 0 0 0 0 0 0 0 120 Increases in other equity instruments equity 0 0 0 0 0 0 0 0 0 0 0 0 0 Reclassification of financial liabilities to other equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Distribution of dividends/ other remuneration to shareholders 0 0 0 0 0 0 (342,724) (35,757) (378,481) 0 (378,481) 0 (378,481) Trading in own equity instruments (net) 0 0 0 0 0 (144,988) 0 0 (144,988) 0 (144,988) 0 (144,988) Transfers between equity items 0 0 329,904 85,841 0 0 (439,611) 0 (23,866) 0 (23,866) 0 (23,866) Increases (Reductions) due to business combinations 0 0 0 0 0 0 0 0 0 0 0 0 0 Discretionary transfer to welfare projects and funds 0 0 0 0 0 0 0 0 0 0 0 0 0 Payments in equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other increases (reductions) in equity 0 0 (667) 0 0 0 0 0 (667) 0 (667) (4,244) (4,911)
Closing balance at 31/12/2008 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065
Presented for comparative purposes only. The statement of changes in equity is made up of the consolidated statement of recognized income and expense together with the consolidated statement of changes in total equity for the Banco Sabadell group. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 121
Consolidated cash flow statement for the Banco Sabadell group For the years ended on 31 December 2009 and 2008
€'000 2009 2008 (*)
Cash flows from operating activities (496,267) 1,482,479
Consolidated profit or loss for the period 526,309 675,856
Adjustments to obtain cash flows from operating activities (57,852) (718,893) Depreciation and amortization 142,730 133,062 Other adjustments (200,582) (851,955)
Net increase/decrease in operating assets 2,662,235 2,046,612 Financial assets held for trading (156,550) 1,026,332 Other financial assets at fair value through profit or loss 20,433 (257,653) Available-for-sale financial assets 2,082,418 338,566 Statutory information Statutory Loans and receivables 148,160 (534,127) Other operating assets 567,774 1,473,494
Net increase/decrease in operating liabilities 1,689,463 3,859,149 Financial liabilities held for trading (123,514) 969,812 Other financial liabilities at fair value through profit or loss 0 0 Financial liabilities measured at amortized cost 1,663,021 6,032,695 Other operating liabilities 149,956 (3,143,358)
Paid/received in respect of income tax 8,048 (287,021)
Cash flows from investing activities (161,638) 318,913
Payments made 442,850 561,706 (-) Tangible assets 317,081 321,430 (-) Intangible assets 53,749 104,839 (-) Investments 72,020 135,437 (-) Subsidiaries and other business units 0 0 (-) Non-current assets and associated liabilities held for sale 0 0 (-) Held-to-maturity investments 0 0
(-) Other payments related to investment activities 0 0 Banco Sabadell
Payments received 281,212 880,619 (+) Tangible assets 246,182 114,391
(+) Intangible assets 8,614 6,160 2009 Annual Report (+) Investments 26,416 18,217 (+) Subsidiaries and other business units 0 741,851 (+) Non-current assets and associated liabilities held for sale 0 0 (+) Held-to-maturity investments 0 0 (+) Other payments related to investment activities 0 0
(*) Presented for comparative purposes only.
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Consolidated cash flow statement for the Banco Sabadell group For the years ended on 31 December 2009 and 2008
€'000 2009 2008 (*)
Cash flows from financing activities 122,801 (673,480)
Payments made 1,201,989 1,223,090 (-) Dividends 312,000 378,481 (-) Subordinated liabilities 467,145 118,291 (-) Redemption of own equity instruments 0 0 (-) Acquisition of own equity instruments 422,844 694,598 (-) Other payments related to financing activities 0 31,720
Payments received 1,324,790 549,610 (+) Subordinated liabilities 500,000 0 (+) Issuance of own equity instruments 500,000 0 Statutory information Statutory (+) Disposal of own equity instruments 307,306 549,610 (+) Other payments related to financing activities 17,484 0
Effects of changes in exchange rates (2,312) 8,898
Net increase/decrease in cash and cash equivalents (537,416) 1,136,810
Cash and cash equivalents at beginning of period 2,357,573 1,220,763
Cash and cash equivalents at end of period 1,820,157 2,357,573
Memorandum item
Components of cash and cash equivalents at end of period (+) Cash and banks 223,687 256,215 (+) Cash equivalents at central banks 1,596,470 2,101,358 (+) Other financial assets 0 0 (-) Less: Bank overdrafts payable on demand 0 0
Total cash and cash equivalents at end of period of which: held by consolidated entities but not available to group 0 0 Banco Sabadell (*) Presented for comparative purposes only. Annual Report 2009 Annual Report
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Notes to the consolidated annual accounts of the Banco Sabadell group
For the years ended on 31 December 2009 and 31 December 2008
Note 1. Principal business and accounting policies and practices
Principal business The corporate object of Banco de Sabadell, S.A. whose registered office is at Plaza de Sant Roc, 20, Sabadell, Spain (also referred to as "Banco Sabadell" or "the Bank") is to carry on business as a provider of banking services. As such, it is information Statutory subject to the laws and regulations applicable to all banks operating in Spain. The Bank is the parent company of a group of financial services undertakings (see the Annex) whose activities it controls directly or indirectly and which, together with the Bank, make up the Banco Sabadell group (the "group").
Basis of presentation On 1 January 2005, under Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July, it became mandatory for companies to prepare their consolidated annual accounts in accordance with the International Financial Reporting Standards adopted by the European Union ("IFRS-EU") if, at their balance sheet date, their securities were admitted to trading on a regulated market in any Member State. This was followed by the publication of the Bank of Spain's Circular 4/2004 – subsequently amended by Circular 6/2008 – with the English title of “Credit Institutions - Public and Confidential Financial Reporting Rules and Formats”. The circular changed the accounting rules applicable to banks to bring them into line with IFRS-EU. The consolidated annual accounts of the group for the year 2009 have been prepared in accordance with IFRS-EU to give a true and fair view of the consolidated equity and financial position of the group, the consolidated results of its operations, recognized income and expense, changes in consolidated equity and consolidated cash flows. These consolidated annual accounts do not show any significant differences with respect to the accounts as they would have Banco Sabadell been if they had been prepared in accordance with Bank of Spain Circular 4/2004 of 22 December, as subsequently amended by Circular 6/2008 of 26 November. There is no obligatory accounting principle, standard or valuation policy
having a material effect that has not been applied in preparing the accounts. A summary statement of the most 2009 Annual Report significant accounting principles, standards and valuation procedures that have been applied in these consolidated annual accounts is provided in this note. The information provided in these consolidated annual accounts is the responsibility of the directors of the parent company of the group. The consolidated annual accounts for the year 2009 were signed off by the directors of Banco Sabadell at a meeting of the Board on 28 January 2010 and will be submitted to the Annual General Meeting for approval. It is expected that the Meeting will approve the accounts without significant changes. Unless otherwise indicated, these consolidated annual accounts are expressed in thousands of euros and all figures are rounded to the nearest thousand euros (€'000).
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Standards and interpretations issued by the International Accounting Standards Board (the "IASB") coming into effect in 2009
The following amendments to the International Financial Reporting Standards ("IFRSs") and interpretations ("IFRICs") came into effect in the course of 2009. The adoption of these amended standards and interpretations across the group has had no material impact on these consolidated financial statements.
Standards and amendments to standards For mandatory adoption in 2009
Improvements to IFRSs First IFRS annual improvement project (May 2008) IFRS 2 (revised) Share-based payments IFRS 7 (amended) Improving disclosures about financial instruments IFRS 8 Operating segments IAS 1 (revised) Presentation of financial statements Statutory information Statutory IAS 23 (revised) Borrowing costs IAS 27 and IFRS 1 (amended) Consolidated and separate financial statements; the cost of investments in subsidiaries, jointly-controlled enterprises or associates. IAS 32 and IAS 1 (amended) Financial instruments: presentation. Presentation of financial statements: financial instruments puttable at fair value and obligations arising on liquidation IFRIC 9 and IAS 39 (amended) Reassessment of embedded derivatives. Financial instruments: recognition and measurement IFRIC 13 Customer loyalty programmes IFRIC 16 Hedges of a net investment in a foreign operation.
IASB-issued standards and interpretations not yet in effect
The following standards and interpretations were published by the IASB at 31 December 2009 but were not yet in effect, either because their effective dates came after the date of the consolidated financial statements or because they had not yet been approved by the European Union.
Banco Sabadell The group carried out an assessment of the impacts this would have and decided not to exercise the option to adopt early where this was feasible, in view of the non-materiality of the impacts.
Standards and amendments to standards Adoption mandatory as from Annual Report 2009 Annual Report Improvements to IFRS (1) Second IFRS annual improvement project (April 2009) 2010 IFRS 1 (revised) (1) Additional exemptions for first-time adopters of IFRS 2010 IFRS 2 (amended) (1) Group cash-settled share-based payment transactions 2010 IFRS 3 (revised) Business combinations 2010 IFRS 5 (amended) Non-current assets held for sale and discontinued operations 2010 IFRS 9 (2) Financial instruments 2013 IAS 24 (revised) (1) Required disclosures about related parties 2011 IAS 27 (amended) Consolidated and separate financial statements 2010 IAS 32 (amended) Classification of rights issues 2010 IAS 39 (amended) Eligible hedged items 2010 IFRIC 12 Service Concession Arrangements: amendments to IFRS 1, IFRIC 14 and SIC 29 2010
124 IFRIC 17 Distribution of non-cash assets to owners 2010 IFRIC 18 Transfers of assets from customers 2010 IFRIC 14 (revised) (1) The limit on a defined benefit asset, minimum funding requirements and their interaction 2011 IFRIC 15 Agreements for the construction of real estate 2010 IFRIC 19 (1) Extinguishing financial liabilities with equity instruments 2011
(1) Standards and interpretations not adopted by the EU at 31 December 2009. (2) Awaiting endorsement. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 125
Accounting principles and policies applied The most significant principles, accounting standards and valuation policies that have been applied in preparing these consolidated annual accounts are as follows:
a) Consolidation principles In the consolidation process three types of entity are distinguished: subsidiaries, jointly controlled entities and associates. Subsidiaries are entities over which the Bank is able to exercise control and which therefore constitute, together with the Bank, a decision-making unit. The ability to exercise control is generally, but not exclusively, manifested through the direct or indirect holding of an interest giving the holder more than 50% of the voting rights in the subsidiary. Control means the power to determine the financial and operating policies of the subsidiary so as to profit from its activities, and may be exercised even when a majority interest is not held. The group therefore includes all subsidiary undertakings that constitute a decision-making unit together with the Bank. These undertakings have been consolidated by the full consolidation method. Interests held by third parties in group information Statutory shareholders' equity are shown in the balance sheet under minority interests and the share of the profit or loss for the year attributable to these shareholders is shown in the income statement under profit or loss attributable to minority interests. Profits or losses generated by entities acquired by the group during the year are consolidated solely on the basis of the profits or losses generated in the period between the date of acquisition and the end of the year. Similarly, profits or losses generated by entities disposed of by the group during the year are consolidated solely on the basis of the profits or losses generated in the period between the beginning of the year and the date of disposal. Jointly controlled entities are those which are controlled jointly by the group and one or more other entities not related to the group. Entities of this kind undertake operations and maintain assets in such a way that any strategic decision of a financial or operational nature concerning the entity requires the unanimous consent of all interest holders. Jointly controlled entities have been consolidated by the proportional consolidation method. Associates are entities over which the group is able to exercise a significant influence which is generally, but not exclusively, manifested through a direct or indirect interest that gives the group 20% or more of the voting rights. In the consolidated accounts associates are accounted for by the equity method, that is, according to the fraction of the equity represented by the group's shareholding, after taking account of any dividends received from the associate and other eliminations. Banco Sabadell In the consolidation process all significant balances and transactions between group undertakings have been eliminated in such proportion as may be appropriate, depending on the consolidation method being applied.
Details of the most significant acquisitions and disposals made by the group during the year are provided in note 2. 2009 Annual Report
b) Accrual principle These annual accounts (with the exception of certain items of the consolidated cash flow statements) have been prepared on the basis of actual movements of goods and services, regardless of the date on which payment was made or received.
c) Use of judgements and estimates in preparing the financial statements The preparation of the consolidated annual accounts requires that certain estimates be made. It also requires the exercise of judgement by senior managers in applying the group's accounting policies. Such estimates may affect the carrying value of assets and liabilities and the classification of contingent assets and liabilities at the date of the annual accounts, as well as income and expenditure items in the period covered by the accounts. Key estimates relate to the following: 125
- Impairment losses on certain financial assets (notes 1(e), 4, 5, 6, 8 and 12). - Assumptions used in actuarial estimates of liabilities and commitments in respect of post-employment benefits, and in estimates of liabilities under insurance contracts (notes 1(q), 1(s), 22 and 23). - The useful lives of tangible and intangible assets (notes 1(j), 1(m), 14 and 15). - The valuation of goodwill on consolidation (notes 1(m) and 15). - The fair values of financial assets for which market prices are not available (notes 1(d), 5 and 6).
Although estimates are based on the best information available to senior managers on present and foreseeable circumstances, final results may be at variance with these estimates. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 126
d) Valuation and recording of financial instruments As a general rule, regular way sales and purchases of financial assets are recognized in the balance sheet using settlement date accounting. Financial instruments are divided into the following categories according to the valuation method that is applied to them:
• Held for trading Financial assets/liabilities are classified as held for trading if they have been acquired or issued to be sold or repurchased in the near term, or form part of a portfolio of financial instruments that are managed together and in which there has been recent action for short-term profit taking, or are instruments that do not fit the definition of a financial guarantee contract and have not been designated as hedging instruments for accounting purposes. Financial instruments of this type are recorded at fair value. The fair value of a financial asset on a given date is defined as the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm's length Statutory information Statutory transaction. The best evidence of fair value of an asset is the price being quoted for the asset on an actively traded market where the market is organized, transparent and of reasonable depth. Where there is no market price for a particular financial asset, the fair value can be estimated from the values established for similar assets in recent transactions or, failing that, by using suitably tested valuation models. Any peculiarities specific to the financial asset being valued are also taken into account, particularly the different types of risk that may be associated with it. However, the limitations inherent in the valuation models that have been developed and possible inaccuracies in the assumptions required by these models may result in the estimated fair value of a financial asset not precisely matching the price at which the asset could be bought or sold as of the valuation date. Changes in fair value are taken directly to profit or loss. For non-derivative instruments, the share of the gain or loss attributable to the returns accruing on the instrument is treated differently from the other gains or losses, with the former being recorded as interest or dividends as appropriate, and the latter as gains or losses on financial assets and liabilities.
• Other financial assets and liabilities at fair value through profit or loss. This category includes financial instruments which on original recognition are designated as hybrid financial instruments Banco Sabadell and are measured entirely on a fair value basis. It also includes financial assets which are managed together with liabilities under insurance contracts measured at fair value or with financial derivatives which have the purpose and effect of significantly reducing exposure to changes in fair value, or which are managed in combination with financial liabilities Annual Report 2009 Annual Report and derivatives for the purpose of significantly reducing overall exposure to interest rate risk. These are valued and recorded in the same way as for financial assets/liabilities held for trading. The category does not include equity instruments whose fair value cannot be reliably estimated.
• Available-for-sale financial assets This category includes debt securities and equity instruments that are not designated as held-to-maturity investments or financial assets at fair value through profit or loss, loans and receivables, or financial assets/liabilities held for trading or of entities that are not subsidiaries or associates of, or jointly controlled by, the group. Available-for-sale financial assets are measured at their fair value. Changes in value are temporarily recorded, net of tax, under valuation adjustments in consolidated equity, unless they are due to exchange differences arising on monetary financial assets. Amounts recorded as valuation adjustments continue to be included in consolidated equity until the asset from which they have originated is derecognized on the balance sheet, when they are charged or credited 126 to profit or loss.
• Loans and receivables Loans and receivables are financial assets not traded on an active market or required to be designated as at fair value, the cash flows on which are of a fixed or determinable amount and whose cost to the group will be recovered in full, except for reasons related to borrower solvency. This category comprises investments associated with normal bank lending and includes amounts loaned to customers and not yet repaid; deposits placed with other financial institutions, regardless of the legal arrangements under which the funds were provided; unquoted debt securities; and any debt incurred by the purchasers of goods or services forming part of the group's business. Loans and receivables are recorded at their amortized cost, where "amortized cost" means the acquisition cost of a financial asset less any repayments of principal and the cumulative amortization (as shown in the income statement using the effective interest rate method) of any difference between the initial cost and the repayment amount at maturity 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 127
less any reduction in value due to impairment, whether recognized directly as a write-down of the asset or through a provisioning account. Where loans and receivables are covered by fair value hedges, any change in their fair value is recorded provided that the change is associated with the risk or risks covered by the hedge. The effective interest rate is the discount rate that exactly equates the value of a financial instrument to the estimated cash flows over the remaining life of the instrument, based on the contract terms of the instrument including any early repayment option, but disregarding future losses due to credit risk. For a fixed-rate instrument the effective interest rate is the same as the contract interest rate agreed at the time the instrument was acquired plus any fees or commissions that qualify for treatment as interest. In the case of a variable-rate instrument the effective interest rate is the same as the rate of return in respect of interest and fees on the instrument, until the first date on which the base rate is due to be reviewed. Interest is determined by the effective interest rate method and recorded in the income statement under interest and similar income.
• Financial liabilities at amortized cost This category comprises those financial liabilities that cannot be classified under any other balance sheet heading and information Statutory are associated with the normal deposit-taking activity of a financial institution, regardless of the term and other arrangements under which the deposit is set up. Also included in this category is capital having the nature of a financial liability. This reflects the value of financial instruments issued by the group which, although treated as capital for legal purposes, do not qualify for classification as equity. These instruments consist mainly of issued shares that do not carry voting rights and on which a dividend is paid based on a fixed or variable rate of interest. For financial instruments the fair value measurements disclosed in the financial statements are classified according to the following fair value hierarchy: - Level I: Fair values are obtained from the (unadjusted) prices quoted on active markets for the same instrument. - Level II: Fair values are obtained from the prices being quoted on active markets for similar instruments, the prices of recent transactions, expected flows or other valuation techniques for which all significant inputs are based on directly or indirectly observable market data. - Level III: Fair values are obtained by valuation techniques for which some significant inputs are not based on observable market data.
e) Impairment of financial assets Banco Sabadell In general, adjustments to the carrying value of financial assets are recognized in the income statement where there is objective evidence that an impairment loss has occurred. In the case of debt instruments, that is, loans and debt
securities, an impairment loss is considered to have occurred when, after initial recognition of the instrument, a single 2009 Annual Report event or a combination of events causes a negative impact on its future cash flows. In the case of equity instruments, an impairment loss is deemed to have occurred when, after initial recognition, a single event or a combination of events makes it likely that the carrying value of the instrument will not be recovered.
• Financial assets carried at amortized cost Portfolios of debt instruments, contingent exposures and contingent commitments, regardless of the obligor, the contractual arrangements or the security/collateral, are analysed to determine the credit risk to which the group is exposed and to estimate the impairment provision required. In preparing the consolidated financial statements the group classifies its lending transactions on the basis of credit risk, with customer insolvency risk being analysed separately from any country risk to which transactions may be exposed. Objective evidence of impairment is determined individually for all debt instruments that are individually significant, and individually or collectively for groups of debt instruments that are not individually significant. When an instrument cannot 127 be included in any group of assets with similar credit risk features, it is analysed solely on an individual basis to determine whether it is impaired and, if so, to estimate the impairment loss. Instruments are classified into the following categories, on the basis of the insolvency risk attributable to the customer or to the transaction: standard, sub-standard, doubtful due to customer arrears, doubtful for reasons other than customer arrears, and write-off. For debt instruments not classified as standard risks, the required specific provisions for impairment are estimated having regard to the age of past-due accounts, the collateral or other security provided and the financial situation of the customer and any guarantors. These estimates are made on the basis of default schedules drawn up by the Bank of Spain from its knowledge and experience of the Spanish banking industry. For doubtful assets involving customers who have provided effective security based on real estate, suitable provisions are made after deducting 70% of the assessed value of the property from the amount of the loan. For this purpose the only security considered as effective is mortgages on completed residential, office or general-use commercial premises and rural properties. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 128
Similar estimates are also made to determine the credit risk on these instruments that is attributable to country risk. Country risk means the risk associated with customers resident in a specific country that arises from circumstances other than normal commercial risk. The period of arrears on an instrument does not cease to run when the instrument is extended or renegotiated. Where an instrument has been classified as a doubtful risk before extension or renegotiation, it will not be reclassified as standard or sub-standard unless there is reasonable certainty that the customer can make payment on schedule, or additional good security is provided and, in either case, unless the overdue ordinary interest, at least, is paid (apart from any interest for late payment). In addition to these specific provisions, the group makes provision for latent losses in debt instruments classified as standard risks by providing for impairment loss on a collective basis. The collective provision is made from historical impairment experience and other circumstances known at the time of the risk assessment, and covers latent losses incurred at the balance sheet date, calculated using statistical procedures, but not identified with specific transactions. Since the group's own historical and statistical data are not sufficient for this purpose, when making these provisions it Statutory information Statutory relies on parameters set by the Bank of Spain. This method of determining provisions for latent loss due to impairment of debt instruments involves the use of percentages which vary according to how debt instruments classified as standard risk are assessed. The sub-categories into which standard risk instruments are classified are: negligible risk, low risk, medium-low risk, medium risk, medium-high risk and high risk. Transactions classified as sub-standard are analysed to determine the provision coverage required. This will of necessity be greater than the generic provision that would apply if the risk was classified as standard. Furthermore, net impairment charges made in the period in which a transaction is classified as sub-standard will be greater than the charges that would have been made if the transaction had continued to be classified as a standard risk. Interest recorded at contractual rates ceases to be recognized in the income statement for all debt instruments that have been individually classified as impaired or for which impairment losses have been collectively calculated as a result of there being accounts more than three months in arrears.
• Available-for-sale financial assets Impairment losses on debt securities and equity instruments classified as available-for-sale financial assets are equal to the positive difference between their acquisition cost net of any repayment of principal, and their fair value less any impairment loss previously recognized in the consolidated income statement. Banco Sabadell Where there is objective evidence that a diminution in the fair value of an asset is due to impairment, the unrealized losses recognized directly in equity as valuation adjustments are recorded immediately in the income statement. If all or part of the impairment losses are subsequently recovered, the amount is recognized, in the case of debt securities, in the
Annual Report 2009 Annual Report income statement for the period in which the recovery occurs; in the case of equity instruments, the recovery is recognized in equity as a valuation adjustment. In reaching a conclusion on whether there is objective evidence of impairment in debt instruments, whether quoted or unquoted, the group considers any potential loss events that have occurred. In particular, it analyses any significant financial difficulty being faced by the issuer or obligor; any breaches of contract terms, such as a default or delinquency in interest or principal payments; whether the holder of the debt instrument, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower a concession that the holder would not otherwise consider; any increased probability that the borrower will enter bankruptcy or other financial reorganisation; or the disappearance of an active market for the financial asset in question as a result of financial difficulties and a downgrading of its credit rating that would be indicative of impairment when considered in conjunction with other available information. In the case of quoted instruments, the group will consider whether a prolonged or significant fall in the fair value of the investment below its cost is objective evidence of impairment. In estimating valuation adjustments in equity, 128 the valuation is generally taken as the quoted price. When determining whether there is objective evidence that a fall in the quoted price is due to impairment, where there are manifestly exceptional circumstances in the markets on which prices are set, the effects of wider market movements on the quoted price are analysed separately from those movements that reflect factors specific to the issuer of the instrument under consideration. Where there are no exceptional market circumstances and falls have been occurring in the quoted price of the instrument, an assessment is made of whether the period for which the quoted price has remained below the carrying value of the instrument by a significant percentage should be considered as objective evidence of impairment. If there is no principle that is more specifically applicable, the practice is to take a standard reference period and percentage (18 months and 40%). An analysis is also made, even where no exceptional market circumstances are present, of whether there are objective reasons to consider that the quoted price of the instrument does not reflect its fair value and is therefore not a valid quantity from which to assess any potential impairment. Such objective reasons may be related to a free float that is very limited, prolonged speculative activity on the share value and other circumstances, any of which may distort the price of the instrument. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 129
Where exceptional market circumstances are present, market factors that will be analysed separately include whether there have been widespread changes in risk aversion or in the valuation methods used by analysts and investors; whether there have been major changes in the multipliers implicit in asset prices; or whether cross-impacts are occurring between bond and equity markets and affecting quoted market prices. If such circumstances are present an attempt is made to gauge the extent to which the instrument is responding differently with respect to its sector or to the market as a whole. To do this a discounted cash flow analysis is used based on known data of the issuer of the instrument and an assessment is made of how the issuer's future profitability will be affected by the new development. This analysis is carried out as soon as the exceptional circumstances are detected, rather than waiting for any set standard period. If, in addition, there is structural impairment already on the balance sheet, whether apparent or latent, a full adjustment for this is made to the value resulting from the analysis described above. Another method used to value this type of instrument, where there are exceptional market conditions of the kind referred to above, is based on the use of directly observable market variables and/or data such as a published net asset value. Statutory information Statutory
• Other equity instruments Impairment losses on equity instruments carried at acquisition cost are accounted for as the difference between the carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities. These impairment losses are recognized in the income statement for the period in which they occur, as a direct write-down in the value of the instrument; this cannot be subsequently reversed other than through the sale of the asset. For unquoted instruments the analysis undertaken to reach a conclusion on the need to adjust for impairment is based on the use of comparable data and sector multiples for similar issuers operating in the market. In the case of investments in jointly controlled entities and associates, the group estimates impairment loss by comparing the amount recoverable with the carrying value of the investments. Impairment losses are recognized in the income statement for the period in which they occur; subsequent reversals of previously recognized impairment losses are recognized in the income statement for the period in which recovery takes place.
f) Transfer and derecognition of financial instruments Financial assets are only derecognized on the balance sheet when the cash flows generated by the assets have ceased or when substantially all of their risks and rewards have been transferred. Similarly, financial liabilities are derecognized Banco Sabadell only when the obligations generated by the liabilities have expired or are acquired for settlement or resale. Details of asset transfers that were in effect at the close of the years 2009 and 2008, including those that did not
result in assets being derecognized from the balance sheet, are given in note 9. 2009 Annual Report
g) Derivatives Derivatives are instruments which, in addition to providing a gain or a loss, may under certain conditions offset all or part of the credit and/or market risk associated with balances or transactions. The underlyings used in derivatives may be interest rates, specified indices, the prices of specified securities, cross-currency exchange rates or other similar benchmarks. The group uses derivatives traded on organized markets or traded bilaterally with counterparties on the over- the-counter (OTC) market. Derivatives may be used as part of the service to customers when they so require, or to manage risks associated with the group's own exposures (hedging derivatives), or to realize gains as a result of price movements. Financial derivatives that do not qualify for designation as hedging instruments are classified as trading derivatives. To be designated as a hedging instrument, a financial derivative must satisfy the following conditions: 129 - It must cover exposure to changes in the values of assets and liabilities caused by interest rate and/or exchange rate movements (fair value hedge); exposure to changes in the estimated cash flows from financial assets and liabilities and from commitments and transactions forecast as highly probable (cash flow hedge); or the exposure associated with net investments in foreign operations (hedge of the net investment in a foreign operation). - It must effectively eliminate a risk that is inherent in the hedged item or position over the expected term of the hedge. This means that the derivative must be effective both prospectively, at the date on which it is entered into under normal circumstances, and retrospectively, based on reasonable evidence that the hedge will remain effective throughout the life of the item or position to be hedged. - Suitable documentation must be available to show that the financial derivative has been entered into specifically to provide a hedge for certain balances or transactions and to show how effective coverage is to be achieved and assessed (such assessment necessarily being consistent with the group's management of its own exposures). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 130
The effectiveness of the coverage provided by derivatives designated as hedging instruments is documented by effectiveness testing. This is used to verify that divergences due to changes in the fair value of the hedged item and the hedging instrument remain within reasonable limits over the life of the transaction and that the intended effect of the derivative contract at inception has been fulfilled. If at any time this condition is not met, all associated transactions in the hedging group are reclassified as held-for-trading and recognized accordingly in the balance sheet. A micro-hedge is considered to be highly effective if, at inception of the hedge and during its life, it is anticipated prospectively that any changes in the fair value or cash flows of the hedged item that are attributable to the hedged risk are almost entirely offset by changes in the fair value or cash flows of the hedging instrument. The micro-hedge is deemed retrospectively to have been highly effective if the gains or losses on the hedging instrument are within a range of 80% to 125% of the gains or losses on the hedged item. In the case of a portfolio hedge or macro-hedge, effectiveness is assessed by comparing the overall net amount of assets and liabilities in each time period with the hedged amount designated for each one of them. The hedge will only be ineffective where it is found, on examination, that the net amount of assets and liabilities is less than the hedged amount, Statutory information Statutory in which case the ineffective portion must be recognized immediately in the income statement. Hedges may be associated with individual items or balances (micro-hedges) or with portfolios of financial assets and liabilities (macro-hedges). In the latter case, all financial assets and liabilities being collectively hedged will involve the same types of risk; this requirement is considered to be satisfied when the interest rate sensitivities of the individual hedged items are similar. Derivatives embedded in other financial instruments or other primary contracts are recorded separately as derivatives where the risk and other characteristics of the derivative are not closely related to those of the primary contract and the primary contract is not classified as held for trading or as other financial assets or liabilities at fair value through profit or loss.
• Valuation The fair value of a financial derivative quoted on an active market is determined from the daily market price. In the case of instruments for which quoted prices cannot be determined, prices are estimated using internal models developed by the Bank, the majority of which take data based on observable market parameters as significant inputs. Otherwise, the models make use of other inputs which rely on internal assumptions based on generally accepted practice within the financial services community. Banco Sabadell The main techniques being used by the group's internal models at the end of 2009 to determine the fair values of financial instruments are listed below: Annual Report 2009 Annual Report • To measure the values of financial instruments of the swap, cross-currency interest rate swap and call money swap types, the discounted cash flow method is used. The expected future cash flows are discounted using the interest rate curves for the relevant currencies. Interest rate curves are observable market data. • To measure financial instruments of the structured equity, index or exchange rate option types the Black-Scholes model is normally used, although the binomial tree model may also be applied in certain cases. The group makes use of observable market inputs to access such factors as exchange rates and interest rate curves, and also non- observable inputs such as volatility and inter-asset correlation data. • For the valuation of interest rate derivative instruments such as caps and floors, the Black-Scholes model (plain vanilla options) is used; for more highly structured instruments the Hull-White model is preferred. The main inputs used by these models are generally observable market data, including the associated interest rate curves, volatilities and exchange rates.
130 Valuation models do not embody significant degrees of subjectivity, given that the above methodologies can be adjusted and calibrated, where applicable, by internal fair value calculations and subsequent comparison with actively traded prices. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 131
• Accounting for micro-hedges For financial instruments designated as hedged items or as hedging instruments, gains or losses in value are accounted for according to the following criteria:
• For fair value hedges any gains or losses, whether in the hedging instrument or the hedged item, to the extent that they relate to the type of risk being hedged, are recognized directly in the income statement. • Gains or losses in value on the ineffective portion of cash flow hedging instruments are recognized directly in the income statement. • In cash flow hedging, valuation differences in the effective portion of hedging instruments are temporarily recorded in equity under valuation adjustments. Gains or losses in value are not recognized in profit or loss until the gains or losses of the hedged item have been taken to the income statement or until the hedged item reaches maturity. • Hedges of net investments in foreign operations are accounted for as follows: 1. Any gain or loss attributable to that part of the hedging instrument that qualifies as an effective hedge is recognized directly in a valuation adjustment account in equity via the statement of changes in equity. Any other information Statutory portion of the gain or loss on the instrument is taken immediately to the income statement. 2. Gains or losses on hedging instruments recognized directly in the valuation adjustment account in equity remain in the account until the instruments are sold or otherwise removed from the balance sheet, at which time they are taken to profit or loss.
• Accounting for macro-hedges Fair value macro-hedges of interest rate risk that are highly effective are accounted for as follows:
a) Hedging instruments: gains or losses that arise from measuring derivatives at fair value are recognised immediately in the income statement. b) Hedged amount: gains or losses arising from changes in the fair value of the hedged amount that are attributable to the hedged risk are recognised directly in the income statement with a balancing entry in “changes in the fair value of hedged items in portfolio hedges of interest rate risk” if the hedged amount relates to financial assets or financial liabilities. Banco Sabadell In the case of portfolio cash flow hedges, a change in the value of the hedging instrument is recognised temporarily in a valuation adjustment account in equity until the period in which the expected transactions occur, when it is recognized in the income statement. Annual Report 2009 Annual Report
h) Non-current assets held for sale and liabilities associated with non-current assets held for sale The "non-current assets held for sale" heading of the balance sheet comprises the carrying values of assets -- stated individually or combined in a disposal group, or as part of a business unit that the group intends to sell (discontinued operations) -- which will very probably be disposed of in their current state within one year of the date of the consolidated annual accounts. Investments in jointly controlled entities or associates that meet these criteria also qualify as non-current assets held for sale. It can therefore be assumed that the carrying value of an asset of this kind, which may be of a financial or non-financial nature, will be recovered through the disposal of the item concerned rather than from its continued use. Real estate or other non-current assets received by the group in full or part settlement of borrowers' payment obligations to the group are treated as non-current assets held for sale, unless the group has decided to make use of the assets on a continuous basis. 131 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 132
The "liabilities associated with non-current assets held for sale" caption includes amounts payable that are associated with disposal groups or discontinued operations. Assets classified as non-current assets held for sale are generally valued at the lesser of their carrying value at the time they are so classified and their fair value net of their estimated costs to sell. Tangible and intangible assets that would otherwise be subject to depreciation and amortization are not depreciated or amortized while they remain in the category of non-current assets held for sale. If the carrying value of an asset exceeds the fair value net of its estimated costs to sell, the group adjusts the carrying value of the asset by the amount of such excess, with a corresponding adjustment being made to gains (losses) on non- current assets held for sale in the consolidated income statement. In the event of one or more subsequent increases in the fair value of the asset any previously recorded losses will be reversed and the carrying value will be increased, subject to its not exceeding the carrying value prior to the loss, and a corresponding adjustment made to gains (losses) on non- current assets held for sale in the consolidated income statement.
Statutory information Statutory i) Discontinued operations Gains or losses arising in the year on group operations classified as discontinued operations are recognized net of tax under profit or loss on discontinued operations (net) in the consolidated income statement, whether the operation has been derecognized or remains on the balance sheet at the end of the year. A discontinued operation or activity is a component of the group that has been sold or otherwise disposed of or is classified as a non-current asset held for sale and, in addition, meets any of the following conditions:
1. It represents a separate major line of business or geographical area of operations. 2. It is part of a single coordinated plan to sell or otherwise dispose of a separate major line of business or geographical area of operations. 3. It is a subsidiary acquired exclusively with a view to resale.
A component of an entity is defined as operations and cash flows, such as a subsidiary, business segment or geographical area of operations, that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Banco Sabadell j) Tangible assets Tangible assets comprise property, plant and equipment considered likely to be in continuous use by the group, the net values of land, buildings and other structures held to be leased out or for the realization of capital gains on disposal, and Annual Report 2009 Annual Report assets to be leased to customers under operating leases. These assets are valued at cost less accumulated depreciation and less any impairment loss identified from a comparison of the net value of each item with its recoverable amount. In the case of repossessed assets classified under tangible assets, the acquisition cost is the net value of the financial assets given in exchange for the repossession, having regard to any value adjustments associated with those financial assets. Tangible assets are depreciated systematically by the straight-line method over their estimated useful lives, taking the depreciable amount as the acquisition cost of each item less its residual value. Land on which buildings and other structures have been erected is treated as having an unlimited life and is not depreciated. Annual depreciation charges on tangible assets are taken to the income statement and are calculated on the basis of the following average estimated useful lives:
132 Useful life in years
Land and buildings 20 - 50 Fixtures and fittings 4.2 - 12.5 Office furniture and equipment 3.3 - 10 Vehicles 3.1 - 6.25 Cash dispensers, computers and computer equipment 2.3 - 4
At the close of each accounting period the group carries out a review to determine whether there are internal or external indications that the net value of any asset item exceeds its recoverable amount. If the net value of an asset is found to be in excess of its recoverable amount, the group writes down the asset to its recoverable amount, that is, the greater of its fair value (based on valuations of independent third parties) and its value in use, and adjusts future depreciation charges in proportion to its restated carrying value and, if required, its adjusted estimated useful life. Where there are indications that the value of an asset has been recovered, the group records the reversal of the impairment loss 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 133
recognized in previous periods and adjusts future depreciation charges accordingly. The reversal of an impairment loss on an asset will in no circumstances result in an increase in its carrying value above the value that the asset would have had if impairment losses in previous periods had not been recognized. No less frequently than at the end of each reporting year, the group carries out a review of the estimated useful lives of all tangible assets for its own use to determine whether there have been any material changes in their estimated useful lives. If material changes are identified, an adjustment is made by correcting the depreciation charge for the asset in the income statement on the basis of the adjusted estimated useful life. Maintenance and repair costs for own-use tangible assets are recorded in the income statement for the year in which they are incurred. Tangible assets classified as investment property are composed of the net values of land, buildings and other structures held by the group to be leased out or for the realization of capital gains on disposal as a result of future increases in market prices. Any impairment in the value of property is calculated on the basis of valuations by independent professional valuers as required by Ministerial Order ECO/805/2003. The criteria used by the group in stating the acquisition costs of assets leased out under operating leases, for information Statutory purposes of depreciation, useful life estimation and impairment loss recognition are the same as for tangible assets for the group's own use.
k) Leases Leasing contracts are presented on the basis of the economic substance of the lease regardless of its legal form and are classified from inception as finance or operating leases.
• Finance leases A lease is treated as a finance lease if substantially all of the risks and rewards of ownership of the asset are transferred. Where the group is the lessor of an asset, the sum of the present values of payments receivable from the lessee plus the guaranteed residual value - normally the price of the purchase option exercisable by the lessee at the end of the lease - is recorded as financing provided to a third party and is therefore included in the balance sheet under loans and receivables according to the type of lessee. Where the Group is the lessee of the asset, the cost of the leased asset is recorded in the balance sheet according to the nature of the asset and simultaneously as a liability for the same amount. This liability is the lesser of the fair Banco Sabadell value of the leased asset and the sum of the present values of payments to the lessor plus the exercise price of the purchase option, if applicable. The asset is depreciated using procedures similar to those applicable to property for the group's own use. Finance income and expense arising from leasing agreements are credited or charged to the income statement so that 2009 Annual Report the return remains constant throughout the term of the lease.
• Operating leases Leases other than finance leases are classified as operating leases. When the group is the lessor of the asset, the acquisition cost of the leased item is recorded in tangible assets. Leased assets are depreciated by the same procedure as for own-use property of a similar type and the payments on the leases are recognized in the income statement on a straight-line basis. Where the group is the lessee of the asset the costs of the lease, including any incentives offered by the lessor, are recorded in the income statement on a straight-line basis. Where an asset is subject to a sale at fair value and leaseback under an operating lease, any profit or loss is recorded at the time of the sale. For a transaction to be treated as a sale and leaseback of assets under an operating lease the following conditions 133 must be met:
- The asset must have been sold and all risks and rewards associated with the asset transferred to the purchaser. - The purchaser (lessor) cannot unilaterally transfer the leased asset to the vendor (lessee). - The lessee has no option to repurchase at below market value and the lessor is exposed to the risk of a fall in the market price of the asset. - The lessee has no option to extend the lease on terms significantly more favourable than those available in the marketplace. - The fair value of the assets sold and leased back is substantially greater than the current value of the lease rentals. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 134
- The lessor is more than a mere lender: The lessor's income and exposure to gain or loss is linked to property market conditions (rental payments and asset values, for example) and not only on interest rates. - The lease does not cover the greater part of the economic life of the asset. - The leased asset can be used by third parties without significant alteration.
l) Business combinations A business combination is the bringing together of two or more separate entities or economic units into one single entity or group of entities, where the acquirer obtains control of the other entity or entities. On the date of acquisition the acquirer incorporates into its financial statements the assets, liabilities and contingent liabilities of the acquiree, including any intangible assets not recognised by the acquiree. Positive differences arising between the cost of holdings in subsidiary, jointly controlled or associated undertakings and the net fair values of the acquired assets adjusted on the date on which they were consolidated for the first time, are accounted for as follows: Statutory information Statutory
1. If the differences can be assigned to specific assets of the acquiree, they are accounted for by increasing the value of any assets or reducing the value of any liabilities whose market values are above or below, respectively, the net fair values at which they were recorded on the acquiree's balance sheet, provided that their accounting treatment has been similar to the treatment that would be given to those same assets or liabilities by the group. 2. If they are assignable to specific intangible assets they are accounted for by explicit recognition in the consolidated balance sheet provided that their fair value at the acquisition date can be reliably determined. 3. Any remaining differences that cannot be specifically recognized are recorded as goodwill and assigned to one or more specific cash-generating units.
Negative differences, when quantified, are recognized in the income statement. Any purchases of minority interests after the taking of control of an entity are recognized as increases in the cost of the business combination. Where the cost of a business combination or the fair values assignable to identifiable assets, liabilities or contingent liabilities of the acquiree cannot be determined with certainty, the initial accounting for the business combination is treated as provisional. However, the accounting process is required to be completed within one year of the acquisition Banco Sabadell date, and must take effect as from that date.
m) Intangible assets
Annual Report 2009 Annual Report Intangible assets are identifiable non-monetary assets without physical substance. Intangible assets are deemed to be identifiable when they are separable from other assets because they can be sold, leased or otherwise disposed of individually, or when they arise from a contract or other legal transaction. An intangible asset will be recognized when it meets this criterion and the group considers it likely that economic benefits will flow from the asset and its cost can be reliably measured. Intangible assets are initially recognized at acquisition or production cost, and are subsequently valued at cost less any accumulated amortization and/or impairment losses.
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• Goodwill A positive difference between the cost of a business combination and the acquired proportion of the net fair value of the assets, liabilities and contingent liabilities of the acquired entity is recognized on the balance sheet as goodwill. Goodwill represents a payment made by the group in anticipation of the future economic benefits from assets of an acquired entity that are not capable of being individually or separately identified and recognized. Goodwill is recognized only if it has been purchased for valuable consideration through a business combination. Goodwill is not amortized, but at the end of each accounting period it is subjected to analysis for any possible impairment that would reduce its recoverable value to below its stated net cost and, if found to be impaired, is written down against the consolidated income statement. To detect possible indications of goodwill impairment value appraisals are undertaken, generally on a present value of future distributable earnings basis, having regard to the following parameters:
- Key business assumptions. These assumptions are used as a basis for cash flow projections as part of the valuation. For businesses of a financial nature, projections of the following variables are made: changes in lending volumes, default rates, customer deposits and rates of interest under a forecast economic scenario, and capital information Statutory requirements. - Estimates of macroeconomic variables and other financial parameters. - The period covered by projections. This is normally five years. This yields a recurring pattern in terms of both earnings and profitability. These projections take account of the economic outlook at the time of the valuation. - The discount rate. The present value of future dividends, from which a value in use is derived, is calculated from a discount rate taken as the capital cost of the entity (Ke) from the standpoint of a market participant. To determine this present value the CAPM method is used as expressed by the formula: “Ke = Rf +  (Rm) + ␣”, where: Ke = Required return or cost of capital; Rf = Risk-free rate;  = Company's systemic risk coefficient, Rm = Expected return of the market and ␣ = Non-systemic risk premium. - A rate of growth to extrapolate cash flow projections beyond the end of the period covered by the latest projections. Based on long-term estimates for the main macroeconomic numbers and key business variables, and bearing in mind the current financial market outlook at all times, an estimate of a nil rate of growth in perpetuity can be arrived at.
No impairment loss recognized for goodwill can subsequently be reversed. Banco Sabadell
• Other intangible assets This item is made up largely of intangible assets identified in business combinations and includes such assets as
contractual relations with customers, deposits or trade marks and computer applications. 2009 Annual Report Other intangible assets may have useful lives that are indefinite - where, after all relevant factors have been taken into account, it has been concluded that there is no foreseeable limit to the time during which they can be expected to generate net cash flows for the group - or finite. Intangible assets that have indefinite useful lives are not amortized; however, at the end of each accounting period, the group reviews their remaining useful lives to verify that they are still indefinite and takes appropriate action if it finds otherwise. Intangible assets whose useful lives are finite are amortized on the basis of their useful lives according to criteria similar to those used for tangible assets. Any loss in the stated value of an intangible asset due to impairment will, in any event, be recognized by the group and a corresponding adjustment made to the consolidated income statement. The rules for recognizing losses in value due to impairment of intangible assets and any recoveries of impairment losses in earlier periods are similar to those that apply to tangible assets.
n) Inventories 135 Inventories are non-financial assets that are being held for sale or for use by the group in the normal course of business, or are in the process of production, construction or development for such sale, or are to be consumed in the production process or in the rendering of services. Inventories are valued at the lesser of their cost value, including all purchase and conversion costs and other direct and indirect costs incurred in bringing the inventories to their present condition and location, and their net realization value. Net realization value means the estimated sale price net of the estimated production and marketing costs to carry out the sale. Any value adjustments, whether caused by impairment due to damage, obsolescence or a fall in sale prices, to reflect their net realizable value, or arising from other losses, are recorded as expense in the year in which the impairment or other loss occurred. Any subsequent recoveries in value are recognized in the consolidated income statement in the year in which they occur. Any impairment in the value of inventories comprising land and buildings is calculated on the basis of 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 136
appraisals by independent professional valuers authorized by the Bank of Spain and included in its Special Register of Appraisal Firms. Practically all appraisals are valid as of 31 December 2009. The basis of net realization value appraisals varies according to the nature of each property, development or construction site (area in square metres, location, age, intended use, etc.). The appraisal approaches employed are the cost method, the comparison method, the income capitalization method and the residual method. These are applied in accordance with the rules for the valuation of real estate and certain rights for particular financial purposes set out in the Ministerial Order ECO/805/2003.
o) Own equity instruments
Own equity instruments are defined as equity instruments that:
- do not involve any contractual obligation to the issuer: to deliver cash or another financial asset to a third party, or to Statutory information Statutory exchange financial assets or liabilities with a third party on terms potentially unfavourable to the issuer; - will or may be settled in the issuer's own equity instruments and is: a non-derivative instrument for which the issuer is or may be obliged to deliver a variable number of its own equity instruments, or a derivative instrument that will or may be settled for a fixed amount of cash or another financial asset, for a fixed number of the issuer's own equity instruments.
All transactions in the group's own equity instruments, whether on issue or cancellation or otherwise, are recognized directly in equity. Changes in the value of instruments classified as own equity instruments are not recognized in the financial statements. Any consideration paid or received for such instruments is added or deducted directly in equity and the associated transaction costs are deducted in equity.
p) Payments based on equity instruments The delivery to employees of the group's own equity instruments in payment for their services, where the instruments are delivered on completion of a specified period of service, is recognized as an expense for services over the period during which the services are being provided. A corresponding increase in equity or a liability is recognized, according to whether Banco Sabadell the compensation is classified as equity instrument-based compensation, liabilities to employees based on the value of the group's own equity instruments, or transactions with employees paid in cash or equity instruments. Where the liability is discharged by means of a transfer of commitments to financial institutions outside the group, that
Annual Report 2009 Annual Report is, through derivatives contracts that precisely mirror the terms and economic conditions on which the equity instruments were issued, the group charges the anticipated costs associated with the derivatives contracts to the income statement according to the specific period in which the services are provided, but does not recognize any increase in equity or in the associated liability. Transactions where, in exchange for the receipt of goods or services other than those provided by employees, settlement is in own equity instruments or by a payment based on own equity instruments, are accounted for according to the same rules as apply to employee compensation.
q) Liabilities under insurance contracts
Liabilities under insurance contracts refer, primarily, to life policies sold by Assegurances Segur Vida, S.A., a group subsidiary, in which the investment risk is borne by policyholders. 136 To provide for commitments in respect of investments related to life insurance policies, provisions are made having regard to the value of the assets on the basis of which policyholders' entitlements will be determined.
r) Provisions and contingent liabilities Provisions are current obligations of the group which have arisen from past events and whose nature at the balance sheet date is clearly specified, but which are of uncertain timing and amount; when such obligations mature or become due for settlement, the group expects to settle them through an outflow of resources embodying economic benefits. Provisions for restructuring will be recognized only when the group has a detailed, formal plan identifying fundamental changes to be made and where the group has started to implement the plan or has publicly announced its main features, or where there is objective evidence of its implementation. Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events that lie outside the group's control. Contingent liabilities include present obligations of the group the settlement of which is not likely to result in an outflow of resources 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 137
embodying economic benefits or whose amount, in extremely rare instances, cannot be measured with sufficient reliability.
s) Provisions for pensions The group's pension commitments to its employees are as follows:
• Defined contribution plans These are predetermined contributions paid into a separate entity in accordance with agreements reached with particular groups of employees. Contributions are made subject to there being no legal or constructive obligation to make additional contributions to cover investment or other risks. Contributions to defined contribution plans in 2009 totalled €19,901,000 (€16,386,000 in 2008).
• Defined benefit plans Defined benefit plans provide for all current pension commitments agreed under articles 35, 36 and 37 of the 21st information Statutory Collective Agreement for the banking industry. These commitments are financed in two ways: through the pension scheme and through insurance contracts. The Banco Sabadell employee pension scheme covers benefits payable under collective agreements with members of regulated employee organizations as described above, with the following exceptions:
1. Additional commitments on early retirement as provided for by article 36 of the Collective Agreement. 2. Disability benefit in certain circumstances. 3. Widows', widowers' and orphans' benefits payable on the death of retired employees recognized as having entered the Bank's service after 8 March 1980.
The Banco Sabadell employee pension scheme is treated for all purposes as a scheme asset. Insurance policies provide general cover for specified commitments under articles 36 and 37 of the 21st banking industry agreement, including:
1. Commitments that are expressly excluded from the Banco Sabadell employee pension scheme (1, 2 and 3 above). 2. Serving employees covered by a collective agreement with the former Banco Atlántico. Banco Sabadell 3. Pension commitments in respect of some serving employees, not provided for under the collective agreement. 4. Commitments to employees on leave of absence who are not entitled to benefits under the Banco Sabadell
employee pension scheme. 2009 Annual Report 5. Commitments to early retirees. These may be partly financed out of pension rights under the Banco Sabadell employee pension scheme.
Insurance policies have been taken out with insurers outside the group, principally for commitments to former Banco Atlántico employees, and also with BanSabadell Vida, S.A. de Seguros y Reaseguros. The balance sheet heading "provisions for pensions and similar obligations" includes the actuarial present value of pension commitments, calculated individually by the projected unit credit method on the basis of financial and actuarial assumptions which are set out below. From the obligations so calculated, the scheme assets at their fair value have been deducted. These assets, including insurance polices, are those from which pension obligations are to be settled since they meet the following requirements:
1. They are not owned by the Bank but by a legally separate, non-related third party. 137 2. They are available only to pay or fund employee benefits and are not available to creditors of the Bank, even in the event of the Bank becoming insolvent. 3. They cannot be returned to the Bank unless the assets remaining in the scheme are sufficient to meet all obligations of the scheme and of the Bank relating to employee benefits, or unless the assets are returned to the Bank to reimburse it for employee benefits previously paid. 4. They are not non-transferable financial instruments issued by the Bank. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 138
Assets to fund pension commitments as shown in the individual balance sheet of BanSabadell Vida, S.A. de Seguros y Reaseguros, a group insurance subsidiary, are not scheme assets as the company is a related party of the Bank. The group has decided to apply a corridor in recognizing in profit and loss for the year only one fifth of any actuarial gains and losses that exceed 10% of the greater of the present value of defined benefit obligations and the fair value of scheme assets at the end of the immediately preceding year. However, actuarial gains or losses related to commitments to early retirees until they acquire legally retired status are recognized immediately. The actuarial assumptions used in the valuation of pension commitments are as follows:
2009 2008
Tables PERM / F 2000 (new) PERM / F 2000 (new) Discount rate - pension scheme 4.00% per annum 4.00% per annum Discount rate - polices taken out with related parties 4.70% per annum 5.05% per annum Discount rate - policies taken out with non-related parties 4.70% per annum 5.05% per annum Statutory information Statutory Inflation 2.00% per annum 2.00% per annum Rate of increase in salaries 3.00% per annum 3.00% per annum Retirement due to disability SS90-Absoluta SS90-Absoluta Staff turnover None assumed None assumed Early retirement Allowed for Allowed for Normal retirement age 65 65
The discount rate on insurance policies has been determined by reference to the yield on AA-rated 15-year corporate debt (Bloomberg AA composite). The age of early retirement for all employees is assumed to be the earliest retirement date after which pension entitlements cannot be revoked by the employer. The expected long-term return on pension scheme assets is 4% per annum (a target return that is compatible with a level of risk set in accordance with the investment policy of the Banco Sabadell employee pension scheme). For fixed-rate, without profits, unmatched insurance policies, the return assumed in respect of each commitment is the average insured interest on each premium paid, weighted according to the mathematical reserve corresponding to each premium paid. For fixed-rate, without profits, matched insurance policies the rate of return used is the discount rate.
Banco Sabadell t) Foreign currency transactions The functional currency of the group is the euro. All balances and transactions denominated in currencies other than the euro are therefore treated as denominated in a foreign currency. Euro equivalent values (in thousands of euros) for the
Annual Report 2009 Annual Report aggregate balances of asset and liability accounts in foreign currency held by the group at 31 December 2009 and 2008 are given in note 25. On initial recognition, debit and credit balances denominated in foreign currency are translated to the functional currency at the spot exchange rate - defined as the exchange rate for immediate delivery - on the recognition date. Subsequent to initial recognition, the following procedures are used to translate foreign currency balances to the functional currency:
- Monetary assets and liabilities are translated at the closing exchange rate, defined as the average spot exchange rate ruling at the reporting date. - Non-monetary items measured at historical cost are translated at the exchange rate ruling on the date of acquisition. - Non-monetary items stated at fair value are translated at the exchange rate ruling on the date on which the fair 138 value was determined. - Income and expenses are translated at the exchange rates ruling at the transaction date.
In general, foreign exchange differences arising on the translation of debit and credit balances denominated in foreign currency are recorded in the income statement. However, for foreign exchange differences arising on non-monetary items measured at fair value where the fair value adjustment is made and recognized under valuation adjustments in equity, the exchange rate component is recorded separately from the revaluation of the non-monetary item. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 139
u) Recognition of income and expense Interest income and expense and similar items are generally recorded in the period in which they accrue, using the effective interest method. Dividends received from other companies are recognized as income when the entitlement vests. Generally, fee and commission income and expense and similar items are recorded in the income statement according to the following criteria:
- Fees and commissions relating to financial assets and liabilities measured at fair value through profit or loss are recognized when received. - Fees and commissions relating to transactions or services that take place over a period of time are allocated over the period during which the transaction or service takes place. - Fees and commissions relating to transactions or services that are completed in a single act are recognized at the time of the act that gives rise to the fee or commission. Statutory information Statutory
Financial fees and commissions forming an integral part of the effective cost or yield of a financial transaction have been deferred net of associated direct costs and recognized in the income statement over the expected average life of the transaction. Non-financial income and expense is accounted for on an accrual basis. Amounts paid or received that are deferred over time are recorded at the value obtained by discounting the expected cash flows at market rates of interest.
v) Income tax Spanish corporation tax and similar tax expense applicable to foreign subsidiaries are treated as expenses and are recorded in the income statement under income tax unless the tax has arisen on a transaction accounted for directly in equity, in which case the tax is also recognized directly in equity, or unless it relates to a business combination, in which case the deferred tax is recognized as an asset or liability of the business combination. The tax expense shown under the income tax heading is the tax charge assessed on the taxable income for the year, after taking account of applicable tax deductions and allowances and any tax losses. The taxable income for the year may be at variance with the profit for the year as shown in the income statement, as it excludes items of income or expenditure that are taxable or deductible in other years as well as items which are non-taxable or non-deductible.
Deferred tax assets and liabilities refer to the tax that is expected to be payable or recoverable on differences between Banco Sabadell the carrying values of assets and liabilities in the financial statements, on the one hand, and the tax bases of those assets and liabilities, on the other. These tax assets and liabilities are determined by applying to such temporary
differences or tax credits the tax rate at which they are expected to be recovered or paid. 2009 Annual Report A deferred tax asset such as a tax prepayment, or a credit in respect of a tax deduction or allowance, tax loss or other benefit is always recognized provided that the group is likely to obtain sufficient future taxable profits against which the tax asset can be realized. A deferred tax liability will, in general, always be recognized. All recognized deferred tax assets and liabilities are reviewed in each accounting period to verify that they still apply and are adjusted as necessary. The undertakings in the Banco Sabadell group that are included in the consolidated accounts for corporation tax purposes are shown in the Annex. Their tax charges for the year have been worked out on this basis and are payable to Banco de Sabadell, S.A. as the parent company of the consolidated group, which is responsible for paying the tax to the Revenue authorities.
w) Financial guarantees Financial guarantees are contracts by which the group undertakes to make specified payments for a third party in the 139 event of the third party failing to do so. They may take a variety of legal forms such as guarantees, avals, insurance contracts or credit derivatives. Guarantees are recognized by the group at their fair value under the liability heading “other financial liabilities”. On first recognition and in the absence of evidence to the contrary, the fair value will be the present value of the expected cash flows. The present value of the future cash flows receivable is simultaneously recorded as an asset. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 140
Subsequent to initial recognition, guarantee contracts are treated as follows:
- The value of all fees, commissions or premiums receivable is discounted by recording the differences in the income statement as interest income. - The value of a guarantee contract is the amount initially recognized as a liability item less the amount credited to the consolidated income statement on a straight-line basis over the anticipated life of the contract.
Financial guarantees are classified according to the credit risk attributable to the customer or the transaction and in appropriate cases an assessment will be made as to the need to provide for the risk by following procedures similar to those described in note 1(e) for debt instruments carried at amortized cost.
x) Assets under management Third party assets managed by the group are not included in the consolidated balance sheet. Management fees are
Statutory information Statutory shown in the income statement under fee and commission income.
y) Consolidated cash flow statement The consolidated cash flow statement includes certain items which are defined as follows:
- Cash flows: inflows and outflows of cash and cash equivalents, where "cash equivalents" are short-term, highly liquid investments for which the risk of a change in value is minimal. - Operating activities: the ordinary activities of the group, as well as other activities that cannot be described as investing or funding activities. - Investing activities: the acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents. - Funding activities: activities that result in changes in the size and composition of equity and of liabilities not included in operating activities.
z) Netting Where credit and debit balances arising from transactions are permitted, whether by contract or by law, to be set off
Banco Sabadell against each other and the group intends to settle them on a net basis or to realize the asset and settle the liability simultaneously, they are reported in the balance sheet at their net values. Annual Report 2009 Annual Report
140 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 141
Note 2. Banco Sabadell Group
The companies comprising the group as at 31 December 2009 and 2008 are listed in the Annex along with their registered offices, principal activities, the Bank's proportional holding in each, key financial data for each company, and whether they are consolidated by the full consolidation, proportional consolidation or equity method.
The changes in the composition of the consolidated group are described below.
Changes in the year 2009:
Undertakings/operations included in the consolidated accounts for the first time:
€'000 Cost of combination Amount Statutory information Statutory paid and Voting Voting Name of Transaction other rights rights undertaking (or operation) effective associated acquired prop. of Direct/ acquired or merged Category date costs (%) total (%) indirect Method
BanSabadell Securities Services, S.A. (a) Subsidiary 21/04/2009 2,500 100.00 100.00 Direct Full consolidation Emte Renovables, S.L. (c) Jointly controlled 24/12/2008 5,000 62.11 62.11 Indirect Proportional consol. J. Feliu de la Penya, S.L. (b) Associate 10/11/2008 10,501 20.00 20.00 Indirect Equity method Jerez Solar, S.L. (c) Jointly controlled 24/12/2008 1,894 62.11 62.11 Indirect Proportional consol. Sociedad de Inversiones y Participaciones Comsa Emte, S.L. Associate 28/07/2009 47,271 20.00 20.00 Indirect Equity method Solvia Properties, S.L. (a) Subsidiary 13/01/2009 500 100.00 100.00 Direct Full consolidation Solvia Hotels, S.L. (a) Subsidiary 06/02/2009 500 100.00 100.00 Direct Full consolidation
(a) Addition on formation of new company. (b) J. Feliu de la Penya, S.L. was acquired by Aurica XXI, S.C.R. on 10 November 2008 and registered in January 2009. (c) Emte Renovables, S.L. was set up by Sinia Renovables, S.C.R. and Emte, S.A. on 24 November 2008 and registered in February 2009. To set up the company, Emte, S.A. contributed its entire 100% holding in Jerez Solar, S.L.
Acquisition of 20% of J. Feliu de la Penya, S.L. On 10 November 2008 the group acquired, through its subsidiary Aurica XXI, S.C.R., S.A., a 20% holding in J. Feliu de la Penya, S.L. for the sum of €10,501,000. Annual Report 2009 Banco Sabadell Annual Report
Acquisition of Sociedad de Inversiones y Participaciones Comsa Emte, S.L. On 28 July 2009, Aurica XXI, S.C.R., S.A. acquired 19.99% of Sociedad de Inversiones y Participaciones Comsa Emte, S.L., for €602. On that same day, at an Extraordinary General Meeting of Sociedad de Inversiones y Participaciones Comsa Emte, S.L. it was resolved that the capital of the company be increased by 147,996,988 new shares with a nominal value of €1.00 each. The shares were issued at a premium of €14.76 per share, resulting in a total issue premium amounting to €221,335,000. Aurica XXI, S.C.R., S.A. subscribed for the new issue by paying a non-monetary contribution consisting of its holding of 187,686 shares in Comsa Emte, S.L. (which it had previously acquired in exchange for its entire shareholding in Emte Grupo Empresarial y Corporativo, S.L.). The contribution of shares in Comsa Emte, S.L. has been valued at €42,270,000, resulting in a profit of €21,094,000. Following the capital increase, the share capital of Sociedad de Inversiones y Participaciones Comsa Emte, S.L. is now 15,000,000 shares with a nominal value of €1.00 each, of which 20% are owned by Aurica XXI, S.C.R., S.A.
Formation of Solvia Properties, S.L. and Solvia Hotels, S.L. On 19 December 2008 and 23 January 2009 two companies, Solvia Properties, S.L. and Solvia Hotels, S.L. were set up, 141 each with a share capital of €500,000. These companies, together with Solvia Development, S.L., Solvia Estate, S.L., Solvia Gestión Real Estate, S.L. and Solvia Housing, S.L., spearhead the group's property management business.
Undertakings no longer included in the consolidated accounts:
€'000 Proportion of Name of undertaking Transaction voting rights (or operation) sold, spun off effective surrendered Profit/loss Direct/ or derecognized Category date on disposal (%) to group indirect Method
Dish, S.A. (a) Subsidiary 03/12/2008 100.00 (4) Direct Full consolidation Emte Grupo Empresarial y Corporativo, S.L. Associate 28/07/2009 20.00 21,094 Indirect Equity method Gestora Plan HF94, S.L. (a) Subsidiary 16/12/2009 100.00 7 Direct Full consolidation Telstar, S.A. Associate 04/12/2009 20.00 2,509 Indirect Equity method
(a) Liquidated. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 142
Changes in the year 2008:
Undertakings/operations included in the consolidated accounts for the first time:
€'000 Cost of combination Amount paid and Voting Voting Name of Transaction other rights rights as undertaking (or operation) effective associated acquired prop. of Direct/ acquired or merged Category date costs (%) total (%) indirect Method
Adelanta Corporación, S.A. (1) Associate 23/04/2008 37,158 25.00 25.00 Indirect Equity method BanSabadell Fincom, E.F.C.,S.A. (2) Subsidiary 22/04/2008 20,616 50.00 100.00 Direct Full consolidation Compañía de Cogeneración del Caribe Dominicana, S.A. (3) Subsidiary 31/05/2008 0 97.00 97.00 Indirect Full consolidation Establecimientos Industriales y Servicios, S.L. (4) Associate 24/07/2008 34,833 26.75 26.75 Indirect Equity method Garnova, S.L. (5) Associate 26/02/2008 42,748 25.00 25.00 Indirect Equity method Interstate Property Holdings, LLC Subsidiary 30/06/2008 5,075 100.00 100.00 Indirect Full consolidation Parque Eólico Magaz, S.L. (1) Associate 24/04/2008 1,464 49.00 49.00 Indirect Equity method Statutory information Statutory Plaxic Estelar, S.L. Jointly controlled 11/04/2008 1 45.01 45.01 Indirect Proportional consol. Sabadell Securities USA, Inc. Subsidiary 27/06/2008 127 100.00 100.00 Direct Full consolidation Santex Pluser, S.L. (1) Subsidiary 22/04/2008 3 100.00 100.00 Indirect Full consolidation Sinia Renovables, S.C.R. de Régimen Simplificado, S.A. Subsidiary 14/03/2008 15,000 100.00 100.00 Direct Full consolidation Tecnocredit, S.A. (6) Subsidiary 24/07/2008 1,100 50.00 100.00 Direct Full consolidation
(1) Undertakings acquired by the group through its subsidiary Sinia Renovables, S.C.R.,S.A. (2) Now fully consolidated following the purchase of the remaining 50% of the share capital of BanSabadell Fincom, E.F.C.,S.A. from General Electric Capital Bank. (3) Acquired by the group through BanSabadell Inversió i Desenvolupament, S.A. (4) Acquired by the group through Santex Pluser, S.L. (5) Acquired by the group through Aurica XXI, S.C.R.,S.A. (6) Now fully consolidated following the purchase of the remaining 50% of the share capital of Tecnocredit, S.A. held by a number of professional associations.
Acquisition of 25% of Adelanta Corporación, S.A. On 23 April 2008 the group acquired, through its subsidiary Sinia Renovables, S.C.R., S.A., a 25% shareholding in Adelanta Corporación, S.A. for the sum of €37,158,000.
Acquisition of 50% of BanSabadell Fincom, E.F.C., S.A. On 22 April 2008 Banco Sabadell, S.A. acquired the 50% shareholding in BanSabadell Fincom held by General Electric
Banco Sabadell Capital Bank, E.F.C., S.A. Banco Sabadell thus obtained control of 100% of the share capital of BanSabadell Fincom, E.F.C., S.A. The total amount finally paid was €20,616,000, resulting in a goodwill of €4,923,000.
Annual Report 2009 Annual Report Acquisition of 26.75% of Establecimientos Industriales y Services, S.L. On 24 July 2008 the group acquired 26.75% of Establecimientos Industriales y Servicios, S.L. through its subsidiary Santex Pluxer, S.L. for €34,833,000.
Acquisition of 25% of Garnova, S.L. On 26 February 2008 the group acquired, through its subsidiary Aurica XXI, S.C.R., S.A., a 25% shareholding in Garnova, S.L. for €42,748,000, generating a goodwill of €27,267,000.
Acquisition of 50% of Tecnocredit, S.A. On 24 July 2008, Banco Sabadell, S.A. acquired 50% of the shares held by a number of professional associations in Tecnocredit, S.A. Banco Sabadell thus obtained control of 100% of the share capital of Tecnocredit, S.A. The total amount finally paid was €1,100,000, resulting in a goodwill of €984,000. 142 Acquisition of BBVA Miami's private banking business On 27 December 2007, Banco Sabadell entered into an agreement with Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) to purchase the international private banking business being carried on by its branch in Miami, Florida, USA. The agreement came into effect on 11 April 2008. The amount finally paid to BBVA by Banco Sabadell for the business was €29,945,000. This amount was recognized in the balance sheet under intangible assets (see note 15). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 143
Undertakings no longer included in the consolidated accounts:
€'000 Proportion of Proportion of Name of undertaking Transaction voting rights voting rights Profit/ (or operation) sold, spun off effective surrendered held after loss to Direct/ or eliminated Category date on disposal (%) disposal (%) group indirect Method
BanSabadell Pensiones , E.G.F.P., S.A. (1) Subsidiary 18/09/2008 50.00 50.00 95,711 Direct Full consolidation BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros(1) Subsidiary 18/09/2008 50.00 50.00 93,690 Direct Full consolidation BanSabadell Vida, S.A. de Seguros y Reaseguros(1) Subsidiary 18/09/2008 50.00 50.00 401,001 Direct Full consolidation Europea de Inversiones y Rentas, S.L. (2) Subsidiary 01/01/2008 100.00 0.00 0 Direct Full consolidation Explotación Eólica la Pedrera, S.L. (3) Subsidiary 20/02/2008 80.00 0.00 14,775 Indirect Full consolidation Homarta, S.L. (4) Joint venture 23/01/2008 50.00 0.00 (10) Indirect Proportional consol. Multibarter Mexicana, S.A. de C.V. (4) Subsidiary 31/03/2008 100.00 0.00 (41) Direct Full consolidation Parc Eòlic Coll de Som, S.L. (3) Subsidiary 20/02/2008 51.80 0.00 1,451 Indirect Full consolidation Parc Eòlic l'Arram, S.L. (3) Subsidiary 20/02/2008 51.80 0.00 1,623 Indirect Full consolidation
Sabadell International Capital Ltd. (4) Subsidiary 01/04/2008 100.00 0.00 40 Direct Full consolidation information Statutory
(1) Operations eliminated from the consolidated accounts following the sale of 50% of the group's holding in the company. Accounted for by the equity method in 2008. (2) Removed from the consolidated accounts after being merged into Banco Sabadell S.A. (3) Removed from the consolidated accounts following an exchange of shares in Fersa Energía Renovables, S.A. (4) Liquidated.
Sale of BanSabadell Pensiones, E.G.F.P. S.A.,BanSabadell Vida, S.A. de Seguros y Reaseguros and BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros On 10 July 2008 Banco Sabadell entered into an agreement with Zurich Vida, Compañía de Seguros y Reaseguros S.A. and Zurich Spain, Compañía de Seguros y Reaseguros S.A., for the sale of 50% of the share capital of its pensions business BanSabadell Pensiones, E.G.F.P., S.A., and two insurance operations, BanSabadell Vida S.A. de Seguros y Reaseguros and BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros. The sale was effective from 18 September 2008. The sale consideration of €750,000,000 has been paid in full and resulted in a profit net of tax of €418,000,000 for the Banco Sabadell group. The sale agreement made provision for a further sum of up to €150,000,000 to be paid over the next 10 years based on the future performance of the business.
Merger by absorption of Europea de Inversiones y Rentas, S.L. by Banco Sabadell, S.A. Banco Sabadell On 4 September 2008 Europea de Inversiones y Rentas, S.L., was merged into Banco Sabadell, S.A. The merger involved the dissolution, but not the liquidation, of Europea de Inversiones y Rentas and the transfer of its assets en bloc to Banco
de Sabadell, S.A. by universal succession, with the latter being subrogated in all rights and obligations of the merged 2009 Annual Report company generally and without any reservation or limitation whatsoever. From 1 January 2008 onwards, all operations of the merged company were treated for accounting purposes as operations of Banco de Sabadell, S.A.
Exchange of shares in three wind farm companies, Parc Eòlic L'Arram, S.L., Parc Eòlic Coll de Som, S.L. and Explotación Eólica la Pedrera, S.L. for shares in Fersa Energías Renovables, S.A. On 19 October 2007 the Board of Directors of Fersa Energías Renovables, S.A. agreed an exchange of shares in Parc Eòlic L'Arram, S.L., Parc Eòlic Coll de Som, S.L. and Explotación Eólica la Pedrera, S.L. for shares in Fersa Energías Renovables, S.A. The share exchange took place on 22 February 2008 and resulted in a profit before tax of €17,849,000 for the group. The resulting group holding in Fersa Energías Renovables, S.A. has been classified as part of its portfolio of available-
for-sale financial assets at the acquisition cost of €22,649,000, an amount equal to the combined fair values of the 143 undertakings given in exchange, based on its percentage share in the company. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 144
Note 3. Proposed distribution of profits and basic earnings per share
The allocation of the Bank's profit for the year 2009 which the Board will propose to the Annual General Meeting is shown in the following table. The allocation for 2008 was approved by the Annual General Meeting on 19 March 2009 and is also shown in the table.
€'000 2009 2008
To dividends 168,000 337,921 Reserve for investment in Canary Islands 318 0 To voluntary reserves 360,788 450,465
Profit of Banco de Sabadell, S.A. for the year 528,787 788,386
Statutory information Statutory Proposed allocations of profits of subsidiaries and associates are subject to approval by their respective Annual General Meetings. The gross dividend per share for the year recommended by the Board of Directors of the Bank is €0.14 (€0.28 in 2008). The Board of Directors will recommend to the General Meeting that it approve an additional payment to shareholders of €0.08 per share, on top of the dividend for the year 2009, consisting of a distribution of shares of equal value out of the Bank's holding of treasury shares. The payment will be charged to the share premium account and will require amendments to be made to the articles of association. The Board of Directors decided to pay two interim dividends on account of profits for 2009 amounting to a total of €168,000,000 (€193,921,000 in 2008). These dividends were paid on 1 September and 15 December 2009, and will be recommended to the Annual General Meeting for final approval. The following table shows that sufficient profits were generated by the Bank in each annual period to enable an interim dividend to be paid.
€'000 30.11.2009 31.08.2009 30.11.2008 31.07.2008 Banco Sabadell Profit of Bank 719,689 516,177 449,149 447,077 Estimated income tax (132,676) (89,436) (70,542) (69,989) Dividends paid (84,000) 0 (97,921) 0
Annual Report 2009 Annual Report Net profit available for distribution 503,013 426,741 280,686 377,088
Amount proposed and distributed 84,000 84,000 96,000 97,921
Dividend payment date 15.12.2009 01.09.2009 15.12.2008 29.08.2008
Earnings per share Basic earnings per share are obtained by dividing the net profit or loss attributable to the group by the weighted average number of ordinary shares outstanding in the year, excluding any treasury shares purchased by the group. Diluted earnings per share are calculated by adjusting profit or loss attributable to the group, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares. Earnings per share calculations are shown in the following table:
2009 2008 144 Net profit attributable to the group (€'000) 522,489 673,835 Profit from discontinued operations (net) (€'000) 0 428,366 Ordinary shares outstanding (weighted average) 1,177,876,997 1,208,583,408 Assumed conversions of convertible bonds 100,341,160 0 Ordinary shares outstanding (weighted average) - adjusted 1,278,218,157 1,208,583,408
Earnings per share (€) 0.44 0.56 Basic earnings per share after adjusting for effect of required bond conversions (€) 0.41 0.56 Basic earnings per share (€) 0.41 0.56 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 145
Note 4. Loans and advances to credit institutions
Loans and advances to credit institutions recorded in the consolidated balance sheet at 31 December 2009 and 2008 are analysed in the following table:
€'000 2009 2008
Analysis by heading: Loans and receivables 2,544,962 2,623,491
Total 2,544,962 2,623,491
Analysis by type: Time deposits 412,072 436,247 Reverse repos 1,021,937 681,200 Other accounts 327,894 604,491 information Statutory Doubtful assets 693 2,050 Other financial assets 776,802 892,327 Impairment provisions (595) (877) Other valuation adjustments 6,159 8,053
Total 2,544,962 2,623,491
Analysis by currency: Euro denominated 2,393,288 2,373,212 Foreign currency denominated 151,674 250,279
Total 2,544,962 2,623,491
Average annual interest rates on loans and advances to credit institutions for the years 2009 and 2008 were 1.1% and 3.98% respectively. The main components of the “other accounts” item at 31 December 2009 and 2008 were buyer credit for non-resident banks and forfaiting deals with other banks. Banco Sabadell Annual Report 2009 Annual Report
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Note 5. Debt securities
Debt securities shown in the consolidated balance sheet at 31 December 2009 and 2008 are analysed as follows:
€'000 2009 2008
Analysis by heading: Financial assets held for trading 91 2,894 Available-for-sale financial assets 6,934,750 5,138,548
Total 6,934,841 5,141,442
Analysis by type: Government securities 2,668,238 2,569,085 Treasury bills 1,191,783 602,179
Statutory information Statutory Other book-entry securities 1,047,968 1,903,869 General government 428,487 63,037 Securities of financial institutions and other issuers 4,276,284 2,576,537 Doubtful assets 6,438 1,817 Impairment provisions (16,119) (5,997)
Total 6,934,841 5,141,442
Analysis by currency: Euro denominated 6,837,885 5,058,395 Foreign currency denominated 96,956 83,047
Total 6,934,841 5,141,442
Average annual rates of interest on debt securities in the years 2009 and 2008 were 2.81% and 5.19% respectively. Details of debt instruments comprised within the "available-for-sale financial assets" category are as follows:
€'000
Banco Sabadell 2009 2008 Level I (*) Level II (*) Level III (*) Level I (*) Level II (*) Level III (*)
Acquisition cost 6,051,634 797,683 15,003 4,904,100 168,089 15,009 Fair value 6,119,105 801,005 14,640 4,959,905 166,877 11,766 Annual Report 2009 Annual Report Accumulated losses recognized in equity at the end of the period (92,110) (6,255) (363) (63,722) (1,769) (3,234) Accumulated gains recognized in equity at the end of the period 159,581 9,577 0 119,527 548 0 Losses recognized as impairment in the income statement for the period (11,880) 0 0 (7,301) 0 0 Valuation method Quoted Discounted Internal Quoted Discounted Internal price cash flow models price cash flow models
(*) The levels used in this table are explained in note 1 (d) of these annual accounts, in the section on accounting principles and policies - valuation and recording of financial instruments.
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Note 6. Equity instruments
The "equity instruments" heading of the consolidated balance sheet at 31 December 2009 and 2008 can be analysed as follows:
€'000 2009 2008
Analysis by heading: Financial assets held for trading 19,917 7,640 Other financial assets at fair value through profit or loss 182,166 161,733 Available-for-sale financial assets 1,097,011 620,610
Total 1,299,094 789,983
Analysis by type: Statutory information Statutory Resident sector 650,412 231,998 Credit institutions 62,777 1,873 Other 587,635 230,125 Non-resident sector 507,962 291,614 Credit institutions 494,993 275,655 Other 12,969 15,959 Share in net assets of mutual funds and OEICs 656,622 419,223 Impairment provisions (515,902) (152,852)
Total 1,299,094 789,983
Analysis by currency: Euro denominated 1,292,134 783,605 Foreign currency denominated 6,960 6,378
Total 1,299,094 789,983
Financial assets at fair value through profit or loss in both years consisted entirely of investments associated with unit- linked life policies sold through Assegurances Segur Vida, S.A., a group subsidiary.
Details of equity instruments comprised with the "available-for-sale financial assets" category are as follows: Banco Sabadell
€'000 2009 2008 Level I (*) Level II (*) Level III (*) Level I (*) Level II (*) Level III (*) 2009 Annual Report
Acquisition cost 324,355 717,294 53,336 561,825 259,519 48,274 Fair value 316,898 719,726 60,387 303,830 265,572 51,208 Accumulated losses recognized in equity at the end of the period (19,273) (13,635) (525) (258,255) (12,644) (462) Accumulated gains recognized in equity at the end of the period 11,816 16,067 7,576 260 18,697 3,396 Capital losses recognized as impairment in the income statement for the period (217,893) (184,302) 0 144,337 0 0
(*) The levels used in this table are explained in note 1 (d) of these annual accounts, in the section on accounting principles and policies - valuation and recording of financial instruments.
At the end of 2009 an impairment was recognized in the group's holding in Banco Comercial Português, S.A. (BCP) amounting to €210,040,000 (€100,000,000 in 2008). As a result, the value of the group's holding in BCP at 31 147 December 2009 was written down to the quoted market price of the shares. The impairment has been recorded under impairment losses on financial assets in the consolidated income statement. The group has a holding in Metrovacesa, S.A. as a result of an arrangement reached in 2009 between the Cresa- Sacresa group and its creditors as part of a debt restructuring agreement. The holding was initially valued, and is periodically revalued, on the basis of the most reliable NAV (net asset value) data available, although these valuations are liable to be supplemented by yet more rigorous valuation criteria. At 31 December 2009, the NAV used in the valuation was €31.58 per share based on a NAV per share calculated as of 30 September 2009, the most recent published estimate available. Subsequent revaluations in 2009 have resulted in an impairment of €184,302,000 which has been recorded under impairment losses on financial assets in the consolidated income statement. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 148
Note 7. Trading derivatives (assets and liabilities)
The breakdown by transaction types for the trading derivatives captions on the asset and liability sides of the consolidated balance sheet at 31 December 2009 and 2008 is as follows:
€'000 2009 2008 Assets Liabilities Assets Liabilities
Securities derivatives 137,466 143,563 270,376 187,716 Interest rate derivatives 810,794 821,790 538,757 552,017 Currency derivatives 152,997 134,413 438,838 461,362 Other derivatives 19,176 18,977 38,486 38,556
Total 1,120,433 1,118,743 1,286,457 1,239,651 Statutory information Statutory Analysis by currency: Euro denominated 1,060,268 1,058,654 1,191,576 1,140,869 Foreign currency denominated 60,165 60,089 94,881 98,782
Total 1,120,433 1,118,743 1,286,457 1,239,651
The fair values and valuation techniques being used for each type of trading derivative at 31 December 2009 are shown in the table below.
€'000 Fair value Valuation technique
Assets Trading derivatives: 1,120,433 Swaps, CCIRSs, Call Money Swaps 709,408 Discounted cash flow Exchange rate options 19,494 Montecarlo simulations on Black-Scholes model, Garman & Kohlhagen model Interest rate options 169,067 Black & Black-Scholes with convexity adjustment Simulation on Hull-White model Banco Sabadell Index and securities options 137,062 Black-Scholes and binomial tree Montecarlo simulation on Black-Scholes model Currency forwards 85,402 Discounted cash flow Annual Report 2009 Annual Report Total assets held in trading portfolio 1,120,433
Liabilities Trading derivatives: 1,118,743 Swaps, CCIRSs, Call Money Swaps 719,029 Discounted cash flow Exchange rate options 20,279 Montecarlo simulations on Black-Scholes model, Garman & Kohlhagen model Interest rate options 169,540 Black & Black-Scholes with convexity adjustment Simulation on Hull-White model Index and securities options 145,987 Black & Black-Scholes and binomial tree Montecarlo simulation on Black-Scholes model Currency forwards 63,908 Discounted cash flow
Total liabilities held in trading portfolio 1,118,743 148 Fair values of trading derivatives are calculated from inputs based on observable market data, except in the case of stock and index options, where the inputs are supplemented by estimated volatilities and correlations, using methods generally accepted within the financial services community. At 31 December 2009 trading derivatives measured at fair value, according to the value hierarchy described in note 1 to these annual accounts (accounting principles and polices applied) were classified as follows:
€'000 Level I Level II Level III
Trading derivatives (assets) - 921,366 199,067 Trading derivatives (liabilities) - 924,900 193,843 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 149
Changes in the carrying value of derivative instruments measured at fair value within Level III, and gains or losses due to changes in value during the year 2009, are shown in the following table :
€'000 Gain/loss taken to income statement due to changes 31/12/2008 Additions Eliminations Transfers in value 31/12/2009
Liability trading derivatives (Level III) 49,179 33,153 (82,574) 0 5,466 5,224
Note 8. Loans and advances to other debtors information Statutory
Loans and advances to other debtors on the consolidated balance sheet at 31 December 2009 and 2008 are analysed as follows:
€'000 2009 2008
Analysis by heading: Loans and receivables 63,232,890 63,006,201
Total 63,232,890 63,006,201
Analysis by type: Commercial loans 2,282,350 2,825,425 Secured receivables 36,279,639 35,677,281 Other term receivables 17,119,243 17,577,242 Payable on demand and other accounts 983,538 1,006,036 Finance leases 2,928,343 3,473,593 Factoring and "confirming" 2,748,705 2,508,305 Doubtful assets 2,650,179 1,626,892 Banco Sabadell Impairment provisions (1,779,902) (1,698,039) Other valuation adjustments 20,795 9,466
Total 63,232,890 63,006,201 2009 Annual Report
Analysis by sector: General government 890,219 426,201 Resident sector 56,944,709 58,470,286 Non-resident sector 4,506,890 4,171,395 Doubtful assets 2,650,179 1,626,892 Impairment provisions (1,779,902) (1,698,039) Other valuation adjustments 20,795 9,466
Total 63,232,890 63,006,201
Analysis by currency: Euro denominated 61,293,291 60,997,450 Foreign currency denominated 1,939,599 2,008,751
Total 63,232,890 63,006,201 149
Average annual rates of interest on loans and advances to other debtors in the years 2009 and 2008 were 4.62% and 6.10% respectively. At 31 December 2009 total gross value of finance leasing contracts totalled €3,064,000,000, with unaccrued finance income amounting to €364,000,000. The non-guaranteed residual value for the leases was €130,000,000. Value adjustments due to impairment of finance leases amounted to €74,000,000. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 150
The distribution of loans and advances to other debtors by geographical region at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Spain 60,656,984 60,470,056 Other European Union 2,831,154 2,806,638 Latin America 223,980 254,169 USA and Canada 851,909 814,300 Other OECD 69,100 70,177 Rest of world 379,665 288,900 Impairment provisions (1,779,902) (1,698,039)
Total 63,232,890 63,006,201 Statutory information Statutory Loans and advances to other debtors due for repayment but not classified as doubtful assets at 31 December 2009 amounted to €269,975,000 (€190,750,000 at 31 December 2008). At 31 December 2009 more than 69% of this total was not more than one month overdue (31 December 2008: 74% of the total).
Doubtful assets Assets recognized as doubtful under different balance sheet headings at 31 December 2009 and 2008 were as follows:
€'000 2009 2008
Loans and advances to credit institutions 693 2,050 Debt securities 6,438 1,817 Loans and advances to other debtors 2,650,179 1,626,892
Total 2,657,310 1,630,759
Changes in doubtful assets were as follows: Banco Sabadell €'000 Balance at 31 December 2007 325,551
Additions 1,752,514 Annual Report 2009 Annual Report Recoveries (342,999) Written off (104,307)
Balance at 31 December 2008 1,630,759
Additions 3,029,196 Recoveries (1,935,267) Written off (67,378)
Balance at 31 December 2009 2,657,310
The distribution of doubtful assets at 31 December 2009 and 2008 according to the type of security provided was as follows:
150 €'000 2009 2008
Mortgage (1) 1,521,044 914,037 Other security represented by a charge on property (2) 194,380 93,961 Other security 941,886 622,761
Total 2,657,310 1,630,759
(1) Loans secured by mortgage where amount loaned is less than 100% of assessed value. (2) Includes all other loans secured on property. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 151
The distribution of doubtful assets by geographical region at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Spain 2,502,501 1,508,453 Other European Union 95,948 59,727 Latin America 3,433 5,077 USA and Canada 44,715 51,570 Other OECD 3,100 1,745 Rest of world 7,613 4,187
Total 2,657,310 1,630,759
Impairment provisions
Impairment provisions resulting in value adjustments to assets under different balance sheet headings at 31 December information Statutory 2009 and 2008 were as follows:
€'000 2009 2008
Loans and advances to credit institutions 595 877 Debt securities 16,119 5,997 Loans and advances to customers 1,779,902 1,698,039
Total 1,796,616 1,704,913
Details of changes in, and opening and closing balances of, impairment provisions to cover against credit risk exposure are shown in the following table:
€'000 Specific Generic Country risk Total
Balance at 31 December 2007 132,348 1,087,751 5,631 1,225,730 Banco Sabadell Provisions charged to income statement 651,769 366,481 3,723 1,021,973 Releases to income statement (98,856) (360,262) (3,623) (462,741) Exchange differences 104 416 133 653
Transfers (83,973) 0 0 (83,973) 2009 Annual Report Other movements 6,091 (2,820) 0 3,271
Balance at 31 December 2008 607,483 1,091,566 5,864 1,704,913
Provisions charged to income statement 1,380,531 31,352 1,749 1,413,632 Releases to income statement (425,438) (739,013) (2,881) (1,167,332) Exchange differences 419 (890) (34) (505) Transfers (141,264) 0 0 (141,264) Other movements (11,108) (1,720) 0 (12,828)
Balance at 31 December 2009 1,410,623 381,295 4,698 1,796,616
Specific provisions at 31 December 2009 included €506,343,000 in provisions for sub-standard risks (€274,823,000 at 31 December 2008). The distribution of impairment provisions by geographical region at 31 December 2009 and 2008 was as follows: 151
€'000 2009 2008
Spain 1,713,923 1,606,971 Other European Union 36,368 51,585 Latin America 8,381 14,804 USA and Canada 29,022 21,295 Other OECD 429 742 Rest of world 8,493 9,516
Total 1,796,616 1,704,913 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 152
Additional information Finance income accruing on impaired financial assets but not recognized in the consolidated income statement at 31 December 2009 and 2008 amounted to €65,033,000 and €32,744,000 respectively. Impaired financial assets derecognized from the balance sheet on the ground that the probability of recovery was remote showed the following evolution:
€'000 Balance at 31 December 2007 990,962
Additions: 119,538 Assets with poor prospects of recovery 114,087 Derecognized for other reasons 5,451
Recoveries: (14,883) Due to receipt of cash without additional financing (11,948)
Statutory information Statutory Due to repossession of tangible assets (2,935)
Permanently written off: (28,592) Due to debt forgiveness (26,626) Due to statute of limitations (1,966)
Net change due to exchange differences (187)
Balance at 31 December 2008 1,066,838
Additions: 188,176 Assets with poor prospects of recovery 140,404 Derecognized for other reasons 47,772
Recoveries: (14,781) Due to receipt of cash without additional financing (10,997) Due to repossession of tangible assets (3,784)
Permanently written off: (105,936) Due to debt forgiveness (72,795) Due to statute of limitations (4,284)
Banco Sabadell Due to other circumstances (28,857)
Net change due to exchange differences 9
Balance at 31 December 2009 1,134,306 Annual Report 2009 Annual Report
At 31 December 2009 the nominal values of mortgage bonds in circulation issued by the Bank totalled €11,009,000,000 (these bonds were not sold through a public offering). At this date the nominal value of outstanding mortgage loans backing the bond issue and fulfilling the eligibility criteria totalled €16,218,000,000, out of a total nominal value of €26,041,000,000. As required by Royal Decree 716/2009 on certain aspects of the implementation of Law 2/1081 of 25 March on the regulation of the mortgage market and other matters relating to the mortgage finance system, the Board of Directors has made a statement that, at 31 December 2009, the Bank has a set of policies and procedures in place to ensure compliance with the mortgage market regulations. In line with these policies and procedures for managing the group's mortgage market activities, the Board of Directors is committed to the group's risk management and control procedures (see note 35, Financial Risk Management). In the area of credit risk, in particular, the Board of Directors delegates powers and discretions to the Risk Control Committee, 152 which then sub-delegates authority at each level. The internal procedures set up to handle the origination and monitoring of the assets that make up the group's lending and particularly those secured by mortgage, which back the group's mortgage bond issues, are described in detail below for each type of loan applicant.
Individuals
• Analysis. Applications are analysed with the help of scoring tools that measure the risk involved in a transaction by evaluating such customer profile aspects as the likely return and the nature of the property on which the loan is to be secured. There will be some circumstances that require the intervention of a risk analyst, who will examine the case in more detail and whose opinion will be required before any decision can be made on the application, favourable or otherwise. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 153
• Decision. A decision will be based on the result of the credit scoring procedure supplemented, where necessary, by the opinion of an analyst. There will, in addition, be a whole range of other details and parameters to be considered, such as the consistency of the customer's application and how well it matches his possibilities; the customer's ability to pay based on his current and future position; the value of the property provided as security for the loan (as determined by an appraisal carried out by a Bank of Spain-authorized valuation firm which Banco Sabadell's own internal approval processes will, additionally, have shown to be free of any association with the group); examinations of internal and external databases of defaulters, etc. One part of the decision-making process is to establish the maximum amount of the loan, based on the assessed value of the security (the "Loan to Value Ratio" or "LTV"). As a general rule, under internal group procedures the maximum LTV is applicable to purchases by individuals of properties for use as their normal residence and is fixed at 80%. This provides the basis for a range of other maximum LTV ratios below 80% to be set, according to the purpose of the loan. A further step that must be taken before the application can be decided is to review all charges associated with the property on which the loan is to be secured and also any insurance taken out to cover the security. Once a loan information Statutory application has been approved, the mortgage must be registered with the Property Registry as part of the formalities for finalizing the loan. • Autonomy levels. The scoring of an application is the key element in determining the viability of a loan. Where the loan being sought is above a certain level, or where factors are present that are not readily captured by a scoring procedure, a risk analyst will be involved. The limit for each autonomy level is based on credit scores, with additional conditions being specified at each level to determine when special intervention is required. A set of exceptional circumstances has been defined for borrowers or sectors which are provided for in the group's internal rules and procedures. • Monitoring. The group has a wide-ranging monitoring system in place to identify customers that may be showing early signs of default, ensuring that prompt action can be taken to initiate a response procedure in every case. A key part of this process consists of well-established procedures to review and validate the security provided.
Businesses
• Analysis. This is carried out by "key management teams" made up of staff members on both the business and the risk management sides, thus ensuring a suitable separation of functions. This is supported by a credit rating tool Banco Sabadell that takes account of the following parameters: - Management capability and effectiveness
- Competitive position in the market 2009 Annual Report - Economic and financial aspects - Track record - Security/guarantees. • Decision. A decision will be based on the credit rating assessment and a range of other data and parameters such as the consistency of the application, ability to pay and the nature of the security provided (as determined by an appraisal carried out by a Bank of Spain-authorized valuation firm which Banco Sabadell's own approval processes will, additionally, have shown to be free of any association with the group); the "fit" between the company's working capital and its total sales; the appropriateness of the total amount borrowed from the group based on the business's capital strength; examinations of internal and external databases of defaulters, and so on. With companies the decision process followed is similar to that used with individuals, with a scale of maximum LTV ratios being defined internally by the group having regard to the intended purpose of the loan. For business borrowers, as a general rule, the maximum LTV ratio is applied to mortgage loans to property developers, which are 153 then transferred to buyers of homes for use as their principal residences. This is fixed at 80%. Business loans are likewise subject to processes to evaluate any charges associated with the security provided and to have any mortgage registered with the Property Registry. • Autonomy levels. Autonomy levels are set based on the expected loss involved in a transaction. There are several levels at which decisions may be taken. Each of these levels involves the "key management team", one member of which will be on the business side and one on the risk management side. All loan approvals must be the result of a joint decision. As with individuals, a set of exceptional circumstances has been specified for borrowers or sectors, and these are provided for in the group's internal procedures. • Monitoring. A comprehensive monitoring system ensures that customers showing signs of deteriorating creditworthiness can be identified. Loan monitoring is triggered by certain events such as the expiry of a credit rating, a change in the nature of the business or risk and other aspects identified by the group's system of early 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 154
warning alerts. Again, this includes procedures to ensure that the borrower's security or guarantees are constantly being reviewed and validated.
The Banco Sabadell group is an active participant and maintains a number of funding programmes on the capital markets (see note 35). As one element of its funding strategy, Banco de Sabadell, S.A. is a regular issuer of covered bonds, having made its first such issue in 2003. Its mortgage bond issues are backed by a portfolio of loans secured by real estate mortgages that meet the eligibility criteria applicable under Royal Decree 716/2009 which provides rules on the mortgage market and mortgage finance in Spain. The group has review procedures in place to monitor its entire portfolio of loans and credit lines secured by mortgages. These include maintaining special accounting records of all the mortgage assets – and any assets that replace them – used to back its covered bonds and mortgage bonds, and of any financial derivatives associated with them; verifying that all loans and assets meet the eligibility criteria for use as collateral for issues of covered bonds; and ensuring that bond issues are at all times kept within their maximum limits and generally complies with the applicable regulations. Statutory information Statutory Banco Sabadell Annual Report 2009 Annual Report
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Note 9. Financial asset transfers
In recent years the Banco Sabadell group has undertaken a number of securitization programmes, either alone or in partnership with other highly rated domestic and foreign banks. Financial assets securitized by the group under these programmes at the end of the years 2009 and 2008 are summarized below. Assets on which the associated risks and rewards were transferred are shown separately.
€'000 2009 2008
Derecognized in full from balance sheet: 102,864 223,542 Securitized mortgage loans 90,651 199,141 Other securitized assets 7,550 19,574 Other financial asset transfers 4,663 4,827
Retained in full on balance sheet: 10,241,621 11,269,247 information Statutory Securitized mortgage loans 6,110,407 7,036,101 Other securitized assets 4,131,214 4,233,146
Total 10,344,485 11,492,789
Assets and liabilities held in securitization funds set up after 1 January 2004 and whose associated risks and rewards were not transferred to third parties have been retained in the consolidated financial statements. That is, for the assets listed below there was no transfer of risk but some form of subordinate financing or other credit enhancement for the securitization vehicles was arranged. Banco Sabadell Annual Report 2009 Annual Report
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Details of current securitization programmes are given in the table below:
€'000 Rating Issue Liability outstanding Fund name Number of Year and series Fitch Moody's S&P securities Amount 2009 2008 Yield Market
2002 FTPYME TDA SABADELL 1, F.T.A. 6,000 600,000 0 78,670 AIAF Series 1CA (a) AAA ------3,201 320,100 0 29,625 EURIBOR 6M+0.01% Series 1SA AA ------2,544 254,400 0 23,545 EURIBOR 6M+0.40% Series 2SA A ------111 11,100 0 11,100 EURIBOR 6M+0.50% Series B BB ------144 14,400 0 14,400 EURIBOR 6M+0.75%
2003 GC FTGENCAT II, F.T.A. 9,500 950,000 34,168 47,045 AIAF Series AG (b) AAA Aaa --- 7,068 706,800 13,338 23,636 EURIBOR 3M+0.11% Series AS AA+ Aa1 --- 1,767 176,700 3,334 5,909 EURIBOR 3M+0.48% Series BG (b) AA Aa2 --- 176 17,600 4,631 4,600 EURIBOR 3M+0.28% Series BS A A1 --- 176 17,600 4,631 4,600 EURIBOR 3M+0.70% Series C BBB Baa1 --- 313 31,300 8,235 8,300 EURIBOR 3M+1.45%
2003 FTPYME TDA SABADELL 2, F.T.A. 5,000 500,000 121,885 182,404 AIAF Series 1CA (a) AAA --- AAA 1,968 196,800 43,636 65,303 EURIBOR 3M Statutory information Statutory Series 1SA AAA --- AAA 2,667 266,700 59,135 88,497 EURIBOR 3M+0.26% Series 2SA AA --- A 215 21,500 11,259 16,849 EURIBOR 3M+0.50% Series 3SA BBB --- BBB 150 15,000 7,855 11,755 EURIBOR 3M+1.20%
2004 GC SABADELL 1, F.T.H. 12,000 1,200,000 536,169 616,909 AIAF Series A1 --- Aaa AAA 1,500 150,000 0 0 EURIBOR 3M+0.06% Series A2 --- Aaa AAA 10,206 1,020,600 508,244 587,509 EURIBOR 3M+0.17% Series B --- A2 A 192 19,200 18,237 19,200 EURIBOR 3M+0.42% Series C --- Baa2 BBB 102 10,200 9,688 10,200 EURIBOR 3M+0.78%
2004 IM FTPYME SABADELL 3, F.T.A. 6,000 600,000 34,294 216,917 AIAF Series 1SA --- Aaa AAA 4,408 440,800 12,800 67,437 EURIBOR 3M+0.11% Series 1CA (a) --- Aaa AAA 1,241 124,100 0 124,100 EURIBOR 3M-0.01% Series 2 --- A2 A 234 23,400 14,329 16,919 EURIBOR 3M+0.35% Series 3SA --- Baa3 BBB- 117 11,700 7,164 8,460 EURIBOR 3M+0.80%
2005 GC FTPYME SABADELL 4, F.T.A. 7,500 750,000 259,805 365,929 AIAF Series AS AAA Aaa --- 5,494 549,400 59,205 165,329 EURIBOR 3M+0.10% Series AG (a) AAA Aaa --- 1,623 162,300 162,300 162,300 EURIBOR 3M+0.00% Series B A+ A2 --- 240 24,000 24,000 24,000 EURIBOR 3M+0.42% Series C BBB Baa3 --- 143 14,300 14,300 14,300 EURIBOR 3M+0.70%
2005 GC FTGENCAT SABADELL 1, F.T.A. 5,000 500,000 298,996 410,910 AIAF Series AS AAA ------1,289 128,900 0 39,810 EURIBOR 3M+0.15% Series AG (b) AAA ------3,456 345,600 273,496 345,600 EURIBOR 3M-0.04% Series B A ------198 19,800 19,800 19,800 EURIBOR 3M+0.42% Series C BBB ------57 5,700 5,700 5,700 EURIBOR 3M+0.78%
2006 IM FTGENCAT SABADELL 2, F.T.A. 5,000 500,000 418,281 500,000 AIAF Series AS AAA ------2,028 202,800 121,081 202,800 EURIBOR 3M+0.15% Series AG (b) AAA ------2,717 271,700 271,700 271,700 EURIBOR 3M-0.045% Banco Sabadell Series B A ------198 19,800 19,800 19,800 EURIBOR 3M+0.40% Series C BBB ------57 5,700 5,700 5,700 EURIBOR 3M+0.70%
2006 GC FTPYME SABADELL 5, F.T.A. 12,500 1,250,000 535,804 749,969 AIAF Series A1 AAA ------2,200 220,000 0 0 EURIBOR 3M+0.07% Series A2 AAA ------8,803 880,300 386,104 600,269 EURIBOR 3M+0.13% Annual Report 2009 Annual Report Series A3 (G) (a) AAA ------828 82,800 82,800 82,800 EURIBOR 3M+0.01% Series B A ------400 40,000 40,000 40,000 EURIBOR 3M+0.30% Series C BBB ------269 26,900 26,900 26,900 EURIBOR 3M+0.58%
Sub-total to 2006 2,239,402 3,168,753
156 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 157
€'000 Rating Issue Liability outstanding Fund name Number of Year and series Fitch Moody's S&P securities Amount 2009 2008 Yield Market
Sub-total to 2006 2,239,402 3,168,753
2007 GC FTPYME SABADELL 6, F.T.A. 10,000 1,000,000 558,015 758,074 AIAF Series A1 --- Aaa AAA 1,750 175,000 0 0 EURIBOR 3M+0.11% Series A2 --- Aaa AAA 6,354 635,400 368,415 568,474 EURIBOR 3M+0.19% Series A3(G) (a) --- Aaa AAA 1,341 134,100 134,100 134,100 EURIBOR 3M+0.005% Series B --- A2 A 355 35,500 35,500 35,500 EURIBOR 3M+0.43% Series C --- Baa2 BBB- 200 20,000 20,000 20,000 EURIBOR 3M+0.75%
2007 IM SABADELL EMPRESAS 1, F.T.A. 10,000 1,000,000 583,674 1,000,000 AIAF Series A1 --- Aaa AAA 2,000 200,000 0 200,000 EURIBOR 3M+0.25% Series A2 --- Aaa AAA 7,390 739,000 522,674 739,000 EURIBOR 3M+0.35% Series B --- A3 A 250 25,000 25,000 25,000 EURIBOR 3M+1.25% Series C --- Baa3 BBB 360 36,000 36,000 36,000 EURIBOR 3M+2.50%
2007 IM FTGENCAT SABADELL 3, F.T.A. 3,500 350,000 209,911 284,086 AIAF Series AS ------AAA 1,690 169,000 28,911 103,086 EURIBOR 3M+0.25% Series AG (b) ------AAA 1,573 157,300 157,300 157,300 EURIBOR 3M+0.21% Series B ------A 139 13,900 13,900 13,900 EURIBOR 3M+1.25% Series C ------BBB 98 9,800 9,800 9,800 EURIBOR 3M+2.50% information Statutory
2008 GC SABADELL EMPRESAS 2, F.T.A. 10,000 1,000,000 656,561 1,000,000 AIAF A1 ------AAA 2,000 200,000 0 200,000 EURIBOR 3M+0.35% A2 ------AAA 7,475 747,500 604,061 747,500 EURIBOR 3M+0.55% B ------AAA 400 40,000 40,000 40,000 EURIBOR 3M+1.25% C ------BBB- 125 12,500 12,500 12,500 EURIBOR 3M+1.75%
2008 IM SABADELL RMBS 2, F.T.A. 14,000 1,400,000 1,201,367 1,400,000 AIAF A ------AAA 13,650 1,365,000 1,166,367 1,365,000 EURIBOR 3M+0.45% B ------A 182 18,200 18,200 18,200 EURIBOR 3M+1.25% C ------BBB 168 16,800 16,800 16,800 EURIBOR 3M+1.75%
2008 IM FTPYME SABADELL 7, F.T.A. 10,000 1,000,000 716,188 1,000,000 AIAF A1 ------AAA 4,975 497,500 213,688 497,500 EURIBOR 3M+0.45% A2 (G) ------AAA 4,025 402,500 402,500 402,500 EURIBOR 3M+0.50% B ------A 650 65,000 65,000 65,000 EURIBOR 3M+1.25% C ------BB- 350 35,000 35,000 35,000 EURIBOR 3M+1.75%
2008 IMFTGENCAT SABADELL 4, F.T.A. 5,000 500,000 500,000 500,000 AIAF A1 ------AAA 2,350 235,000 235,000 235,000 EURIBOR 3M+0.30% A2 (G) ------AAA 1,941 194,100 194,100 194,100 EURIBOR 3M+0.50% B ------A 393 39,300 39,300 39,300 EURIBOR 3M+1.25% C ------B 316 31,600 31,600 31,600 EURIBOR 3M+1.75%
2008 IM SABADELL RMBS 3, F.T.A. 14,400 1,440,000 1,440,000 1,440,000 AIAF A --- Aaa --- 14,112 1,411,200 1,411,200 1,411,200 EURIBOR 3M+0.40% B --- A1 --- 144 14,400 14,400 14,400 EURIBOR 3M+0.85% C --- Baa3 --- 144 14,400 14,400 14,400 EURIBOR 3M+1.25%
2008 IM SABADELL EMPRESAS 3, F.T.A. 17,400 1,740,000 1,740,000 1,740,000 AIAF A --- Aaa --- 14,094 1,409,400 1,409,400 1,409,400 EURIBOR 3M+0.35% Banco Sabadell B --- A3 --- 2,088 208,800 208,800 208,800 EURIBOR 3M+1.0% C --- Ba2 --- 1,218 121,800 121,800 121,800 EURIBOR 3M+1.50%
2009 GC SABADELL EMPRESAS 4, F.T.A. 6,200 620,000 620,000 0 AIAF A --- Aaa --- 5,258 525,800 525,800 --- EURIBOR 3M+0.55%
B --- A3 --- 251 25,100 25,100 --- EURIBOR 3M+1.25% 2009 Annual Report C --- Ba2 --- 691 69,100 69,100 --- EURIBOR 3M+1.75%
2009 IM SABADELL EMPRESAS 5, F.T.A. 9,000 900,000 900,000 0 AIAF A1 ------AAA 1,500 150,000 150,000 0 EURIBOR 3M+0.40% A2 ------AAA 5,340 534,000 534,000 0 EURIBOR 3M+0.50% B ------B+ 2,160 216,000 216,000 0 EURIBOR 3M+1.50%
Total 11,365,117 12,290,912
(a) Guaranteed by the Spanish Government. (b) Guaranteed by the Catalan Government.
Of the total outstanding liability, bonds associated with assets that were not removed from the balance sheet amounted to a total of €2,155,218,000 in 2009 and €2,627,346,000 in 2008. These bonds are reported in the balance sheet under debt certificates including bonds (see note 19).
157 Note 10. Changes in the fair value of hedged items in portfolio hedges of interest rate risk
At 31 December 2009 the balances under this heading on the asset and liability sides of the consolidated balance sheet were made up of gains and losses on items covered by fair value hedges against interest rate risk on portfolios of financial instruments. At the end of the year losses on hedged items were €452,290,000 (€219,952,000 at 31 December 2008) but these losses were almost entirely offset by gains on their associated hedging derivatives. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 158
Note 11. Hedging derivatives (assets and liabilities)
Hedging derivatives reported at fair value on the consolidated balance sheets at 31 December 2009 and 2008 are analysed as follows:
€'000 2009 2008
Assets Liabilities Assets Liabilities
Micro-hedges Fair value hedges 8,055 68,129 64,951 173,622 Cash flow hedges 381 639 5,833 1,504 Of which: Recognized in equity (note 27) 387 415 5,543 1,317
Macro-hedges:
Statutory information Statutory Fair value hedges 659,284 7,085 429,984 5,361 Cash flow hedges 361 33,136 0 49,932 Of which: Recognized in equity (note 27) 470 17,755 0 49,811
Total 668,081 108,989 500,768 230,419
Analysis by currency: Euro denominated 667,752 108,227 486,278 230,314 Foreign currency denominated 329 762 14,490 105
Total 668,081 108,989 500,768 230,419
The main types of interest rate risk hedging contract entered into by the group are fixed/variable interest rate swaps. The most usual valuation technique used with these swaps is the discounted cash flow method. The group enters into interest rate hedging contracts as part of its policy for managing interest rate risk (see note 35 on financial risk management). The main types of hedging instrument used are described below:
a) Fair value hedges: The items covered by these swaps are as follows: Banco Sabadell
• Capital market funding operations by the group, resulting in debt issues at fixed rates of interest. At 31 December 2009 and 2008 the fair value of swaps covering these items represented net liabilities of €599,435,000 and
Annual Report 2009 Annual Report €387,238,000 respectively. • Deposits sold through the group's branch network at fixed rates of interest. At 31 December 2009 and 2008 the fair value of swaps covering these items represented net liabilities of €27,389,000 and €18,662,000 respectively. • Individual loans by the group at fixed rates of interest. At 31 December 2009 and 2008 the fair value of swaps covering these items showed gains of €10,985,000 and €4,703,000 respectively.
In addition, to hedge certain foreign currency denominated issues, the Bank had a cross-currency swap arrangement in place with a counterparty of recognized good standing, the fair value adjustment gain on which totalled €22,816,000 at 31 December 2009 (a gain of €36,265,000 at 31 December 2008). This has been designated as a hedging instrument to cover the currency risk on a number of US dollar-denominated capital-raising issues in the USA. The majority of the group's hedging operations are carried out by Banco de Sabadell, S.A. and Banco Urquijo Sabadell Banca Privada, S.A.
158 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 159
Gains and losses recognized during the year on hedging instruments and on hedged items are shown in the following table:
€'000 2009 2008
Hedging Hedged Hedging Hedged instruments items instruments items
Micro-hedges 20,055 (20,079) 440,680 (447,991) Fixed-rate assets (1,494) 1,236 (13,305) 9,890 Exchange rate hedges (671) 514 1,541 (1,331) Capital market 41 65 396,190 (393,082) Fixed-rate liabilities 22,179 (21,894) 56,254 (63,468)
Macro-hedges 253,647 (244,014) 219,952 (219,952) Capital market and fixed-rate liabilities 253,647 (244,014) 219,952 (219,952) Statutory information Statutory
Total 273,702 (264,093) 660,632 (667,943)
b) Cash flow hedges: Amounts recognized in consolidated equity in the year and amounts derecognized from consolidated equity and taken to the consolidated income statement for the year are reported in the consolidated statement of changes in equity for the Banco Sabadell group. In the case of interest rate micro-hedges, the inflows from expected cash flows are considered likely to occur in the near term. The purpose of the cash flow macro-hedge is to reduce net interest income volatility due to fluctuations in interest rates over a 1-year time horizon. This macro-hedge is thus a hedge of future cash flows related to the net exposure of a portfolio made up of highly probable liabilities with exposures similar to interest rate risk. At the present time the hedging instruments used for this purpose are financial interest rate swaps. Banco Sabadell Note 12. Non-current assets held for sale and liabilities associated with non-current assets held for sale
These items of the consolidated balance sheet at 31 December 2009 and 2008 are analysed below: 2009 Annual Report
€'000 2009 2008
Assets 81,541 23,883 Land and buildings for own use 35,375 9,511 Repossessed assets 46,166 14,372
Impairment provisions (9,995) (2,772)
Total non-current assets held for sale 71,546 21,111
Liabilities associated with non-current assets held for sale 0 0
The above totals are made up of non-current assets and liabilities whose book values are expected to be recoverable 159 on disposal within one year of the balance sheet date. Repossessed assets comprise assets received from borrowers or others debtors of the Bank in full or part settlement of financial assets representing claims against those borrowers or debtors. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 160
Note 13. Investments
The following table shows the composition of, and changes in, this item at 31 December 2009 and 2008.
€'000 Results of Translation equity- Acquisition Disposal Payment differences Balance at accounted or increase or of and other Balance at 31.12.2008 undertakings in capital dissolution dividends Transfer movements 31.12.2009
Undertakings accounted for by the equity method: Adelanta Corporación, S.A. 37,870 74 0 0 (50) 0 0 37,894 Aviación Regional Cántabra, A.I.E. 8,220 513 0 0 (40) 0 0 8,693 Banco del Bajío, S.A. (a) 91,398 7,450 6,485 0 (4,403) 0 (545) 100,385 BanSabadell Pensiones , E.G.F.P., S.A. 15,406 1,380 0 0 (3,152) 0 0 13,634 BanSabadell Seguros Generales, S.A.
Statutory information Statutory de Seguros y Reaseguros 6,286 355 0 0 0 0 (28) 6,613 BanSabadell Vida, S.A. de Seguros y Reaseg. 75,521 26,088 0 0 0 0 22,824 124,433 Centro Financiero B.H.D., S.A. (a) 37,379 9,994 4,885 0 (9,608) 0 (677) 41,973 Dexia Sabadell, S.A. (b) 150,637 26,000 0 0 0 0 6,898 183,535 Establecimientos Industriales y Servicios, S.L. 39,107 (291) 7 0 0 0 (504) 38,319 Garnova, S.L. 46,830 1,090 0 0 0 0 0 47,920 Grafos, S.A. Arte sobre Papel 1,865 1,152 0 0 0 0 20 3,037 Intermas Nets, S.A. 23,036 1,590 0 0 (480) 0 0 24,146 J. Feliu de la Penya, S.L. 0 (800) 10,501 0 (120) 0 (2,254) 7,327 Parc Eòlic Veciana - Cabaro, S.L. 1,104 129 0 0 0 0 0 1,233 Parque Eólico la Peñuca, S.L. 3,261 219 0 0 0 0 (167) 3,313 Parque Eólico Magaz, S.L. 4,233 (362) 2,192 0 0 0 (636) 5,427 SBD Creixent, S.A. 2,890 (21) 0 0 0 0 0 2,869 Sociedad de Cartera del Vallés, S.I.C.A.V.,S.A. 2,215 248 0 0 0 0 0 2,463 Sociedad de Inversiones y Participaciones Comsa Emte, S.L. 0 0 47,271 0 0 0 0 47,271 Other holdings 40,708 (1,442) 679 (34,355) 0 0 0 5,590
Total 587,966 73,366 72,020 (34,355)(17,853) 0 24,931 706,075
€'000 Results of Translation equity- Acquisition Disposal Payment differences Banco Sabadell Balance at accounted or increase or of and other Balance at 31.12.2007 undertakings in capital dissolution dividends Transfer movements 31.12.2008
Entities accounted for by the equity method:
Annual Report 2009 Annual Report Adelanta Corporación, S.A. 0 669 37,201 0 0 0 0 37,870 Aviación Regional Cántabra, A.I.E. 8,370 (150) 0 0 0 0 0 8,220 Banco del Bajío, S.A. (a) 83,903 12,140 6,309 0 (3,325) 0 (7,629) 91,398 BanSabadell Pensiones, E.G.F.P.,S.A. 0 3,152 0 0 0 12,254 0 15,406 BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros 0 391 0 0 0 5,895 0 6,286 BanSabadell Vida, S.A. de Seguros y Reaseg. 0 9,055 0 0 0 75,356 (8,890) 75,521 Centro Financiero B.H.D., S.A. (a) 29,021 10,781 2,317 0 (5,082) 0 342 37,379 Dexia Sabadell, S.A. (b) 78,464 15,614 45,200 0 0 0 11,359 150,637 EMTE Grupo Empresarial y Corporativo, S.L. (c) 24,052 294 3,000 0 0 0 0 27,346 Establecimientos Industriales y Servicios, S.L. 0 1,671 37,436 0 0 0 0 39,107 Garnova, S.L. 0 4,016 42,814 0 0 0 0 46,830 Intermas Nets, S.A. 22,278 823 0 0 (65) 0 0 23,036 Parque Eólico la Peñuca, S.L. 2,389 872 0 0 0 0 0 3,261 Parque Eólico Magaz, S.L. 0 (157) 4,390 0 0 0 0 4,233 Telstar, S.A. 6,807 100 0 0 0 0 0 6,907 Other holdings 17,237 (1,798) 568 0 (127) 0 (1,351) 14,529
160 Total 272,521 57,473 179,235 0 (8,599) 93,505 (6,169)587,966
(a) Euro equivalent. (b) Formerly known as Dexia Sabadell Banco Local, S.A. (c) Formerly known as Solduga, S.L. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 161
Changes in goodwill associated with investments in the years to 31 December 2009 and 2008 were as follows:
€'000 Balance at Recognized/ Balance at Recognized/ Balance at 31.12.2007 derecognized 31.12.2008 derecognized 31.12.2009
Adelanta Corporación, S.A. 0 0 0 28,391 28,391 Centro Financiero BHD, S.A. 3,585 0 3,585 0 3,585 Dexia Sabadell, S.A. 3,237 0 3,237 0 3,237 Establecimientos Industriales y Servicios, S.L. 0 0 0 37,443 37,443 Garnova, S.L. 0 27,887 27,887 0 27,887 Intermas Nets, S.A. 15,695 0 15,695 0 15,695 J. Feliu de la Penya, S.L. 0 0 0 2,974 2,974 Parque Eólico Magaz, S.L. 0 3,655 3,655 2,192 5,847 Otros 2,808 230 3,038 (1,544) 1,494
Total 25,325 31,772 57,097 69,456 126,553 Statutory information Statutory
Note 14. Tangible assets
The composition of this item of the consolidated balance sheet at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Cost Depreciation Impairment Net value Cost Depreciation Impairment Net value
Tangible fixed assets 1,563,811 (595,917) (5,185) 962,709 1,649,878 (616,320) (33,689) 999,869 For own use: 1,423,479 (551,601) (5,185) 866,693 1,516,578 (575,022) (33,689) 907,867 Computer and related equipment 207,540 (163,596) 0 43,944 219,192 (181,478) 0 37,714 Furniture, vehicles & other equipment 594,627 (285,009) (2,272) 307,346 601,307 (281,767) (9,795) 309,745 Buildings 568,653 (102,993) (2,913) 462,747 625,203 (111,773) (23,894) 489,536 Building work in progress 29,679 0 0 29,679 40,292 0 0 40,292 Other 22,980 (3) 0 22,977 30,584 (4) 0 30,580 Banco Sabadell Leased out under operating leases 140,332 (44,316) 0 96,016 133,300 (41,298) 0 92,002
Investment property 184,353 (3,411) (3,461) 177,481 82,888 (1,840) 0 81,048 Buildings 180,080 (3,411) (3,461) 173,208 64,212 (1,840) 0 62,372 Rural property, building plots and sites 4,273 0 0 4,273 18,676 0 0 18,676 2009 Annual Report
Total 1,748,164 (599,328) (8,646) 1,140,190 1,732,766 (618,160) (33,689) 1,080,917
161 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 162
Changes in tangible assets in 2009 and 2008 are shown in the following table:
€'000 Furniture & Investment Leased out under Buildings equipment properties operating leases Total
Cost: Balance at 31 December 2007 665,108 755,146 10,504 131,735 1,562,493 Additions 31,882 139,712 77,678 55,472 304,744 Disposals (3,751) (82,703) (1,491) (53,907) (141,852) Changes in basis of consolidation 0 64 0 0 64 Other 2,839 8,281 (3,803) 0 7,317 Balance at 31 December 2008 696,078 820,500 82,888 133,300 1,732,766 Additions 12,796 102,902 114,534 58,031 288,263 Disposals (24,279) (149,549) (122) (33,394) (207,344) Changes in basis of consolidation 0 26,284 2,534 0 28,818 Other (63,281) 2,028 (15,481) (17,605) (94,339) Statutory information Statutory Balance at 31 December 2009 621,314 802,165 184,353 140,332 1,748,164
Accumulated depreciation: Balance at 31 December 2007 103,049 418,742 1,863 38,211 561,865 Additions 9,693 60,101 923 21,674 92,391 Disposals (289) (15,929) (19) (17,940) (34,177) Changes in basis of consolidation 0 21 0 0 21 Other (677) 311 (927) (647) (1,940) Balance at 31 December 2008 111,776 463,246 1,840 41,298 618,160 Additions 9,049 60,119 2,014 21,499 92,681 Disposals (6,205) (76,246) (87) (8,414) (90,952) Changes in basis of consolidation 0 1,288 0 0 1,288 Other (11,622) 196 (356) (10,067) (21,849)
Balance at 31 December 2009 102,998 448,603 3,411 44,316 599,328
Impairment losses Balance at 31 December 2007 3,163 17,000 0 0 20,163 Additions 21,283 0 0 0 21,283 Disposals (370) 0 0 0 (370) Other (182) (7,205) 0 0 (7,387) Banco Sabadell Balance at 31 December 2008 23,894 9,795 0 0 33,689 Additions 945 0 3,462 0 4,407 Disposals (21,211) 0 0 0 (21,211) Other (716) (7,523) 0 0 (8,239) Annual Report 2009 Annual Report Balance at 31 December 2009 2,912 2,272 3,462 0 8,646
Net balance at 31 December 2008 560,408 347,459 81,048 92,002 1,080,917
Net balance at 31 December 2009 515,404 351,290 177,480 96,016 1,140,190
The "other" line item under Land and buildings includes transfers to non-current assets held for sale totalling €51,143,000 at 31 December 2009, net of depreciation; the Investment properties column includes assets transferred to inventories whose value at 31 December 2009 was €14,206,000. The fair value of properties for the group's own use at 31 December 2009 was approximately €1,034,252,000 (approximately €1,243,250,000 in 2008). Fair values of properties have been based on assessed values certified by firms of valuers. In reaching their assessments, valuers used the comparative method for unoccupied and/or own use premises, the income capitalization method for leased properties and the static residual approach for land values. 162 The gross value of own-use tangible assets that remained in use and had been fully depreciated at 31 December 2009 and 2008 amounted to €196,038,000 and €229,221,000 respectively. The net book cost of tangible assets of foreign operations was €39,377,000 at the close of 2009 (€47,424,000 at the close of 2008). In the course of 2009 the Bank entered into sale and leaseback transactions in relation to some of its properties. The gains from these sale and leaseback arrangements totalled €67,463,000 during the year and have been recognized under gains (losses) on derecognition of assets not classified as non-current assets held for sale (see note 32 (h)). Outgoings of €3,729,000 were incurred under the leasing agreements in 2009 and have been recognized in the "premises, fittings and equipment" item of the "other general administrative expenses" category under Administrative expenses (see note 32 (f)). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 163
The present value of the minimum amount of future payments likely to be incurred by the group under operating leases, that is, during the minimum term of the leases (assuming that any available options to renew the lease or purchase the asset are not exercised) stood at €7,422,000 for one-year terms, €25,174,000 for terms from one to five years and €33,784,000 for terms of more than five years. With regard to the "Leased out under operating leases" column of the table, the bulk of the group's operating lease business is carried on by BanSabadell Renting, S.A. and consists of vehicle leasing. Assets comprised within the "Investment properties" column showed an aggregate fair value of €172,020,000 at the end of the year. Rental income from these investment properties and the direct costs associated with these properties, whether giving rise to rental income during the year or not, were not such as to have a significant impact on the consolidated annual accounts. In 1996 Banco de Sabadell, S.A., Banco Herrero, S.A. and Europea de Inversiones y Rentas, S.L. (both now merged into Banco Sabadell) availed themselves of article 5 of Royal Decree Law 7/1996 of 7 June and subsequent legislative provisions to restate their property, plant and equipment in accordance with Royal Decree 2607/1996 of 20 December. The maximum amount to which any asset could be revalued was the professionally assessed market value of the asset. information Statutory Increases in the valuations of property, plant and equipment for these undertakings were as follows:
€'000 Increase in valuation
Banco de Sabadell, S.A. 36,402 Banco Herrero, S.A. (1) 6,353 Europea de Inversiones y Rentas, S.L. (2) 2,254
Total 45,009
(1) Banco Herrero, S.A. was absorbed by Banco de Sabadell, S.A. in 2002. (2) Europea de Inversiones y Rentas, S.L. was absorbed by Banco de Sabadell, S.A. in 2008.
Of the total amount of assets subject to restatement,€543,000 was written off for depreciation during the year 2009 for Banco de Sabadell, S.A. (2008: €666,000 written off for Banco Sabadell, S.A. of which €11,000 related to property formerly owned by the merged company Europea de Inversiones y Rentas). Also included in tangible assets are assets currently on the Bank's balance sheet as a result of a series of mergers
that have seen the incorporation of Solbank SBD, S.A., Banco Herrero, S.A., Banco de Asturias, S.A., BanSabadell Leasing Banco Sabadell EFC, S.A., Solbank Leasing EFC, S.A., BanAsturias Leasing EFC, S.A., Banco Atlántico, S.A., Banco Urquijo, S.A. and Europea de Inversiones y Rentas, S.L. Details of these mergers are provided in legalized accounting records filed with the
Mercantile Registry. 2009 Annual Report
163 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 164
Note 15. Intangible assets
The composition of this item at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Goodwill: 490,930 527,821 Aurica XXI, S.C.R., S.A. 1,128 1,128 Axel Group, S.L. 5,324 5,324 Banco Urquijo 473,837 473,837 BanSabadell Fincom, E.F.C., S.A. 4,923 4,923 Compañía de Electricidad y Cogeneración de Uvero, S.A. 0 1,046 Jerez Solar, S.L. 3,486 0 Sabadell Corporate Finance, S.L. 1,248 0 BanSabadell Profesional, S.L. (2) 984 984 Statutory information Statutory Transatlantic Holding Corporation 0 40,579
Other intangible assets: 179,050 190,715 With finite useful lives: 179,050 190,715 Contractual relations with customers (Banco Urquijo) 32,065 37,966 Deposits from other creditors (Banco Urquijo) 8,101 10,322 Banco Urquijo brand 7,616 8,503 Intangibles - Transatlantic Bank 0 5,469 Private banking business, Miami (1) 25,458 29,945 Computer software purchase costs 104,043 96,845 Other deferred charges 1,767 1,665
Total 669,980 718,536
(1) See note 2. (2) Formerly Tecnocredit, S.A.
Goodwill To measure the goodwill in Banco Urquijo, the cost of the business combination was determined based on the fair value
Banco Sabadell of the assets surrendered, the liabilities incurred, any potential income and cost synergies identified, and the costs directly attributable to the business combination. From a comparison of the cost of the business combination with the net fair value of the assets, liabilities and contingent liabilities of the acquired undertaking, a difference of €473,837,000 arose and was recognized in assets as goodwill. In measuring assets at their fair values, increases in property values Annual Report 2009 Annual Report were recognized for a total of €80,690,000 (€61,410,000 after tax) and intangible assets were identified with a value of €78,587,000 (€54,598,000 after tax). This goodwill was then allocated to the cash-generating units (CGUs) thought likely to benefit from the synergies identified. These were the Private Banking CGU, the Commercial Banking CGU, the Corporate Banking CGU and Other CGUs. Synergies that could not be allocated to any one CGU because of limitations in the historical data available for the acquired undertaking were assigned to all CGUs. In 2009 the goodwill assigned to the Business Banking CGU was reassigned to the Commercial Banking CGU and the newly created Corporate Banking CGU in line with the group's current business model. At the end of 2009 the Bank made an assessment, on a recoverable value basis, to see whether there were any indications of impairment in the goodwill associated with Banco Urquijo. The assessment showed there had been no impairment in the value of the goodwill. The valuation method used was to estimate the present value of future distributable net profits associated with the 164 business carried on by Banco Urquijo over a projection period of 5 years (up to 2014) and to calculate a terminal value based on a nil growth rate in perpetuity. The key variables on which the financial projections were built were: growth in the interest margin (as determined by forecast business volumes and rates of interest), changes in other income and expense items, and capital ratios. These forecasts were based on a recovery in lending growth and declining default and delinquency rates in the latter part of the projection period. To estimate future interest rate movements, in line with recent forecasts of analysts and international financial institutions, it was assumed that the ECB would keep official rates unchanged in the absence of inflationary pressures or until economic recovery began to look sustainable. Money market risk premiums, it was assumed, would remain at the low levels reached since September 2007. To obtain interest spread forecasts for loans and deposits, a fixed minimum spread was assumed. Assumptions for other key components of income and expense included a recovery in fee and commission income and cost increases remaining subdued. Finally, to determine the flows of distributable profit some assumptions about minimum capital ratios were made having regard to Basel II requirements. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 165
The present value of future distributable income flows used to measure value in use was calculated taking the discount rate as the cost of Banco Sabadell's capital (Ke) from the standpoint of a market participant. To do this the Capital Asset Pricing Model (CAPM) was used. In this method, discount rates of between 9.3% and 11.2% were used, depending on the CGU that was being valued. The growth rates used in the projections for lending and deposit-taking were between 1.8% and 10.1% and between 0% and 10.4% respectively, according to the particular analysis being carried out for each CGU. A final accounting for the business combination resulting from the acquisition of Transatlantic Holding Corp. was completed in the course of 2008. This resulted in the goodwill from the acquisition being finally assessed at €91,751,000 and identified intangible assets associated with the transaction amounting to €7,108,000. At the end of 2009 an assessment was carried out to determine whether there were any signs of impairment of this goodwill. An impairment of the goodwill was recognized and the full amount was conservatively written down by €39,208,000 (€51,000,000 in 2008). The said impairment has been recorded in these annual accounts under "Losses due to impairment of other assets - Goodwill and other intangible assets" in the consolidated income statement. The valuation method, the key variables and the projection period that were used were the same as those described information Statutory above in relation to the goodwill assessment carried out for Banco Urquijo. The assumptions used, both in the goodwill assessment for Banco Urquijo and the final valuation of the goodwill for Transatlantic Holding Corp. at 31 December 2009, have been checked and verified by independent appraisers.
Other intangible assets In other intangible assets the main intangibles associated with the purchase of Banco Urquijo were the values of contractual rights under agreements with Banco Urquijo customers for certain products (OEICs, investment and pension funds, credit/debit cards, short-term loans, brokerage and custody services), the values of deposits, and the value of the Banco Urquijo brand. These assets have been valued by the income (discounted cash flow) method, with the multi-period excess earnings technique being used for income from contractual relations and deposits, and the price premium technique to measure the brand value. These intangible items have finite useful lives of 12 years for Private Banking customers, seven years for Commercial Banking customers and five years for other categories. They are amortized over these lives on a straight-line basis in a way similar to that used for tangible assets. The intangibles associated with the 2008 acquisition of the BBVA private banking business in Miami include the value of contractual arrangements arising from customer relationships transferred along with the business and consisting Banco Sabadell mainly of short-term loans and also of deposits. As required by the accounting rules, a final accounting for the business combination resulting from this acquisition was completed in the course of 2009. The final accounting identified and
recognized intangible assets to a value of €29,495,000. 2009 Annual Report Assessments were carried out to determine whether there were indications of impairment in any of these intangibles by comparing the actual performance of intangible-generating variables with the performance assumed in the initial valuation. These variables included possible loss of customers, average balance per customer, average gross income and assigned cost:income ratio. As of 31 December 2009 there was no need to recognize any impairment. On the other hand, the intangible assets identified following the acquisition of Transatlantic Holding Corporation were written down in their entirety at the end of 2009, based on conservative valuation criteria. The "computer software purchase costs" item in the table refers principally to deferred expense related to outsourced IT work and software licence purchases. Work continued throughout the year on programmes to increase the Bank's operating efficiency, with a special focus on themes related to providing information to customers and introducing advanced marketing tools to increase branch productivity and make use of the extra selling capacity freed up as a result of reducing the amount of administrative work to be done by branches. Meanwhile, a steady stream of enhancements was being made to the Bank's risk monitoring and 165 recovery management systems, helping to improve loan delinquency rates; the focus on developing channels was strengthened, cash machines were upgraded, the group's web content was enriched and the new BS Móvil site launched; and the Trade project, which will totally revamp our Treasury Desk, was started. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 166
Changes in goodwill in the years 2009 and 2008 were as follows:
€'000 Goodwill Impairment Total
Balance at 31 December 2007 570,454 0 570,454
Additions 5,907 (51,000) (45,093) Disposals and write-offs 0 0 0 Other 2,460 0 2,460
Balance at 31 December 2008 578,821 (51,000) 527,821
Additions 4,734 (39,208) (34,474) Disposals and write-offs 0 0 0 Other (1,371) (1,046) (2,417)
Balance at 31 December 2009 582,184 (91,254) 490,930 Statutory information Statutory
Changes in other intangible assets in 2009 and 2008 were as follows:
€'000 Cost Amortization Impairment Total
Balance at 31 December 2007 364,939 (209,977) (9,624) 145,338
Additions/reductions due to changes in basis of consolidation 47 (10) 0 37 Additions 95,373 (40,671) (4,265) 50,437 Disposals and write-offs (20,879) 14,729 0 (6,150) Other 991 62 0 1,053 Balance at 31 December 2008 440,471 (235,867) (13,889) 190,715
Additions/reductions due to changes in basis of consolidation 0 0 0 0 Additions 49,015 (50,049) (4,434) (5,468) Disposals and write-offs (33,189) 28,600 0 (4,589) Other (15,219) (278) 13,889 (1,608) Balance at 31 December 2009 441,078 (257,594) (4,434) 179,050 Banco Sabadell
The gross value of other intangible assets that were still in use and had been fully amortized at 31 December 2009 and 2008 totalled €161,587,000 and €182,272,000 respectively. Annual Report 2009 Annual Report
166 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 167
Note 16. Other assets
The composition of other assets at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Inventories 1,330,844 776,469 Other 89,861 144,542
Total 1,420,705 921,011
Changes in inventories in 2009 and 2008 were as follows:
€'000 Real estate information Statutory Land developments Other Total
Balance at 31 December 2007 0 0 2,522 2,522
Additions 693,355 136,330 2,629 832,314 Reductions and write-offs 0 0 (396) (396) Impairment (52,297) (5,674) 0 (57,971) Balance at 31 December 2008 641,058 130,656 4,755 776,469
Additions 652,389 107,293 135 759,817 Reductions and write-offs (1,681) (37,756) (272) (39,709) Transfers 39,295 (24,800) 0 14,495 Impairment (165,261) (14,967) 0 (180,228) Balance at 31 December 2009 1,165,800 160,426 4,618 1,330,844
The fair value of inventories was €1,386,000,000 at 31 December 2009 (€784,000,000 at 31 December 2008). At 31 December 2009 the total value of inventories subject to a charge or mortgage was €9,017,000. Banco Sabadell
Note 17. Deposits from credit institutions 2009 Annual Report
Deposits from credit institutions, a liability item on the consolidated balance sheet, are analysed as follows for the years 2009 and 2008:
€'000 2009 2008
Analysis by heading: Financial liabilities at amortized cost 8,512,365 4,795,465
Total 8,512,365 4,795,465
Analysis by type: Time deposits 4,557,791 3,153,617 Repurchase agreements 3,710,921 1,407,411 167 Other accounts 220,340 190,630 Valuation adjustments 23,313 43,807
Total 8,512,365 4,795,465
Analysis by currency: Euro denominated 8,046,866 4,305,441 Foreign currency denominated 465,499 490,024
Total 8,512,365 4,795,465
Average annual rates of interest payable on deposits from credit institutions for the years 2009 and 2008 were 2.13% and 4.35% respectively. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 168
Note 18. Deposits from other creditors
The deposits from other creditors reported on the consolidated balance sheet at 31 December 2009 and 2008 can be analysed as follows:
€'000 2009 2008
Analysis by heading: Financial liabilities at amortized cost 39,130,722 39,199,242
Total 39,130,722 39,199,242
Analysis by type: Demand deposits 14,981,353 14,883,843 Time deposits 22,149,882 21,250,307 Statutory information Statutory Repurchase agreements 1,723,792 2,757,162 Valuation adjustments 275,695 307,930
Total 39,130,722 39,199,242
Analysis by sector: General government 1,287,692 1,040,859 Resident sector 34,175,608 34,349,394 Non-resident sector 3,391,727 3,501,059 Valuation adjustments 275,695 307,930
Total 39,130,722 39,199,242
Analysis by currency: Euro denominated 36,849,611 36,962,127 Foreign currency denominated 2,281,111 2,237,115
Total 39,130,722 39,199,242
Average annual rates of interest payable on deposits from other creditors for the years 2009 and 2008 were 2.05% and 3.33% respectively. Banco Sabadell Annual Report 2009 Annual Report
168 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 169
Note 19. Debt certificates including bonds
Details of issues and buybacks/redemptions of debt securities by the group from 31 December 2008 to 31 December 2009 are given in the table below together with comparative information for the previous year.
€'000 31/12/2009 Opening (+/-) Exchange Closing balance (-) Buybacks/ and other balance 31/12/2008 (+) Issues redemptions movements 31/12/2009
Debt securities issued in an EU 19,796,362 5,507,019 (5,286,998) 30,113 20,046,496 Member State and requiring the registration of a prospectus
Debt securities issued in an EU 748,905 8,296,133 (6,888,694) 6,882 2,163,226 information Statutory Member State and not requiring the registration of a prospectus
Debt securities issued in a non-EU 1,478,993 99,566 (934,013) (41,821) 602,725 Member State
Total 22,024,260 13,902,718 (13,109,705) (4,826) 22,812,447
€'000 31/12/2008 Opening (+/-) Exchange Closing balance (-) Buybacks/ and other balance 31/12/2007 (+) Issues redemptions movements 31/12/2008
Debt securities issued in an EU 25,656,390 4,793,652 (11,054,331) 400,651 19,796,362 Member State and requiring the registration of a prospectus
Debt securities issued in an EU 0 759,800 0 (10,895) 748,905 Banco Sabadell Member State and not requiring the registration of a prospectus
Debt securities issued in a non-EU 1,383,372 6,250 0 89,371 1,478,993 2009 Annual Report Member State
Total 27,039,762 5,559,702 (11,054,331) 479,127 22,024,260
169 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 170
Details of debt certificates including bonds issued by the group and recorded on the balance sheet at 31 December 2009 and 2008 are given in the table below:
€'000 Date of Type of Rate of interest Maturity Issue Issuer issue security 2009 2008 at 31.12.2009date currency
Banco de Sabadell, S.A. 20.09.2005 Debt securities 1,000,000 1,000,000 EURIBOR 3M + 0.10 20.09.2010 Euro Banco de Sabadell, S.A. 07.07.2006 Debt securities 0 1,500,000 - 07.07.2009 Euro Banco de Sabadell, S.A. 04.10.2006 Debt securities 50,000 50,000 EURIBOR 3M + 0.14 04.10.2016 Euro Banco de Sabadell, S.A. 26.10.2006 Debt securities 1,000,000 1,000,000 EURIBOR 3M + 0.13 26.10.2011 Euro Banco de Sabadell, S.A. 25.04.2007 Fx debt securities 0 934,013 - 23.04.2009 USD Banco de Sabadell, S.A. 25.04.2007 Fx debt securities 485,909 503,079 LIBOR 3M + 0.10 23.04.2010 USD Banco de Sabadell, S.A. 10.03.2008 Structured bonds 8,800 8,800 linked to underlyings 10.03.2011 Euro Banco de Sabadell, S.A. 30.05.2008 Structured bonds 8,900 8,900 linked to underlyings 30.05.2010 Euro Banco de Sabadell, S.A. 29.07.2008 Structured bonds 5,100 5,100 linked to underlyings 29.07.2010 Euro Banco de Sabadell, S.A. 20.04.2009 Debt securities 75,000 0 EURIBOR 3M + 0.35 20.04.2011 Euro Banco de Sabadell, S.A. 22.05.2009 Debt securities 750,000 0 4.38% 22.05.2012 Euro Banco de Sabadell, S.A. 20.11.2009 Debt securities 800,000 0 EURIBOR 3M + 0.80 20.02.2012 Euro Banco de Sabadell, S.A. 28.12.2009 Debt securities 150,000 0 EURIBOR 3M 28.12.2012 Euro Statutory information Statutory Subscribed by group companies - - (22,909) 0 - - -
Banco de Sabadell, S.A. (1) 20.03.2006 Notes 0 324 - Various dates Euro Banco de Sabadell, S.A. (1) 13.03.2007 Notes 0 216,422 - Various dates Euro Banco de Sabadell, S.A. (1) 11.03.2008 Notes 8,195 2,720,652 1.90% - 4.01% Various dates Euro Banco de Sabadell, S.A. (1) 12.03.2009 Notes 2,762,713 0 0.26% - 2.70% Various dates Euro Banco de Sabadell, S.A. (Londonbranch) (1) 25.06.2008 Notes (ECP) 2,167,859 759,800 0.415% - 1.9% Various dates Euro Subscribed by group companies - - (1,492) (19,540) - - -
Banco de Sabadell, S.A. 29.04.2003 Mortgage bonds 1,500,000 1,500,000 4.50% 29.04.2013 Euro Banco de Sabadell, S.A. 26.01.2004 Mortgage bonds 1,200,000 1,200,000 3.75% 26.01.2011 Euro Banco de Sabadell, S.A. 15.06.2005 Mortgage bonds 1,500,000 1,500,000 3.25% 15.06.2015 Euro Banco de Sabadell, S.A. 19.01.2006 Mortgage bonds 1,750,000 1,750,000 3.50% 19.01.2016 Euro Banco de Sabadell, S.A. 10.05.2006 Mortgage bonds 300,000 300,000 4.13% 10.05.2016 Euro Banco de Sabadell, S.A. 16.05.2006 Mortgage bonds 120,000 120,000 4.25% 16.05.2016 Euro Banco de Sabadell, S.A. 24.01.2007 Mortgage bonds 1,500,000 1,500,000 4,25% 24.01.2017 Euro Banco de Sabadell, S.A. 20.06.2007 Mortgage bonds 300,000 300,000 EURIBOR 3M + 0.05 20.06.2017 Euro Banco de Sabadell, S.A. 05.11.2007 Mortgage bonds 0 200,000 - 05.11.2009 Euro Banco de Sabadell, S.A. 16.11.2007 Mortgage bonds 0 200,000 - 16.11.2009 Euro Banco de Sabadell, S.A. 09.05.2008 Mortgage bonds 1,250,000 1,250,000 5.00% 09.05.2010 Euro Banco de Sabadell, S.A. 17.11.2008 Mortgage bonds 0 200,000 - 17.11.2009 Euro Banco de Sabadell, S.A. 29.12.2008 Mortgage bonds 600,200 600,200 4.00% 29.12.2011 Euro Banco de Sabadell, S.A. 17.02.2009 Mortgage bonds 488,500 0 3.50% 17.02.2012 Euro Banco de Sabadell, S.A. 30.04.2009 Mortgage bonds 100,000 0 EURIBOR 3M + 1 08.05.2021 Euro Banco de Sabadell, S.A. 17.07.2009 Mortgage bonds 50,000 0 3.12% 17.07.2012 Euro Banco de Sabadell, S.A. 24.07.2009 Mortgage bonds 200,000 0 EURIBOR 3M + 1.30 31.07.2017 Euro Banco de Sabadell, S.A. 10.09.2009 Mortgage bonds 150,000 0 EURIBOR 3M + 0.90 18.09.2018 Euro Subscribed by group companies - - (3,000) (203,000) - - - Banco Sabadell
BancSabadell d'Andorra, S.A. Various dates Ordinary bonds 116,816 17,250 Various rates Various dates Euro Securitization funds Various dates Ordinary bonds 2,155,218 2,627,346 Various rates Various dates Euro
Valuation and other adjustments - - 286.638 274.914 - - - Annual Report 2009 Annual Report Total 22,812,447 22,024,260
(1) A prospectus for an €8,500 million issue has been filed with the CNMV.
Note 20. Subordinated liabilities
Details of subordinated liabilities issued by the group and recorded on the consolidated balance sheet at 31 December 2009 and 2008 are as follows:
€'000 170 Rate of Maturity/ Date of Amount interest at repayment Issuer issue 2009 2008 31.12.2009 date
Banco Atlántico, S.A. (a) 09.08.2002 30,000 30,000 1.100% 01.10.2010 Banco Atlántico, S.A. (a) 21.08.2003 30,000 30,000 1.260% 11.10.2011 Banco de Sabadell, S.A. 18.02.2004 0 300,000 - 18.11.2009 Banco de Sabadell, S.A. 25.05.2006 1,000,000 1,000,000 1.015% 25.05.2016 Banco de Sabadell, S.A. 20.09.2006 348,150 500,000 5.234% 20.09.2016 Banco de Sabadell, S.A. 24.02.2009 500,000 0 6.500% - Sabadell International Equity Ltd. 30.03.1999 250,000 250,000 2.328% - Subscribed by group companies - (125,800) (27,500) - - Valuation and other adjustments - 7,348 11,187 - -
Total 2,039,698 2,093,687
a) Now merged with Banco de Sabadell, S.A. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 171
Subordinated liabilities rank below the claims of all other unsecured creditors of the group. All issues are denominated in euros. On 29 January 2009 a securities note was filed with Spain's stock market regulator the CNMV in respect of its Series I/2009 preference share issue. The issue was for a total of €500,000,000 and took place in February 2009. The nominal return payable on the issue at 31 December 2009 was 6.5% per annum. On 24 March 2009 Banco de Sabadell, S.A. made a buyback and early redemption offer for a maximum of €250,000,000 on the issue. The buyback price of the preference shares was set at two levels: a price of 42.5% per share for all holders agreeing to take up the offer before 6 April 2009, and a second price of 40% per share for holders agreeing to take up the offer after 6 April and before 21 April 2009. The buyback resulted in positive gains totalling €96,816,000, which have been recorded under Gains or losses on financial assets and liabilities (net) in the consolidated income statement in these annual accounts (see note 32 (c)). Preference shares in the Banco Sabadell Series I/2006 issue remaining in circulation after the buyback amounted to €348,150,000. At 31 December 2009 the rate of interest payable on the Sabadell International Equity Ltd. preference share issue was 2.328% (4,753% at 31 December 2008). information Statutory
Note 21. Other financial liabilities
The "other financial liabilities" item of the consolidated balance sheet at 31 December 2009 and 2008 is analysed below.
€'000 2009 2008
Analysis by heading: Financial liabilities at amortized cost 1,397,664 1,309,541
Total 1,397,664 1,309,541
Analysis by type: Banco Sabadell Obligations payable 114,963 285,983 Collateral received 558,301 326,954 Clearing houses 19,773 34,991
Tax collection accounts 146,699 145,642 2009 Annual Report Other financial liabilities 557,928 515,971
Total 1,397,664 1,309,541
Analysis by currency: Euro denominated 1,365,912 1,270,525 Foreign currency denominated 31,752 39,016
Total 1,397,664 1,309,541
Note 22. Liabilities under insurance contracts 171
The balances for this heading at 31 December 2009 and 2008 are analysed below:
€'000 2009 2008
Technical reserves for life insurance where the investment risk is borne by policyholders 182,166 161,733 Liabilities due to reinsurance and co-insurance 0 30
Total 182,166 161,763 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 172
Note 23. Provisions
The components of this item of the consolidated balance sheet at 31 December 2009 and 2008 were as follows:
€'000 2009 2008
Provisions for pensions and similar obligations 189,583 202,972 Provisions for contingent exposures and commitments 81,183 119,167 Other provisions 42,501 44,765
Total 313,267 366,904
Details of changes in provisions during the years 2009 and 2008 are given in the following table:
€'000 Statutory information Statutory Pensions and Contingent similar exposures & Other obligations commitments provisions Total
Balance at 31 December 2007 262,386 89,020 72,740 424,146
Provisions charged to income statement: 17,342 39,979 1,301 58,622 Personnel expenses 6,004 0 0 6,004 Interest expense and similar charges 11,338 0 0 11,338 Provisioning expenses 0 39,979 1,301 41,280
Releases to income statement 0 (10,214) (29,311) (39,525)
Actuarial gains/losses (3,131) 0 0 (3,131)
Exchange differences 0 384 7 391
Utilizations: (51,420) 0 (1,559) (52,979) Insurance premiums paid (12,538) 0 0 (12,538) Pension payments (38,882) 0 0 (38,882) Other payments 0 0 (1,559) (1,559) Banco Sabadell Other movements (22,205) (2) 1,587 (20,620)
Balance at 31 December 2008 202,972 119,167 44,765 366,904
Annual Report 2009 Annual Report Provisions charged to income statement: 15,066 39,438 1,146 55,650 Personnel expenses 5,565 0 0 5,565 Interest expense and similar charges 9,501 0 0 9,501 Provisioning expenses 0 39,438 1,146 40,584
Releases to income statement 0 (77,243) (2,450) (79,693)
Actuarial gains/losses 1,955 0 0 1,955
Exchange differences 0 (257) (12) (269)
Utilizations: (37,167) 0 (1,821) (38,988) Insurance premiums paid (3,010) 0 0 (3,010) Pension payments (34,157) 0 0 (34,157) Other payments 0 0 (1,821) (1,821)
172 Other movements 6,757 78 873 7,708
Balance at 31 December 2009 189,583 81,183 42,501 313,267
The main provision components are as follows.
• Provisions for pensions and similar obligations: includes provisions to cover post-employment benefits, including pension commitments in respect of employees taking early retirement and similar obligations. • Provisions for contingent exposures: includes all provisions to cover contingent exposures associated with financial guarantees or other contractual commitments. • Other provisions: consists largely of reserve funds assigned by the group to cover certain risks incurred in the normal course of business, including those described in note 33.
Most provisions are long-term in character. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 173
Pensions and similar obligations The balances giving rise to pension liabilities recognized in the group balance sheet are shown below:
€'000 2009 2008 2007 2006 2005
Obligations due to pension commitments 656,430 685,994 738,582 799,493 695,021 Actuarial gains (losses) in scheme assets not recognized in income statement (5,327) (11,745) (717) 12,466 15,224 Fair value of scheme assets (461,520) (471,277) (475,479) (513,471) (433,606)
Net liability recognized on balance sheet 189,583 202,972 262,386 298,488 276,639
The return on the pension scheme for 2009 was 3.54%. Changes in obligations due to pension commitments and in the fair value of pension scheme assets during the years
2009 and 2008 are shown in the following table: information Statutory
€'000 Obligations due Fair value to pension of scheme commitments assets
Balance at 31 December 2007 738,582 475,479
Interest costs 32,449 0 Expected returns 0 21,111 Normal costs in year 6,004 0 Benefit payments (51,969) (13,078) Settlements, reductions and terminations (19,820) (16,593) Employer's contributions 0 12,284 Actuarial gains and losses (4,505) (7,926) Other movements (14,747) 0
Balance at 31 December 2008 685,994 471,277
Interest costs 30,301 0 Banco Sabadell Expected returns 0 20,800 Normal costs in year 5,565 0 Benefit payments (50,673) (16,509)
Settlements, reductions and terminations (27,160) (27,616) 2009 Annual Report Employer's contributions 0 3,010 Actuarial gains and losses 12,414 10,558 Other movements (11) 0
Balance at 31 December 2009 656,430 461,520
Obligations covered by specific assets totalled €656,405,000 (including €49,615,000 in commitments to early retirees) at 31 December 2009, and €685,936,000 (including €66,313,000 for early retirees) at 31 December 2008. The fair value of pension-linked assets reported in the group balance sheet stood at €209,484,000 at 31 December 2009 and €228,019,000 at 31 December 2008. The main categories of scheme assets as a proportion of total scheme assets were as follows:
% 173 2009 2008
Own equity instruments 0.39% 0.47% Other equity instruments 1.94% 1.02% Debt instruments 23.07% 21.22% Mutual funds 0.00% 0.00% Other (Non-linked insurance policies) 74.60% 77.29%
Total 100.00% 100.00% 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 174
The fair value of scheme assets includes the following financial instruments issued by the Bank:
€'000 2009 2008
Equity instruments 1,780 2,228 Debt instruments 0 3,021 Deposits and current accounts 26,865 70,475
Total 28,645 75,724
Estimates of probability-weighted present values at 31 December 2009 of benefits payable over the next ten years are shown below:
€'000
Statutory information Statutory Year Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Probable pension payments 29,009 24,997 21,458 18,012 14,757 12,706 11,166 10,018 9,359 9,011 160,493
Note 24. Fair value of financial assets and liabilities
The fair values of the main balance sheet items valued at amortized cost are shown in the table below. Assets and liabilities stated in the balance sheet at amortized cost have been valued by the discounted future cash flow method using risk-free interest rate curve plus a spread to reflect the credit risk of the different financial instruments being valued. The interest rate curve used in the analysis was derived from the rates quoted for Spanish government bonds from which pure discount factors could be derived to calculate present values that the market would accept as unskewed. The curve is constructed from an equation which adjusts to observed market rates and gives forward interest rates for any intermediate period or maturity. Banco Sabadell
€'000 2009
Annual Report 2009 Annual Report Carrying value Fair value
Assets at amortized cost: Loans and advances to credit institutions 2,544,962 2,553,180 Loans and advances to other debtors 63,232,890 66,856,067
Total assets at amortized cost 65,777,852 69,409,247
€'000 2009 Carrying value Fair value
Liabilities at amortized cost: Deposits from central banks 1,064,909 1,055,706 Deposits from credit institutions 8,512,365 8,429,478 174 Deposits from other creditors 39,130,722 37,498,184 Debt certificates including bonds 22,812,447 22,811,435 Subordinated liabilities 2,039,698 2,185,430 Other financial liabilities 1,397,664 1,397,664
Total liabilities at amortized cost 74,957,805 73,377,897 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 175
Note 25. Foreign currency transactions
Euro equivalent values for different classes of foreign currency-denominated assets and liabilities held by the group at 31 December 2009 and 2008 were as follows:
€'000 2009 2008
Foreign currency assets: Cash and deposits with central banks 139,025 44,458 Loans and advances to credit institutions 151,674 250,279 Debt securities 96,956 83,047 Loans and advances to other debtors 1,939,599 2,008,751 Other assets 288,166 388,609
Total 2,615,420 2,775,144 information Statutory
Foreign currency liabilities: Deposits from central banks 3,040 626 Deposits from credit institutions 465,499 490,024 Deposits from other creditors 2,281,111 2,237,115 Other liabilities 967,186 1,615,590
Total 3,716,836 4,343,355
The group's net position in foreign currency assets and liabilities is covered by transactions consisting of spot and forward currency trades and exchange rate swaps in line with the group's risk management policy (see note 35).
Note 26. Own funds
Changes in own funds in the years 2009 and 2008 were as follows: Banco Sabadell
€'000 Reserves Other Profit/
and share equity Treasury loss for Interim 2009 Annual Report Capital premium instruments shares the year dividend Total
Balance at 31 December 2007 153,002 3,753,530 0 (29,320) 782,335 (158,164) 4,501,383
Appropriation of profits in previous years 0 439,611 0 0 (439,611) 0 0 Interim dividend for 2007 0 0 0 0 (158,164) 158,164 0 Final dividend for 2007 0 0 0 0 (184,560) 0 (184,560) Translation differences and other movements 0 (667) 0 0 0 0 (667) Acquisitions of own equity instruments 0 0 0 (694,598) 0 0 (694,598) Disposals of own equity instruments 0 0 0 525,744 0 0 525,744 Transfers (3,002) (172,507) 0 175,509 0 0 0 Profit for the year 2008 0 0 0 0 673,835 0 673,835 Interim dividend for 2008 0 0 0 0 0 (193,921) (193,921)
Balance at 31 December 2008 150,000 4,019,967 0 (22,665) 673,835 (193,921) 4,627,216 175 Appropriation of profits in previous years 0 335,914 0 0 (335,914) 0 0 Interim dividend for 2008 0 0 0 0 (193,921) 193,921 0 Final dividend for 2008 0 0 0 0 (144,000) 0 (144,000) Translation differences and other movements 0 (301) 0 0 0 0 (301) Acquisitions of own equity instruments 0 0 0 (422,844) 0 0 (422,844) Disposals of own equity instruments 0 11,416 0 307,306 0 0 318,722 Issues of other equity instruments (1) 0 (6,949) 500,000 0 0 0 493,051 Transfers 0 0 0 0 0 0 0 Profit for the year 2009 0 0 0 0 522,489 0 522,489 Interim dividend for 2009 0 0 0 0 0 (168,000) (168,000)
Balance at 31 December 2009 150,000 4,360,047 500,000 (138,203) 522,489 (168,000) 5,226,333
(1) See "Other equity instruments" in this note. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 176
Minimum capital requirement - capital management At 31 December 2009 and 2008, the group's qualifying capital resources were above the required levels both under Bank of Spain rules and under the requirements of the Bank of International Settlements in Basel (BIS). Ongoing management of the group's capital base has ensured that funding has been available to finance growth in conformity with minimum regulatory capital requirements. At 31 December 2009 the group's qualifying capital under the revised BIS framework (known as Basel II) stood at €6,376,726,000. This gives the group a capital surplus of €1,653,875,000, as can be seen from the following table:
Capital management €'000 Change 2009 2008 y.o.y. (%)
Capital 150,000 150,000 0.00
Statutory information Statutory Reserves 4,456,488 4,336,383 2.77 Convertible bonds 500,000 0 0.00 Minority interests 30,612 19,296 58.64 Deductions (613,995) (584,990) 4.96
Core capital 4,523,105 3,920,689 15.37
Core capital ratio (%) 7.66 6.67 Preference shares and deductions 847,808 362,843 133.66
Primary capital 5,370,913 4,283,532 25.39
Tier I capital ratio (%) 9.10 7.28
Secondary capital 1,005,813 1,466,628 (31.42)
Tier II capital ratio (%) 1.70 2.49
Capital base 6,376,726 5,750,160 10.90
Minimum capital requirement 4,722,851 4,704,740 0.38
Banco Sabadell Capital surplus 1,653,875 1,045,420 58.20
BIS Ratio (%) 10.80 9.78 10.43
Risk-weighted assets (RWA) 59,035,638 58,809,250 0.38 Annual Report 2009 Annual Report
Core capital contributed 7.66% towards the BIS ratio and accounted for 71% of qualifying capital resources. This was helped by an increase in core capital from retained profits for the year. The addition of preference share issues to core capital and the deduction of certain items (including investments in financial and insurance undertakings) brings Tier I capital to a total of €5,370,913,000, that is, 84% of qualifying capital resources, giving a Tier I capital ratio of 9.10%. Secondary or Tier II capital provides a further 16% of the BIS ratio and is made up very largely of subordinated debt, valuation adjustments and generic provisions (subject to regulatory limits as to eligibility), less other required deductions.
Share capital With the authority of a resolution of the Annual General Meeting of the company on 27 March 2008, and subject to 176 obtaining all relevant official permissions, on 12 December 2008 a total of 24,013,680 treasury shares held by the Bank were redeemed out of voluntary reserves and €3,001,710, the nominal value of the cancelled shares, was transferred to a capital redemption reserve. The redeemed shares amounted to 1.962 % of the total share capital. The share capital provisions of article 7 of the Bank's articles of association were amended accordingly. The Bank's issued share capital at 31 December 2009 was €150,000,000 divided into 1,200,000,000 registered shares with a nominal value of €0.125 each. The corresponding figure at 31 December 2008 was €150,000,000 divided into 1,200,000,000 registered shares with the same nominal value. All shares are fully paid and are numbered consecutively from 1 to 1,200,000,000, both inclusive. The Bank's shares are quoted on the Madrid, Barcelona and Valencia stock exchanges via the automatic quotation system managed by Sociedad de Bolsas, S.A. None of the other undertakings included in the consolidated accounts are quoted on any stock exchange. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 177
The rights attaching to all equity instruments of the Bank are regulated by the Spanish companies legislation ("Ley de Sociedades Anónimas"). At a General Meeting a shareholder may cast votes in a number that reflects his proportional holding in the share capital, subject to a limit of 10% of the total number of votes. As required by article 23 of Royal Decree 1362/2007 of 19 October, implementing the Securities Market Law (Law 24/1988 of 28 July), the following table gives details of significant shareholdings in Banco Sabadell (i.e. holdings amounting to 3% or more of the share capital or voting rights) at 31 December 2009:
Direct Number Undertaking holding of shares Indirect shareholder
Mayor Vent, S.L. Unipersonal 5.601% 67,209,090 Isak Andic Ermay (1) Jaipur Investment, S.L. 5.258% 63,099,260 Inversiones Hemisferio, S.L. (2) Famol Participaciones, S.L. 5.100% 61,201,000 -- Fundo de Pensoes do Grupo BCP 5.068% 60,821,413 --
(1) Holds 99.99% of Mayor Vent, S.L. Unipersonal. (2) Holds 75% of Jaipur Investment, S.L. information Statutory
Share premium account The balance of the share premium account at 31 December 2009 and 2008 was €1,373,270,000.
Other equity instruments Banco Sabadell carried out an issue of mandatorily convertible bonds, No. 1/2009, for a total of €500,000,000. Payment for the issue took place on 21 July 2009. The bonds have a nominal value of €1000 and were issued at par. The bonds can be exchanged voluntarily for shares of the Bank on 21 July 2010, 2011 and 2012 and are obligatorily exchangeable on 21 July 2013. The reference price of shares in the Bank for conversion purposes was set at €4.982 per share, with a conversion rate - that is, the number of shares of the Bank exchangeable for each bond -- of 200.72 shares. The nominal return on the issue from the time of payment to the first anniversary of the issue will, if so decided -- otherwise the conversion period will start to run -- be 7% per annum and from that date until maturity -- again, if so decided -- a nominal rate of three month EURIBOR plus 4.5% per annum. The bonds will rank as follows: (i) behind all unsecured and subordinated creditors of Banco de Sabadell, S.A.; (ii) behind all preference shares and similar securities issued now or to be issued in future by the Bank; (iii) ahead of the ordinary shares of Sabadell, S.A.
The mandatorily convertible subordinated bonds are listed on the Madrid, Barcelona y Valencia securities markets. The Banco Sabadell bond issue is directed principally at retail investors resident in Spain although they are also available to qualified investors, whether resident or non-resident. Annual Report 2009 Annual Report
Reserves
€'000 2009 2008
Restricted reserves: 330,759 351,519 Statutory reserve 30,600 30,600 Reserve for own shares pledged as security 290,514 311,274 Reserve for investment in Canary Islands 6,530 6,530 Share redenomination reserve 113 113 Capital redemption reserve 3,002 3,002
Available reserves 2,509,807 2,187,877 177 Reserves of equity-accounted undertakings 146,211 107,301
Total 2,986,777 2,646,697
The contributions made by consolidated undertakings to group reserves are set out in the Annex. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 178
Transactions in own equity instruments The Bank's holdings of shares in the parent company showed the following evolution during the year:
Nominal value Average share Proportion No. of shares (€'000) price (€) of total (%)
Balance at 31 December 2007 3,814,496 476,81 7.69 0.31
Purchases 119,847,964 14,981,00 5.80 9.99 Sales 95,198,847 11,899,86 5.79 7.93
Balance at 31 December 2008 (1) 4,449,933 556,24 5.09 0.36
Purchases 101,049,220 12,631,15 4.18 8.42 Sales 69,695,210 8,711,90 4.47 5.81
Balance at 31 December 2009 35,803,943 4,475,49 4.38 2.98
Statutory information Statutory (1) The proportions of the Bank's total share capital represented by treasury share purchases and sales and by the final balance for the year take account of the change in the Bank's share capital following a redemption of 24,013,680 shares with a nominal value of €3,002,000, recorded in the Mercantile Registry on 12 December 2008.
Net gains and losses arising on transactions in the Bank's own equity instruments have been included in Own funds -- Reserves under Equity in the consolidated balance sheet. At the close of the year a total of 74,971,231 shares of the Bank with a nominal value of €9,371,000 were pledged as security (64,180,112 shares with a nominal value of €8,023,000 at 31 December 2008).
Note 27. Valuation adjustments
Valuation adjustments for the group at 31 December 2009 and 2008 are analysed below:
€'000
Banco Sabadell 2009 2008
Available-for-sale financial assets 56,734 (133,451) Debt securities 55,110 40,853
Annual Report 2009 Annual Report Other equity instruments 1,624 (174,304) Cash flow hedges (12,055) (32,991) Exchange differences (2,154) 158 Entities accounted for by the equity method 140 (26,930) Other valuation adjustments 991 0
Total 43,656 (193,214)
The income tax effects of valuation adjustments for the different items of recognized income and expense at 31 December 2009 and 2008 were:
€'000 2009 2008 Gross Tax Net Gross Tax Net 178 amount effect amount amount effect amount Available-for-sale financial assets 275,444 (82,632) 192,812 (327,718) 98,317 (229,401) Debt securities 24,119 (7,236) 16,883 45,534 (13,660) 31,874 Other equity instruments 251,325 (75,396) 175,929 (373,252) 111,977 (261,275) Cash flow hedges 29,909 (8,973) 20,936 (41,638) 12,491 (29,147) Exchange differences (3,310) 991 (2,319) 3,895 (1,169) 2,726 Entities accounted for by the equity method 27,070 0 27,070 (24,227) 0 (24,227) Other recognized income and expense 1,417 (424) 993 0 0 0
Total 330,530 (91,038) 239,492 (365,461) 109,639 (280,049) 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 179
Note 28. Minority interests
The undertakings in which minority interests are held are as follows:
€'000 2009 2008 % Minority Attributable % Minority Attributable interests Amount profit/loss interests Amount profit/loss
BancSabadell d'Andorra, S.A. 49.03% 18,219 3,461 49.03% 13,207 1,961 Sabadell BS Select Fund of Hedge Funds SICAV (Luxembourg) 39.84% 8,633 655 - 0 0 Compañía de Electricidad y Cogeneración de Uvero, S.A. 27.08% 462 (308) 27.08% 795 70 Other undertakings - 67 12 - 61 (10) Statutory information Statutory Total - 27,381 3,820 - 14,063 2,021
Changes in the "minority interests" heading in 2009 and 2008 were as follows:
€'000 Balance at Changes Balance at Changes Balance at 31.12.2007 in 2008 31.12.2008 in 2009 31.12.2009
Valuation adjustments (1,439) (4,964) (6,403) 2,622 (3,781) Other movements 22,689 (2,223) 20,466 10,696 31,162 Changes in proportional shareholdings and other movements 14,505 (4,244) 10,261 6,876 17,137 Profit for the year 8,184 2,021 10,205 3,820 14,025
Total 21,250 (7,187) 14,063 13,318 27,381 Banco Sabadell Note 29. Contingent exposures
The breakdown of this item is as follows: Annual Report 2009 Annual Report
€'000 2009 2008
Financial guarantees 7,657,672 7,680,160 Other contingent exposures 864 600
Total 7,658,536 7,680,760
Doubtful contingent exposures The movement in the doubtful contingent exposures account was as follows:
€'000 Balance at 31 December 2007 6,122 179 Additions 78,629 Write-downs and recoveries (17,329)
Balance at 31 December 2008 67,422
Additions 86,769 Write-downs and recoveries (99,084)
Balance at 31 December 2009 55,107 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 180
The distribution of contingent exposures by geographical region at 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Spain 54,931 67,230 Other European Union 0 4 Latin America 176 188 Rest of world 0 0
Total 55,107 67,422
Provisions for credit risk in respect of doubtful contingent exposures were as follows:
€'000
Statutory information Statutory 2009 2008
Exposures covered by specific provisions: 51,465 40,306 Provisions for credit risk 51,038 39,409 Provisions for country risk 427 897
Exposures covered by generic provisions 29,718 78,861
Total 81,183 119,167
Changes in these provisions, which are recorded in provisions on the liability side of the balance sheet, are shown in note 23.
Note 30. Contingent commitments
Banco Sabadell The composition of this item at 31 December 2009 and 2008 was as follows:
€'000 2009 2008 Annual Report 2009 Annual Report Drawable by third parties 15,085,197 17,411,155 Credit institutions 83,210 144,139 General government 1,551,482 1,572,094 Other resident sectors 12,908,236 15,097,647 Non-resident sector 542,269 597,275 Regular way financial asset purchase contracts 693,489 60,018 Other contingent commitments 1,241,052 1,409,802
Total 17,019,738 18,880,975
Among the more significant components of the "drawable by third parties" item at 31 December 2009 were commitments totalling €3,631,615,000 subject to debtor creditworthiness assessments in without-recourse factoring operations (€3,982,507,000 at 31 December 2008), and mortgage loan commitments amounting to €1,350,987,000
180 (€1,828,965,000 at 31 December 2008). The "other contingent commitments" category consisted mainly of guarantees of other types in line with the group's risk management policy. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 181
Note 31. Off-balance sheet customer funds
Off-balance sheet customer funds under the group's management and funds sold but not managed by the group were of the following types:
€'000 2009 2008
Under management by the group: 9,001,867 9,520,977 Investment companies and mutual funds 8,238,857 8,547,755 Asset management 763,010 973,222
Mutual funds sold but not managed by the group 911,808 888,287
Pension funds (1) 2,787,969 2,440,533 Statutory information Statutory Insurance (1) 5,380,398 4,086,151
Financial instruments deposited by third parties 36,657,426 36,502,983
Total 54,739,468 53,438,931
(1) The amounts shown for pension funds and insurance relate to pension funds being sold by the group.
Net fees and commissions on these products are reported in the income statement under fee and commission income and amounted to €130,197,000 in 2009 (€162,530,000 in 2008).
Note 32. Income statement
Some salient aspects of the group's income statement for the years 2009 and 2008 are highlighted in the tables that
follow. Banco Sabadell
a) Interest and similar income/change The components of net interest income and expense were as follows: Annual Report 2009 Annual Report
€'000 2009 2008
Interest and similar income: Cash and balances with central banks 14,032 37,044 Loans and advances to credit institutions 28,487 172,093 Loans and advances to other debtors 2,835,615 3,865,712 Debt securities 219,319 200,189 Doubtful assets 34,556 13,602 Adjustments to income as a result of hedging transactions (4,977) 57,789 Income from insurance contracts linked to pensions 30,956 33,179 Other interest 8,245 24,931
Total 3,166,233 4,404,539 181 Interest expense and similar charges: Deposits from central banks (34,694) (59,094) Deposits from credit institutions (127,224) (205,335) Deposits from other creditors (830,717) (1,212,643) Debt certificates including bonds (652,246) (1,142,749) Subordinated liabilities (88,614) (109,936) Adjustments to income as a result of hedging transactions 201,373 (185,550) Interest cost of pension funds (30,301) (32,449) Other interest (3,163) (3,939)
Total (1,565,586) (2,951,695) 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 182
b) Fee and commission income Fee and commission income from trading and for services was composed of the following:
€'000 2009 2008
On contingent exposures 73,037 73,121 On contingent commitments 14,121 12,702 Foreign currency and banknote exchange 1,211 1,343 Collection and payment services 230,964 265,257 Securities-related services 43,464 52,986 Distribution of non-bank financial products 116,889 141,973 Other fees and commissions 82,561 62,189
Total 562,247 609,571
Statutory information Statutory Fee and commission expenses were as follows:
€'000 2009 2008
Fees and commissions payable to correspondent and other banks (40,290) (44,320) Other fee and commission expense (10,793) (7,510)
Total (51,083) (51,830)
c) Gains or losses on financial assets and liabilities (net) The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Held for trading 39,241 43,142 Financial instruments not measured at fair value through profit or loss 199,303 32,042 Other 9,606 (7,311) Banco Sabadell
Total 248,150 67,873
Analysis by type of financial instrument:
Annual Report 2009 Annual Report Net gain (loss) on debt securities 94,802 25,467 Net gain (loss) on equity instruments 27,133 13,039 Net gain (loss) on derivatives contracts 29,399 28,472 Other net gain (loss) (note 20) 96,816 895
Total 248,150 67,873
In 2009 the group sold off a number of debt securities from its portfolio of available-for-sale financial assets, recording gains amounting to €85,999,000 at 31 December 2009.
d) Other operating income The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was as follows:
182 €'000 2009 2008
Income from insurance and reinsurance contracts written 59,913 228,349 Sales and income from non-financial services 17,028 25,084 Other operating income 47,239 61,326 Income from exploitation of investment property 9,342 4,713 Insurance settlements 509 396 Other income 37,388 56,217
Total 124,180 314,759
Income from insurance and reinsurance contracts written includes issued premiums sold by the insurer Assegurances Segur Vida, S.A. (in which the group holds an indirect interest through BancSabadell d'Andorra, S.A.). The costs of these operations are shown in note 32 (e). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 183
Income from property rentals was accounted for mainly by Solvia Development, S.L., Banco de Sabadell, S.A. and Solvia Properties, S.L. which reported rental income of €3,877,000, €2,543,000 and €1,972,000 respectively. The figure shown for “other income” consists largely of the income of non-financial group undertakings.
e) Other operating expenses The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was as follows:
€'000 2009 2008
Expenses on insurance and reinsurance contracts written (59,818) (228,242) Change in inventories (2,333) 34 Other operating expenses (52,695) (60,191) Operating expenses of investment property (54) (29) Statutory information Statutory Payments to deposit guarantee funds (18,791) (17,001) Other expenses (33,850) (43,161)
Total (114,846) (288,399)
Expenses from insurance and reinsurance contracts written arose mainly from provisions in respect of insurance policies and incurred benefit payments for the insurer Assegurances Segur Vida, S.A. (in which the group holds an indirect interest through BancSabadell d'Andorra, S.A.). The income from these operations is shown in note 32 (d). The operating expenses of investment property were attributable to Banco Sabadell, S.A. The figure shown under "contribution to deposit guarantee funds" is made up largely of contributions for Banco de Sabadell, S.A. and Banco Urquijo Sabadell Banca Privada, S.A. amounting to €17,115,000 and €700,000 respectively in 2009 (€16,156,000 and €790,000 in 2008). The "other expenses" category consists, for the most part, of costs to sell items for undertakings of a non-financial nature.
f) Administrative expenses
This heading of the income statement includes expenses incurred by the Bank in respect of personnel costs and other Banco Sabadell general administrative expenses.
Personnel expenses Annual Report 2009 Annual Report The personnel expenses shown in the consolidated income statement for the years to 31 December 2009 and 2008 are as follows:
€'000 2009 2008
Salaries and bonuses of current employees (475,334) (479,521) Social security contributions (99,461) (100,844) Provisions for pension schemes (25,488) (16,386) Other staff-related costs (115,040) (54,389)
Total (715,323) (651,140)
The number of staff employed by all group undertakings in 2009 averaged 9,625, of whom 5,199 were men and 4,426 were women (10,122 staff, of whom 5,559 were men and 4,563 were women in 2008). 183 The gender and category split of group employees at 31 December 2009 and 2008 was as follows:
Number of employees 2009 2008 Men Women Men Women
Technical/specialist 4,095 2,914 4,191 2,756 Administrative 1,003 1,454 1,245 1,737
Total 5,098 4,368 5,436 4,493 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 184
The Annual General Meeting of 29 March 2007 approved a share-based incentive scheme designed to achieve the highest levels of motivation and commitment among senior staff members in the group. Under the scheme, a certain number of stock appreciation rights (SAR) were given to employees who, when the rights expire, become entitled to receive shares in the Bank equal in value to the amount by which Banco Sabadell shares appreciate over a maximum period of three years and three months, with an end date of 31 June 2010. At the time the SARs were awarded, to meet the resulting commitment the Bank entered into hedging arrangements with financial institutions outside the group. These contracts have economic effects that act to offset the commitment undertaken by the Bank. The premium paid for the hedge (€36,500,000) was considered as the fair value of services received during the 3-year duration of the scheme. Personnel expenses associated with the share-based incentive scheme have been recognized totalling €11,000,000 for 2009 and €11,000,000 for 2008 (see note 1 (p)). The changes in the value of SARs awarded under the share-based incentive scheme are as follows:
Statutory information Statutory €'000 2009 2008
Existing at beginning of year 20,450 19,958 Grants 0 2,000 Cancellations (1,248) (1,508) Existing at end of year 19,202 20,450
Total 19,202 20,450
The exercise price for all the SARs is €7.95, with the settlement amount being the positive difference, if any, between the quoted share price at the end of the scheme and the exercise price.
Other general administrative expenses This includes all other administrative expenses incurred during the year.
€'000
Banco Sabadell 2009 2008
Premises, fittings and equipment (80,492) (76,947) IT and systems (57,630) (60,197) Communications (21,728) (22,868) Annual Report 2009 Annual Report Advertising and promotion (21,068) (32,066) Taxes and local rates (49,298) (53,021) Other expenses (91,284) (82,931)
Total (321,500) (328,030)
A total of €794,000 in fees was paid to PricewaterhouseCoopers Auditores, S.L. for auditing services in Spain in the year 2009 (€720,000 in 2008), plus a further €386,000 for services relating to foreign branches and subsidiaries in 2009 (€361,000 in 2008). Fees totalling €160,000 were paid to other auditors for auditing services in Spain in 2009 (€269,000 in 2008), plus another €139,000 for services relating to foreign branches and subsidiaries in 2009 (€170,000 in 2008). The fees paid to PricewaterhouseCoopers Auditores, S.L. and other firms operating under the PricewaterhouseCoopers Auditores, S.L. name for tax advisory services in the year 2009 was €33,000, while fee payments to these firms for other 184 services amounted to €475,000. Fees for these services in 2008 totalled €26,000 and €138,000 respectively. Fees paid to other auditors for other services amounted to €1,113,000 in 2009 (€1,584,000 in 2008). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 185
g) Impairment losses (net) The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was as follows :
€'000 2009 2008
Loans and receivables (225,521) (570,896) Other financial instruments not measured at fair value through profit or loss (419,035) (165,912) Available-for-sale financial assets (419,035) (165,912) Debt securities (16,277) (3,227) Other equity instruments (note 6) (402,758) (162,685)
Total (644,556) (736,808)
h) Gains (losses) on derecognition of assets not classified as non-current assets held for sale information Statutory The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was as follows :
€'000 2009 2008
Gains 92,950 30,965 On disposal of tangible assets 73,382 12,385 On disposal of equity investments 19,568 18,580
Losses (9,375) (6,032) On disposal of tangible assets (9,131) (5,669) On disposal of equity investments (244) (363)
Total 83,575 24,933
A major component of "gains (losses) on disposal of tangible assets" consists of gains from sale and leaseback
transactions entered into in the course of 2009 (see note 14). Banco Sabadell
i) Profit or loss from discontinued operations (net)
The composition of this item of the consolidated income statement for the years 2009 and 2008 was as follows: 2009 Annual Report
€'000 2009 2008
Interest and similar income 0 47,264 Interest expense and similar charges 0 20,041 Fee and commission income 0 (3,016) Fee and commission expense 0 101 Gains or losses on financial assets and liabilities (net) 0 (1,075) Other operating income 0 629,332 Other operating expenses 0 (666,853) Administrative expenses 0 (4,142) Depreciation and amortization 0 (584) Provisioning expense (net) 0 (34,098) Gains (losses) on non-current assets held for sale not classified as discontinued operations 0 624,500 185 Income tax 0 (183,104)
Total 0 428,366
The profit from discontinued operations in 2008 relates to the partial disposal of the group's insurance business during the year. The basic earnings per share associated with these operations in 2008 were €0.36. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 186
The cash flows generated by discontinued operations in the years 2009 and 2008 were as follows:
€'000 2009 2008
Contribution to group results 0 428,366
Adjustment to profit or loss: 0 (413,909) Depreciation/amortization of assets (+) 0 1,168 Impairment losses (net) (+/-) 0 0 Provisioning expense (net) (+/-) 0 0 Gains/losses on disposal of tangible assets (+/-) 0 (605,004) Taxes (+/-) 0 189,927 Other non-monetary items (+/-) 0 0
Adjusted profit or loss 0 14,457
Statutory information Statutory Net increase/decrease in operating assets 0 287,463
Total net cash flows from operating activities 0 301,920
Total net cash flows from investing activities 0 598,865
Total net cash flows from financing activities 0 1,665
Net increase/decrease in cash or cash equivalents 0 902,450
Note 33. Taxation (income tax)
Undertakings treated as consolidated for tax purposes Banco de Sabadell, S.A. is the parent company of a group treated as consolidated for tax purposes which includes all Spanish-domiciled group undertakings that qualify as dependent companies under Spanish regulations on the taxation of
Banco Sabadell the consolidated income of corporate groups. Undertakings treated as part of the group for tax purposes are shown in the Annex. All other group companies submit individual tax returns in accordance with the applicable tax regulations. Annual Report 2009 Annual Report Reconciliation The reconciliation of the difference between the accounting results for the years 2009 and 2008 and the assessed income for corporation tax purposes is as follows:
€'000 2009 2008
Profit before tax 571,346 259,813 Increases in taxable income 410,756 415,325 Reductions in taxable income (493,873) (237,410)
Assessed income for tax purposes 488,229 437,728
Tax (at 30%) 146,469 131,318
186 Double taxation, training and other allowances (25,704) (28,718)
Net tax payable 120,765 102,600
Tax due to timing differences (net) (9,375) (51,132) Adjustments on recognition of reinvestment allowance to be deducted (61,000) (30,600) Other adjustments (net) (5,353) (8,545)
Income tax 45,037 12,323
As a result of the strategic alliance (see note 2) that led to the sale of 50% of the share capital of the group subsidiaries BanSabadell Vida, S.A. de Seguros y Reaseguros, BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros and BanSabadell Pensiones, Entidad Gestora de Fondos de Pensiones, S.A., a total of €189,927,000 was recorded under profit or loss from discontinued operations for the year 2008 in respect of the tax charge associated with the sale. The total tax charge payable at 31 December 2008 in relation to the sale was €183,104,000. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 187
As explained in note 3 to these annual accounts, the Board of Directors has recommended an allocation of €318,000 to the Reserve for investment in the Canary Islands, for subsequent confirmation by the Annual General Meeting. In 2009 the reserve was wholly made up of investments made during the year in various items of fixed assets classifiable as plant and equipment.
Taxable income - increases and reductions The increases and reductions in taxable income shown in the table above are analysed in the following table on the basis of whether they arose from temporary or permanent differences.
€'000 2009 2008
Permanent differences 5,295 59,230 Temporary differences arising in the current year 299,355 343,733
Temporary differences arising in earlier years 106,106 12,362 information Statutory
Increases 410,756 415,325
Permanent differences (119,662) (51,755) Temporary differences arising in the current year (173) (30,640) Temporary differences arising in earlier years (374,038) (155,015)
Reductions (493,873) (237,410)
Tax assets - deferred This caption shows the amount reclaimable from the Spanish Treasury in respect of deferred tax assets. These arise primarily from differences between accounting and tax assessment procedures. The differences relate to non-tax deductible provisions totalling €381,056,000 (€418,764,000 in 2008), transfers into pension funds totalling €78,176,000 (€103,342,000 in 2008) and merger reserves of €147,682,000 (€157,821,000 in 2008).
The changes in deferred tax assets, other than those related to valuation adjustments in equity, in the last two years were: Banco Sabadell
€'000 Balance at 31 December 2007 676,162 Annual Report 2009 Annual Report Intragroup transactions 171 Pension funds (24,956) Non-tax deductible reserve funds 89,826 Merger reserves (10,295) Recognition of loan arrangement fees (2,030) Change in corporation tax rate (13) Change in valuation adjustments (585) Accelerated depreciation (52) Consolidation adjustments (418) Other movements 12,870
Balance at 31 December 2008 740,680
Intragroup transactions 8,251 Pension funds (25,166) Non-tax deductible reserve funds (37,707) 187 Merger reserves (10,139) Recognition of loan arrangement fees (2,015) Change in corporation tax rate (6) Advance tax payments for foreign branches 1,410 Accelerated depreciation (2,075) Consolidation adjustments (42,219) Other movements (4,107)
Balance at 31 December 2009 626,907 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 188
Tax liabilities - deferred This consists of amounts payable to the Spanish Treasury in respect of deferred tax liabilities. These liabilities include deferred tax charges due to accelerated depreciation as permitted by the tax regulations, and reversals of deferred tax totalling €7,410,000 (€8,718,000 in 2008) in relation to mergers, and €21,995,000 (€47,339,000 in 2008) due to consolidation adjustments. Changes in deferred tax liabilities in the last two years were as follows:
€'000 Balance at 31 December 2007 121,681
Intragroup transactions (102) Mergers (230) Deferred tax charges applicable to foreign branches 236 Valuation adjustments 9,924
Statutory information Statutory Transfer of business (2,474) Asset restatements (130) Consolidation adjustments (1,248) Other movements (135)
Balance at 31 December 2008 127,522
Intragroup transactions 3,675 Mergers (1,308) Deferred tax charges applicable to foreign branches (1,457) Valuation adjustments 2,876 Transfer of business (2,474) Asset restatements (130) Consolidation adjustments (25,344) Other movements (574)
Balance at 31 December 2009 102,786
The amount payable to the Spanish Treasury is shown under current tax liabilities. Banco Sabadell Deductions Deductions include €62,572,000 (€77,050,000 in 2008) deducted in accordance with article 42 of the Corporation Tax Law, as amended (“deduction of tax on reinvestment of extraordinary profits”), in respect of profits amounting to Annual Report 2009 Annual Report €516,408,000 (€487,901,000 in 2008) reinvested by undertakings forming part of the group for tax purposes.
Tax audits In June 2008 the Tax Inspectorate commenced tax audits of Banco de Sabadell, S.A. in respect of corporation tax, value added tax, income tax to be withheld and paid on earned income from employment, professional activities and investment income and in respect of the tax on non-residents, where not time-expired, for the years 2003 to 2005. The audits were completed in 2009 so far as the income tax on earned income from employment and professional activities and investment income and the tax on non-residents were concerned. The audit reports were confirmed, agreed and signed by the Bank, no outstanding tax having been identified. So far as the audit for corporation tax is concerned, the Bank has accepted the audit report for the year 2004, which shows a final assessed tax charge of €5,177,000. A final decision is awaited from the Tax Inspectorate on draft assessments contained in audit reports for the years 2003, 2004 y 2005, which had been contested by the Bank. 188 With regard to the audit for value added tax, an audit report has been drawn up for Banco de Sabadell, S.A. and an appeal has been lodged by the Bank. A final decision from the Tax Inspectorate is awaited on the draft assessment contained in the report. As a result of previous interventions by the Tax Inspectorate, a number of audit reports have been disputed by the group and by entities acquired by the Bank and subsequently absorbed. Final assessments of the outstanding tax have been made for a total of €30,149,000. All these assessments have been contested. The Bank has, in any event, made suitable provision for any contingencies that could arise in relation to these tax assessments. Tax liabilities of a contingent nature could arise as a result of different possible interpretations of the tax rules applicable to certain types of transaction within the banking industry. However, in the opinion of the Bank and its independent advisors, the possibility of such liabilities arising is remote, and if they did arise they would not be such as to have any significant impact on the annual accounts. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 189
All group undertakings are liable to be inspected for any tax which has not been subject to audit and for which the statutory time limit has not expired.
Note 34. Segmental information
Segmentation policy Segmental reporting is organized primarily according to business units, and secondarily according to geography. The business units described below are based on the group organizational structure as it was at the end of the year 2009. For customer-facing businesses (Commercial Banking, Corporate Banking and Banco Urquijo), segmentation is based on the types of customer addressed by those units. Asset Management is a cross selling business that offers specialized products which are sold through the group's branch network. information Statutory
Business unit segmentation Presentation principles and methods: information for each business unit is based on the individual accounting records of each group undertaking, after all consolidation eliminations and adjustments have been made, and on an analytical accounting for income and expense where particular business lines are allocated to one or more corporate entities. The income and expense for each customer can thus be assigned according to the business to which they have been allocated. Each business division is treated as a free-standing operation. Where services are provided by one division to another (distribution of products, services, systems, etc.) inter-unit pricing applies. The impact of this on the group's income statement is nil. Each business pays the direct costs allocated to it through generic and analytical accounting, as well as indirect costs attributable to Central Services divisions. Capital is allocated in such a way that each business has the equivalent of the minimum regulatory capital requirement to cover its risk exposure. This minimum capital requirement is allocated by reference to the supervisory authority for each business (the Bank of Spain for customer-facing businesses and the National Stock Market Commission [CNMV] for Asset Management). Banco Sabadell Annual Report 2009 Annual Report
189 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 190
Key data for each business division are shown in the following table:
a) Segmentation by business unit
Details of profit before tax and other financial data for each business unit for the year 2009 are shown in the table below, along with a reconciliation of the totals shown in the table with those shown in the consolidated group accounts.
€'000 2009 Commercial Corporate Banco Asset Banking Banking Urquijo Management
Interest margin 1,340,226 140,322 26,146 89
Statutory information Statutory Fees and commissions (net) 428,089 40,835 19,633 33,228 Other income 45,551 8,245 4,810 1,462
Gross income 1,813,866 189,402 50,589 34,779
Operating expenses (861,022) (32,919) (36,360) (18,130) Provisioning expense (net) 0 0 923 0 Impairment losses (579,638) (91,642) (1,664) 0 Other gains/losses 0 0 (148) 0
Operating profit or loss 373,206 64,841 13,340 16,649
Profit before tax, by segment 373,206 64,841 13,340 16,649
Ratios (%) ROE 11.0% 6.2% 5.6% 30.5% Cost:income ratio 45.7% 17.2% 61.7% 52.2%
Average total assets (€Mn,) 50,795 9,987 2,130 9,155
Other information: Employees 6,505 95 240 144
Banco Sabadell Branches in Spain 1,172 2 14 -
Profit before tax - reconciliation Consolidated
All Business Units 468,035
Annual Report 2009 Annual Report (+/-) Unallocated profits/losses (*) 311,576 (+/-) Eliminations (inter-segment profits/losses) 0 (+/-) Other profits/losses (*) (208,265) (+/-) Income tax and/or discontinued operations 0 Profit before tax 571,346
(*) This includes exceptional items consisting of profits on buybacks of preference shares and losses due to impairment of assets.
190 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 191
€'000 2008 Commercial Corporate Banco Asset banking banking Urquijo Management
Interest margin 1,260,343 124,569 31,810 2,609
Fees and commissions (net) 462,447 34,850 20,715 40,042 Other income 64,470 9,040 5,748 (1,459) Gross income 1,787,260 168,459 58,273 41,192
Operating expenses (862,596) (37,665) (38,369) (17,509) Provisioning expense (net) 0 0 (167) 0 Impairment losses (462,501) (64,447) (7,209) 0 Other gains/losses 0 (16) (294) 1,401
Operating profit or loss 462,163 66,331 12,234 25,084 Statutory information Statutory Profit before tax, by segment 462,163 66,331 12,234 25,084
Ratios (%) ROE 12.6% 6.8% 3.4% 45.9% Cost: income ratio 46.5% 22.2% 56.4% 42.5% Average total assets (€Mn.) 52,874 9,540 2,278 9,437 Other information: Employees 7,454 110 275 148 Branches in Spain 1,208 2 15 0
Profit before tax - reconciliation Consolidated All Business Units 565,812 (+/-) Unallocated profits/losses (294,384) (+/-) Eliminations (inter-segment profits/losses) 0 (+/-) Other profits/losses (11,615) (+/-) Income tax and/or discontinued operations 0 Profit before tax 259,813
Average total assets for the group as a whole at 31 December 2009 were €81,408,429,000 compared with Banco Sabadell €79,890,616,000 a year earlier. The ordinary income generated by each business unit in 2009 and 2008 was as follows:
€'000 2009 Annual Report Consolidated Income from customers Intersegmental income Total ordinary income
SEGMENT 31/12/2009 31/12/2008 31/12/2009 31/12/2008 31/12/2009 31/12/2008
Commercial Banking 2,777,361 3,601,594 137,851 145,269 2,915,212 3,746,863 Corporate Banking 333,777 567,205 2,688 3,607 336,465 570,812 Banco Urquijo 52,493 86,653 31,119 48,506 83,612 135,159 Asset Management 84,671 115,951 5,105 6,483 89,776 122,434 (-) Adjustments and eliminations to intersegmental ordinary income 0 0 (51,848) (74,138) (51,848) (74,138)
Total 3,248,302 4,371,403 124,915 129,727 3,373,217 4,501,130
The following table shows the interest margin and the net fee and commission income generated by each business 191 unit in 2009, as a proportion of the total:
Segmentation of interest margin and income from services Loans & advances Deposits from Income from to other debtors other creditors services (*)
Share of av. Share of av. Share of av. Share of av. Share of av. SEGMENT total volume total return total volume total return total volume
Commercial Banking 81.0% 88.2% 87.2% 89.4% 80.8% Corporate Banking 17.2% 10.4% 10.0% 7.8% 7.7% Banco Urquijo 1.7% 1.4% 2.8% 2.8% 3.7% Asset Management 0.0% 0.0% 0.0% 0.0% 7.8% Total 100% 100% 100% 100% 100%
(*) Percentage of the total fee and commission income for each segment. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 192
b) Segmentation by geography The distribution of interest and similar income by geography for the years 2009 and 2008 was as follows:
€'000 Distribution of Interest and similar income by geography
Individual Consolidated 31/12/2009 31/12/2008 31/12/2009 31/12/2008
Domestic market 3,100,487 4,222,564 3,085,696 4,270,482 Export markets: European Union 25,565 46,822 26,509 45,921 OCDE countries 18,197 28,184 33,463 50,301 Other countries 0 0 20,565 37,835
Total 3,144,249 4,297,570 3,166,233 4,404,539 Statutory information Statutory
Note 35. Financial risk management
The main financial risks faced by Banco Sabadell group companies in the course of their operations involving the use of financial instruments are credit risk, market risk and liquidity risk. The group is aware that the accurate and efficient management and control of risk ensures that shareholder value is maximized and that an appropriate degree of solvency is maintained in a context of sustainable growth. With this in view, the management and control of risk has been embodied in a broad framework of principles, policies, procedures and advanced valuation methods, forming an efficient decision-taking structure whose aim is to achieve an optimum balance of return and risk.
Underlying principles The Banco Sabadell group has laid down basic principles for the management and control of risk. These are described in Banco Sabadell the following paragraphs.
• Solvency. Banco Sabadell has opted for a prudent and balanced policy on risk to ensure sustained and profitable
Annual Report 2009 Annual Report business growth in line with the strategic targets set by the group for maximum value creation. It is vital that the structure of limits and thresholds should be able to prevent concentrations of risk from building up in such a way as to compromise a significant proportion of the Bank's capital resources. For this reason, the risk variable is taken into account in decisions at every level and is quantified according to a single measure: economic capital. • Responsibility. The Board of Directors is committed to maintaining processes for the management and control of risk: deciding on policy, setting limits, assigning powers and discretions at different levels of the organization, and approving management models, procedures and techniques of measurement, supervision and control. At the executive level there is a clear separation of functions between risk-originating business units and the functions responsible for managing and controlling risk. • Monitoring and control. The ongoing management of risk is supported by robust control procedures to ensure compliance with specified limits, clearly defined responsibilities for monitoring indicators and predictive alerts, and the use of an advanced risk assessment methodology. 192 Credit risk Credit risk arises from the possibility of one of the parties to a contract for a financial instrument failing to perform the obligations arising from its financial liabilities. Credit risk exposure is subjected to rigorous monitoring and control through regular reviews of borrowers' creditworthiness and their ability to meet their obligations to the group, with exposure limits for each counterparty being adjusted to levels that are deemed to be acceptable. It is also normal practice to mitigate exposure to credit risk by requiring borrowers to provide collateral or other security to the Bank. The group makes provisions to cover against credit risk, both in respect of specific losses actually incurred at the balance sheet date and for losses considered likely in the light of past experience. This is done in such a way as to ensure that losses could not exceed loss provisions even in the event of a major change in economic conditions or in borrower quality. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 193
To maximize the business opportunities provided by each customer and to guarantee an appropriate degree of security, responsibility for monitoring risks is shared between the relationship manager and the risk analyst, who by maintaining effective communication are able to obtain a comprehensive view of each customer's individual circumstances. The relationship manager monitors the business aspect through direct contact with customers and by handling their day-to-day banking, while the risk analyst takes a more system-based approach making use of his specialized knowledge. The Board of Directors delegates powers and discretions to the Risk Control Committee, which then sub-delegates authority at each level. The implementation of authority thresholds on credit approval management systems ensures that powers delegated at each level are linked to the expected loss calculated for each transaction of every business customer on the system. The establishment of advanced methodologies for managing risk exposures – in line with the New Basel Capital Accord (NBCA) and best practice – also benefits the process in ensuring that proactive measures can be taken once a risk has been identified. Of vital importance in this process are risk assessment tools such as credit rating for corporate borrowers and credit scoring for retail customers, as well as indicators that serve as advance alerts in monitoring risk. Recovery of past-due accounts is the responsibility of a specialized function which coordinates initial out-of-court information Statutory negotiations and, where necessary, legal proceedings conducted by the group's legal department or by independent legal advisors, depending on the nature and size of the debt. The outcomes of the recovery process are evaluated to measure the effectiveness of the loss mitigation procedures that are in place. Year-end carrying values of financial assets involving credit risk exposures, analysed by asset type, counterparty type and instrument type, and for domestic and foreign operations, are set out in the table that follows. These values give a good indication of maximum exposure to credit risk since they are based on the maximum indebtedness for each borrower at the close of each year.
€'000 2009 2008 Spanish Foreign Spanish Foreign Credit risk exposure operations operations Total operations operations Total
Cash and deposits with central banks 1,677,173 142,984 1,820,157 2,310,575 46,999 2,357,574 Loans and advances to credit institutions 1,575,226 193,581 1,768,807 1,453,826 270,158 1,723,984 Doubtful assets 287 406 693 1,490 560 2,050
Loans and advances to other debtors 62,495,584 2,364,873 64,860,457 62,518,910 2,031,308 64,550,218 Banco Sabadell General government 863,133 41,177 904,310 404,371 28,471 432,842 Doubtful assets 14,091 0 14,091 6,639 0 6,639 Other private sector 61,632,451 2,323,696 63,956,147 62,114,539 2,002,837 64,117,376 Doubtful assets 2,590,627 45,461 2,636,088 1,568,142 52,111 1,620,253 Annual Report 2009 Annual Report Debt securities 6,748,355 202,605 6,950,960 4,939,805 207,633 5,147,438 General government 2,639,835 28,403 2,668,238 2,557,459 11,625 2,569,084 Credit institutions 3,598,235 114,105 3,712,340 1,988,577 139,734 2,128,311 Other private sector 503,847 60,097 563,944 391,952 56,274 448,226 Doubtful assets 6,438 0 6,438 1,817 0 1,817 Trading derivatives 1,112,091 8,342 1,120,433 1,279,674 6,783 1,286,457 Hedging derivatives 668,081 0 668,081 500,644 124 500,768 Contingent exposures 7,427,039 231,497 7,658,536 7,443,427 237,333 7,680,760 Contingent commitments 16,836,968 182,770 17,019,738 18,701,188 179,787 18,880,975
Total 98,540,517 3,326,652 101,867,169 99,148,049 2,980,125 102,128,174
The group also has exposures and commitments to borrowers of a contingent nature. These generally arise from 193 guarantees given by the group or commitments under credit facilities extended to customers for up to a given limit so that they have access to funds when required. These facilities also involve credit exposure and are subject to the same processes of approval, monitoring and control as described above. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 194
An analysis of the group's loans and advances by market segment is given in the following table:
% 2009 2008
Agriculture, livestock and fisheries 11 Industry 20 19 Construction 54 Real estate 11 12 Services and other 38 39 Residential mortgages 22 21 Other loans to individuals 34
Total 100 100
The distribution of gross loans and advances by Spanish region is as follows: Statutory information Statutory
% 2009 2008
Catalonia 53 50 Madrid 19 20 Community of Valencia 7 8 Balearic Islands 3 3 Asturias 6 5 Basque Country 1 3 Castile & León 3 3 Andalucía 8 8
Total 100 100
The values of the credit risk exposures described above have not been reduced by the value of any collateral or other credit enhancement that may have been accepted as security. Such guarantees are in everyday use with the types of financial instrument dealt in by the group. Guarantees normally consist of charges on property, and will in most cases be mortgages on buildings for residential Banco Sabadell use, either completed or under construction. To a lesser degree, the Bank will also accept other types of security such as mortgages on business premises, industrial buildings and the like, or deposits of securities. Another type of security commonly used by the Bank to mitigate credit risk is the aval or third-party guarantee, provided that it is fully satisfied as Annual Report 2009 Annual Report to the solvency of the guarantor. All these risk mitigation techniques are in a form that affords full legal certainty, that is, by framing them in contracts that are legally binding on all parties and can be enforced in all relevant jurisdictions, thus ensuring that the security can be realized at any time. The whole contract process is subject to internal review for legal soundness and legal opinions may be sought from international experts where contracts are drawn up under the laws of a foreign country. Guarantees involving a charge on property are drawn up as public instruments and executed before a notary to be fully valid and effective as against third parties. A public instrument, in the case of a real property mortgage, will then be registered in the appropriate land registry to make its effectiveness in law and vis-à-vis third parties complete. In the case of a chattel mortgage or pledge, the pledged items are generally deposited with the Bank. Contracts are not open to unilateral termination by borrowers and the security remains in effect until the loan has been repaid in full. Personal guarantees or suretyships in the Bank's favour may be arranged and will again, in all but exceptional cases, be in the form of a notarially authorized public instrument to ensure that the contract is drawn up to give maximum legal 194 security and that legal proceedings can be taken to enforce it in the event of default. Such contracts give the Bank a direct, irrevocable, first demand claim against the guarantor. In its market trading operations the Banco Sabadell group, in line with current industry practice, enters into agreements to set up netting arrangements with most of the institutional counterparties with which it trades in derivative instruments and has agreed a number of Credit Support Annexes (CSAs). Both these measures are designed to mitigate the group's exposure to, and prevent excessive concentrations of, credit risk. Security deposits held by Banco Sabadell by way of collateral at the end of 2009 totalled €541,000,000 (€305,000,000 at the end of 2008). The primary concentration of credit risk in relation to all these types of guarantee or credit enhancement arises from the use of mortgages to mitigate credit risk exposures resulting from loans to finance home purchases or the development of residential or other types of real estate. Loans secured by mortgages currently account for 50% of all group loans and advances. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 195
The credit quality of financial assets held by the Banco Sabadell group may be inferred from its loan loss ratios which, as the next table shows, have reached historically low levels compared with the industry average, while provisioning ratios remain high. The ratios are shown in the following table:
% 2009 2008 2007
Loan loss ratio 3,73 2,35 0,47 Loan loss coverage ratio 69,03 106,93 394,29
As mentioned earlier, the group uses internally generated models to rate most of the borrowers (or transactions) with whom it incurs credit exposure. These models have been designed in accordance with best practice as proposed by the NBCA. However, not all asset portfolios giving rise to credit risk are subject to these models, partly because the design of such models demands a certain degree of experience of actual cases of default. To give a clear view of the overall quality
of the portfolio, the following table uses risk categories defined in the financial reporting standards laid down by the Bank information Statutory of Spain's Circular 4/2004. These categories are used to analyse credit risks to which the group is exposed and to estimate provisioning requirements to cover against impairment losses in portfolios of debt instruments.
% Credit quality of financial assets 2009 2008
Negligible risk 15 12 Low risk 25 20 Medium-low risk 29 35 Medium risk 28 31 Medium-high risk 21 High risk 11
Total 100 100
As much as 88% of the Bank's credit risk is internally rated. The distribution of these exposures, rated on an internal rating scale according to the available information, is as follows: Banco Sabadell % Measured by credit rating/scoring Analysis of risk exposures by credit rating 2009 Annual Report 2009 Annual Report AAA/AA 9 A 13 BBB 31 BB 37 B 9 Other ratings 1
Total 100,00
Market risk Market risk arises from possible fluctuations in the fair value or future cash flows of a financial instrument as a result of changes in the factors affecting market risk. Several types of market risk can be distinguished: these include interest rate risk, currency risk and equity risk.
Different approaches are taken to the management of market risk, depending on which of the group's main business 195 lines has given rise to the risk:
• Risks arising from the group's customer-focused commercial banking and corporate banking businesses, known as structural risk. This can be sub-classified into interest rate risk, currency risk and liquidity risk. These categories of risk are discussed separately below. • Risks generated through proprietary trading or market making activities by group undertakings, including trading in foreign exchange instruments, equities and bonds, whether on the spot or the derivatives markets. Trading of this kind will often be undertaken as part of treasury and capital market operations, with which this section is specifically concerned.
Market risk is measured by the VaR (Value at Risk) method, which allows the risks on different types of financial market transaction to be analysed as a single class. The VaR method provides an estimate of the potential maximum loss on a 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 196
position that would result from an adverse, but normal, movement in any of the above risk factors. This estimate is expressed in money terms and is calculated at a specified date, to a specified confidence level and over a specified time horizon. Market risk is monitored on a daily basis and reports on current risk levels and on compliance with the limits assigned to each unit are sent to the risk control functions. Limits are assigned by the Board of Directors for each risk monitoring unit (based on nominal amounts, VaR or sensitivity limits, as applicable). This makes it possible to keep track of changes in exposure levels and measure the contribution of each risk factor. Risk control of this kind is supplemented by special simulation exercises and extreme market scenarios ("stress testing). The reliability of the VaR methodology is validated by back testing techniques which are used to verify that VaR estimates are consistent with the specified confidence level. Using the VaR methodology does not, however, rule out the possibility that losses will be above the set limits, as significant market movements may occur that exceed the confidence levels being applied. Risk levels for 2009 and 2008 as measured by the 1-day VaR at a 99% confidence level were as follows: Statutory information Statutory
€Mn. 2009 2008
Average Maximum Minimum Average Maximum Minimum
Interest rate risk 0.13 0.75 0.00 0.42 1.38 0.09
Currency risk - trading 0.02 0.06 0.00 0.03 0.05 0.02
Equity risk 1.06 1.67 0.61 1.66 2.49 0.77
Aggregate VaR 1.21 2.48 0.61 2.10 3.24 0.89
Currency risk - structural 2.22 4.11 1.25 1.77 3.88 1.10
Interest rate risk Interest rate risk arises from changes in market rates of interest that impact on different balance sheet assets and liabilities. The group is exposed to this risk of unexpected interest rate movements, which may ultimately feed through into unforeseen changes in interest margins and economic value if, as is common in banking, there are temporary
Banco Sabadell mismatches in the maturity or repricing dates of asset, liability or off-balance sheet exposures. Interest rate risk is managed on a consolidated basis for the whole group. This task is performed by the Asset and Liability Committee. This means actively managing the balance sheet by means of transactions (micro- and macro-
Annual Report 2009 Annual Report hedges) designed to optimize the level of risk exposure in relation to expected returns. For risk management and accounting purposes the group maintains two distinct types of macro-hedge of the interest rate risk from portfolios of financial instruments:
• Cash flow macro-hedges of interest rate risk : The purpose of the cash flow macro-hedge is to reduce the volatility of net interest income due to changes in interest rates over a one-year time horizon. The macro-hedge is thus a hedge of future cash flows related to the net exposure of a portfolio made up of highly probable assets and liabilities with exposures similar to interest rate risk. At the present time the hedging instruments used for this purpose are interest rate swaps. • Fair value macro-hedges of interest rate risk: The purpose of this kind of hedge as an accounting tool is to cover the economic value of the hedged portfolios, the components of which are fixed-rate assets and liabilities, options that are implicit or linked to balance sheet products (caps and floors, for example), and derivatives sold to customers
196 through the Treasury Desk. At the present time the hedging instruments used for this purpose are interest rate swaps.
The results of hedging operations are reviewed on a regular basis and tests carried out to measure their effectiveness. A number of methodologies are used to measure interest rate risk, allowing a more flexible approach to be taken. One such methodology is to measure the sensitivity of net interest income to changes in interest rates over a one-year horizon on a maturity and repricing matrix. In this technique the carrying values of financial assets and liabilities are grouped according to their maturity dates or the dates on which their rates of interest come up for review, whichever is nearer in time. For the purposes of this analysis the remaining maturity is assumed to be the time from 31 December 2009 to the due date of each payment. In addition, for current accounts, it is assumed that expected maturities will exceed contractually agreed terms, in line with the Bank's past experience. The analysis allows an estimate to be made of the effect that a change in interest rates would have on net interest income, assuming that all rates change by the same 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 197
amount and in a sustained manner. An analysis of interest rate sensitivity at 31 December 2009 and 2008 is presented in the following table:
€'000 1 month From 1 to From 3 to From 1 to From 2 to From 3 to From 4 to More than Not 31.12.2009 or less 3 months 12 months 2 years 3 years 4 years 5 years 5 years sensitive Total
Loans and advances 11,937,294 21,479,190 30,187,242 852,413 402,015 214,339 144,250 551,537 9,572 65,777,852 Money market 1,005,460 219,622 884,906 0 0 0 0 200,000 9,454 2,319,442 Capital market 1,249,793 600,572 714,445 398,012 601,258 542,343 1,055,906 2,082,626 (274) 7,244,681 Other assets 155,232 0 0 0 0 0 0 0 7,325,679 7,480,911
Total assets 14,347,779 22,299,384 31,786,593 1,250,425 1,003,273 756,682 1,200,156 2,834,163 7,344,431 82,822,886
Customer accounts 11,750,113 8,148,689 9,320,435 3,006,695 503,320 479,922 940,477 4,981,071 0 39,130,722 Money market 4,320,503 2,205,493 1,377,828 0 3,490 0 0 203,490 0 8,110,804 Capital market 5,627,462 6,872,504 3,542,375 1,963,187 1,558,547 1,571,863 559,632 5,577,930 0 27,273,500 Other liabilities 51,500 0 0 0 0 0 0 0 8,256,360 8,307,860
Total liabilities 21,749,578 17,226,686 14,240,638 4,969,882 2,065,357 2,051,785 1,500,109 10,762,491 8,256,360 82,822,886 Statutory information Statutory
Hedging derivatives 8,123,339 6,269,608 (1,345,006) (4,181,098) (148,805) (1,653,777) (1,084,012) (5,980,249) 0 0
Interest rate sensitivity gap 721,540 11,342,306 16,200,949 (7,900,555) (1,210,889) (2,948,880) (1,383,965)(13,908,577) (911,929) 0
€'000 1 month From 1 to From 3 to From 1 to From 2 to From 3 to From 4 to More than Not 31.12.2008 or less 3 months 12 months 2 years 3 years 4 years 5 years 5 years sensitive Total
Loans and advances 14,497,149 20,610,683 27,705,325 557,924 360,442 232,844 139,626 457,698 7,369 64,569,060 Money market 2,564,919 8,747 663,068 5,572 0 0 0 0 18,573 3,260,879 Capital market 909,383 233,094 519,751 78,610 508,632 138,461 141,951 2,109,752 3,030 4,642,664 Other assets 574,231 0 0 0 0 0 0 0 7,331,230 7,905,461
Total assets 18,545,682 20,852,524 28,888,144 642,106 869,074 371,305 281,577 2,567,450 7,360,202 80,378,064
Customer accounts 14,692,865 8,116,555 13,001,596 1,155,871 494,242 59,836 103,823 5,175,811 45,678 42,846,277 Money market 4,666,292 133,299 1,096,663 14,423 0 0 0 3,626 0 5,914,303 Capital market 4,177,313 5,580,008 2,448,540 1,343,133 1,896,322 58,635 1,644,095 5,324,289 0 22,472,335 Other liabilities 54,628 0 0 0 0 0 0 0 9,090,521 9,145,149
Total liabilities 23,591,098 13,829,862 16,546,799 2,513,427 2,390,564 118,471 1,747,918 10,503,726 9,136,199 80,378,064
Hedging derivatives (4,508,196) (3,004,765) (1,576,525) (48,922) 2,285,947 2,706 1,650,017 5,230,992 (31,254) 0
Interest rate sensitivity gap (9,553,612) 4,017,897 10,764,820 (1,920,243) 764,457 255,540 183,676 (2,705,284) (1,807,251) 0 Banco Sabadell
The term structure shown in the table is typical for a bank with commercial banking as its main activity, with gaps or
mismatches that are negative in the very short term, positive for terms of up to one year (reflecting the loan components 2009 Annual Report of the portfolio), and negative for longer term or not sensitive instruments. The matrix also shows the effects that hedging instruments have in altering the term profile of the group's exposure to interest rate risk. This kind of analysis is supplemented by simulations which measure the effects of different interest rate movements at different maturities, for example, due to changes in the slope of the yield curve. These simulations assign probabilities to each scenario so as to arrive at a more precise estimate of the effect that interest rate movements might have. Another technique used is to measure the sensitivity of equity to changes in interest rates by duration gap analysis. This measures the effect of interest rate changes over a longer time horizon. The sensitivity of net interest income and shareholders' equity, in relative terms in the latter case, to a change of 100 basis points (1%) in euro interest rates would be €23,14 million and 3.05% respectively (1.14% in 2008). The main assumption used in making this estimate is to take the estimated average term for current accounts as roughly two and a half years even though, contractually speaking, balances in current accounts can be withdrawn at any time. This assumption is consistent with the observation that balances in current accounts can normally be expected to remain 197 stable. Another assumption that is made is to exclude all possible maturities other than those fixed by contract, that is, such scenarios as early repayment or requests for early redemption are not taken into account. Finally, it is assumed that the change of 100 basis points in interest rates is immediate and sustained throughout the time horizon. A change of this kind is itself hypothetical and would not for one moment indicate that such a change should be expected. It has been used for illustrative purposes only.
Currency risk Currency risk arises from possible changes in exchange rates between different currencies. The group's structural foreign currency exposure remained stable throughout 2009 and is associated with long-term investments in foreign branches and subsidiaries. Otherwise, the group's foreign currency exposure is not significant and is generally linked to activities to support customer-focused operations. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 198
The Board of Directors sets overall daily limits for intraday positions (positions resulting from all transactions up to a certain moment in a single day) and overnight positions (positions reached at the end of the day). These limits are monitored and reviewed on a daily basis.
Liquidity risk This is the risk that a bank may have difficulty in meeting obligations associated with financial liabilities that are settled by the delivery of cash or another financial asset. The group is exposed to daily demands on its available cash resources to meet contractual obligations related to financial instruments, such as maturing deposits, drawdowns of credit facilities, settlements on derivatives and so on. Experience shows, however, that only a minimum amount is ever actually required and this can be predicted with a high degree of confidence. Limits are set by the Board of Directors for the maintenance of minimum cash levels and for levels of structural borrowing. The group monitors changes in its liquid asset position on a daily basis and holds a diversified portfolio of Statutory information Statutory such assets. It also carries out yearly projections to anticipate future needs. In addition, a review is carried out of gaps or mismatches between cash inflows and outflows over a short, medium and long time horizon using a maturity matrix based on the time remaining between the date to which the financial statements were made up and the contract maturity dates of assets and liabilities. In the matrix presented below, times to maturity have been based on contract maturity/repayment dates; for assets and liabilities on which payments are made over a period of time, the time to maturity has been taken as the time between 31 December 2009 and the due date of each payment. The maturity matrix at 31 December 2009 and 2008 is as follows:
€'000 1 month From 1 to From 3 to From 1 to More than No fixed 31.12.2009 At sight or less 3 months 12 months 5 years 5 years Sub-total maturity Total
Loans and advances 0 4,539,773 6,244,655 12,835,710 16,849,939 25,298,203 65,768,280 9,572 65,777,852 Money market 0 1,013,333 219,622 884,906 0 200,000 2,317,861 1,582 2,319,442 Capital market 0 1,219,936 520,331 706,745 2,633,078 2,164,865 7,244,955 (274) 7,244,681 Other assets 0 155,231 0 0 0 0 155,231 7,325,679 7,480,911
Total assets 0 6,928,273 6,984,607 14,427,362 19,483,017 27,663,067 75,486,327 7,336,559 82,822,886
Banco Sabadell Customer accounts 6,815,863 8,206,370 5,741,366 10,219,405 6,641,976 1,505,741 39,130,722 0 39,130,722 Money market 0 4,320,503 2,205,493 1,377,827 3,490 203,490 8,110,804 0 8,110,804 Capital market 0 2,326,046 1,290,948 4,746,393 11,555,604 7,354,510 27,273,501 0 27,273,501 Other liabilities 0 51,500 0 0 0 0 51,500 8,256,359 8,307,860
Total liabilities 6,815,863 14,904,419 9,237,806 16,343,626 18,201,071 9,063,742 74,566,527 8,256,359 82,822,886 Annual Report 2009 Annual Report
Liquidity gap (6,815,863) (7,976,146) (2,253,199) (1,916,264) 1,281,946 18,599,325 919,800 (919,800) 0
€'000 1 month From 1 to From 3 to From 1 to More than No fixed 31.12.2008 At sight or less 3 months 12 months 5 years 5 years Sub-total maturity Total
Loans and advances 0 5,343,796 7,404,745 15,464,989 19,580,263 16,769,335 64,563,128 5,931 64,569,060 Money market 0 2,571,065 8,747 663,068 0 5,572 3,248,453 12,428 3,260,880 Capital market 0 4,473,472 11,486 15,993 51,374 91,497 4,643,822 (1,159) 4,642,663 Other assets 0 3,638,377 3,064,543 3,592 0 0 6,706,512 1,198,950 7,905,462
Total assets 0 16,026,710 10,489,522 16,147,642 19,631,637 16,866,404 79,161,915 1,216,150 80,378,065
Customer accounts 6,956,531 11,458,941 5,098,770 12,861,412 5,357,399 1,113,221 42,846,274 0 42,846,274 Money market 0 4,666,292 133,299 1,096,663 14,423 3,625 5,914,302 0 5,914,302 Capital market 0 118,634 414,002 2,809,775 9,932,926 9,196,998 22,472,336 0 22,472,336 Other liabilities 0 2,250,778 2,303,970 3,489 0 0 4,558,237 4,586,916 9,145,153 198 Total liabilities 6,956,531 18,494,645 7,950,041 16,771,340 15,304,748 10,313,845 75,791,149 4,586,916 80,378,065
Liquidity gap 6,956,531 (2,467,935) 2,539,481 (623,698) 4,326,889 6,552,559 3,370,766 (3,370,766) 0
In this analysis the very short-term end of the range is typically where refinancing is most required. This is due to continually maturing short-term liabilities which, in banking, tend to have a higher turnover than assets. In practice, however, these short-term liabilities are continually being rolled over and therefore their funding requirements, even where debt volumes are increasing, can be accommodated. Even so, group policy is to maintain a safety margin to cover financing needs in any circumstances. This means, inter alia, maintaining a reserve of liquid assets considered as eligible collateral by the European Central Bank for possible withdrawals of funds to more than cover the group's three-month funding requirements. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 199
The group has commitments of a contingent nature which may also affect its cash requirements. Most of these relate to credit facilities with agreed limits which were undrawn at close of the reporting year. Limits on these commitments are also set by the Board of Directors and are constantly monitored. Systematic checks are made to verify that the group's ability to raise funds on the capital markets is sufficient to satisfy its requirements in the short, medium and long term. The Banco Sabadell group meets its cash needs in a number of ways and has programmes in place to raise finance on the capital markets to ensure diversified sources of funds. Some of these funding programmes are described below.
• Nonparticipating Securities Issuance Programme: the programme has been filed with Spain's stock market regulator, the CNMV,and covers issuance of medium-term and long-term bonds (both straight and subordinated) and mortgage bonds under CNMV supervision as required by Spanish law. These are placed with investors on the domestic and global markets. The limit for issues under the Nonparticipating Securities Issuance Programme at 31 December 2009 was €7,725 million (€7,936 million at 31 December 2008).
• Banco Sabadell Commercial Paper Issuance Programme: covers the issuance of corporate notes and is directed at information Statutory both institutional and retail investors. On 12 March 2009 a "Banco Sabadell Commercial Paper Issuance Programme 2009" for up to a limit of €6,500 million was filed with the CNMV. As of 31 December 2009 the value of notes in circulation under the programme was €2,771 million (€2,937 million at 31 December 2008).
Other sources of funding include:
• Medium and long-term bilateral loans with financial and other institutions. • Issues of asset-backed securities. Since 1998 the group has been involved in setting up 21 securitization funds for the transfer of mortgage loans, business finance loans for small and medium-sized firms and finance lease receivables. A portion of the bonds issued by securitization funds have been sold on the capital markets and the remainder are held by Banco Sabadell. Most of the mortgage bonds held by Banco Sabadell are pledged as security on a credit line held by the Bank with the Bank of Spain to help it manage its short-term liquidity requirements.
In 2008 the Spanish government introduced a series of measures to help increase the supply of funding to the country's economy. One of these was to set up, by Royal Decree Law 6/2008, a Fund for the Acquisition of Financial Assets (Spanish abbreviation: FAAF) with an initial capital injection of 30 million euros to be used to buy highly rated Banco Sabadell assets from financial institutions. In 2008 the FAAF carried out two auctions to buy assets of up to ten million euros. The Bank carries out regular liquidity stress testing exercises to ensure that it is able to assess inflows and outflows of funds and the impact of these flows on its cash position under different scenarios. As part of this analysis it has a Annual Report 2009 Annual Report contingency plan in place to deal with unforeseen scenarios that could result in an immediate funding requirement. The contingency plan is constantly being updated and identifies the Bank's assets that are most readily convertible to cash in the short term; it also sets out action plans should it become necessary to raise additional cash.
Risk concentrations Credit risk is undoubtedly the main business risk faced by the Banco Sabadell group. As an active player in the global banking industry the group has a sizeable concentration of exposures to other financial institutions. Managing these exposures involves the setting of limits by the Board of Directors and the monitoring of these limits on a day-to-day basis. As mentioned earlier, specific measures are also in place to mitigate risk, including netting agreements with the majority of counterparties with which derivatives are traded. As of 31 December 2009, there were only six borrowers (2008: five borrowers) involving individual exposures of more than 10% of the group's capital; for only four of these borrowers (2008: three borrowers) did the figure exceed 15% of the group's capital. The overall exposure to these six borrowers amounted to €4,897,199,000 (3,878,149,000 at 31 199 December 2008).
Capital management The group's general policy on capital management is to ensure that its available capital is sufficient to cover the overall levels of risk being incurred. This involves setting up sophisticated systems to measure each type of risk incurred by the group and methodologies that are able to encompass all of them. Such an approach requires a broad perspective of risk that takes account of possible stress scenarios and suitable financial planning in each case. The risk assessment systems used are in line with current best practice. Each year the group carries out its own capital assessment process as prescribed by the new Basel Capital Accord and, in greater detail, by the Bank of Spain's capital adequacy regulations, and reports the results to the supervisory authority. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 200
The process is based on a broad spectrum of previously identified risks and a qualitative internal evaluation of policies, procedures, and systems for originating, measuring and controlling each type of risk and appropriate mitigation techniques. The next stage is to carry out a comprehensive quantitative assessment of the group's capital requirement. This will be based on internal parameters and use the group's own models (such as borrower credit rating or scoring systems) and other internal estimates appropriate for each type of risk. The assessments for each type of risk are then integrated and a figure is set in terms of a common unit of measurement, known as economic capital, according to an internally set capital requirement based on the level of risk quality desired. The group's business and financial objectives and stress testing exercises are also fed into the process to reach a final determination as to whether certain business developments or extreme but nevertheless possible scenarios could pose a threat to the Bank's solvency, having regard to its available capital. Statutory information Statutory
Note 36. The environment
All group operations are subject to legal requirements on environmental protection and health and safety at work. The group considers that it substantially complies with these legal requirements and has procedures in place to ensure such compliance. The group has taken appropriate action on environmental protection and improvement and to minimize possible environmental impacts, as required by law. A number of group-wide waste treatment, consumable recycling and energy saving schemes were continued during the year. Given the absence of any likely environmental risk or expense, it was not thought necessary to set aside any provision for contingencies of this nature.
Note 37. Related party transactions Banco Sabadell
No significant transaction took place with any major shareholder during the years 2009 and 2008; those transactions that did take place were in the normal course of business and on an arm's length basis.
Annual Report 2009 Annual Report No transactions that could be described as significant were entered into with directors or senior managers of the Bank. Those that did take place were in the normal course of the group's business or were done at market prices or on the same terms as for employees. The group is not aware of any transaction, other than on an arm's length basis, with any person or entity connected in any way to a director or senior manager. The most significant balances held by the group with related parties and the effect on the income statement of transactions entered into with them, are shown in the following table:
€'000 2009 2008
Assets: Loans and advances to other debtors 750,744 329,918
200 Liabilities: Deposits from other creditors 3,195,315 2,326,690
Memorandum accounts: Contingent exposures 89,014 60,967 Contingent commitments 71,070 115,185
Income statement: Interest and similar income 10,915 17,752 Interest expense and similar charges (52,750) (47,119) Returns on equity instruments 0 8,149 Net fees and commissions 35,897 26,988 Other operating income 1,548 1,651 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 201
Note 38. Agents
As of 31 December 2009 and 2008, no group undertaking had entered into an agency agreement that would allow an agent to act for and on behalf of the group on an ongoing basis in any customer relationship or in any negotiation or business of a kind commonly engaged in by a credit institution.
Note 39. Customer service department
As required by the Spanish Finance Ministry's Order 734/2004, a report on the group's Customer Service Department has been provided in the Report of the Directors that follows these notes to the annual accounts. Statutory information Statutory
Note 40. Remuneration paid to directors and senior management group
The following table shows, for the years to 31 December 2009 and 2008, the amounts paid to directors in fees and in contributions to meet directors' pension commitments for services rendered by them in that capacity:
€'000 Pension Fees paid commitments Total
2009 2008 2009 2008 2009 2008
José Oliu Creus * 252.0 280.0 37.8 42.0 289.8 322.0 Joan Llonch Andreu 162.0 198.0 18.9 21.0 180.9 219.0 Jaime Guardiola Romojaro * 108.0 120.0 - - 108.0 120.0 Isak Andic Ermay 126.0 140.0 - - 126.0 140.0 Banco Sabadell Miguel Bósser Rovira 126.0 140.0 18.9 21.0 144.9 161.0 Francesc Casas Selvas 144.0 160.0 18.9 21.0 162.9 181.0 Héctor María Colonques Moreno 144.0 160.0 18.9 21.0 162.9 181.0 Sol Daurella Comadrán (1) 90.0 - - 90.0 Annual Report 2009 Annual Report Joaquín Folch-Rusiñol Corachán 126.0 140.0 18.9 21.0 144.9 161.0 Maria Teresa Garcia-Milà Lloveras (3) 144.0 160.0 - - 144.0 160.0 José Manuel Lara Bosch 126.0 140.0 - - 126.0 140.0 José Permanyer Cunillera ** 144.0 160.0 18.9 21.0 162.9 181.0 Carlos Jorge Ramalho dos Santos Ferreira (2) 108.0 88.6 - - 108.0 88.6
Total 1,800.0 1,886.6 151.2 168.0 1,951.2 2,054.6
* Directors exercising executive functions. ** On 30 June 2008 José Permanyer Cunillera ceased to be an Executive Director and was appointed a non-executive director. (1) At the Annual General Meeting of 19 March 2009 it was resolved that Sol Daurella Comadrán be appointed an independent external director. (2) At the Annual General Meeting of 27 March 2008 it was resolved that Carlos Jorge Ramalho dos Santos Ferreira be appointed to the Board as a shareholder director.
Amounts paid in salaries and other emoluments to executive directors during the year 2009 totalled €3,933,000 and €477,000 respectively (2008: €3,541,000 and €4,697,000 respectively). Other compensation paid in the year 2008 201 includes payments that were made in 2008 but related to amounts accruing under incentive or other special schemes covering periods of two or more years prior to 2008. Life assurance premiums covering contingent pension commitments in respect of pension rights accruing in 2009 amounted to a further €8,893,000 (2008: €7,077,000). Loan and guarantee risks undertaken by the Bank and consolidated undertakings for all directors of the parent company totalled €16,594,000 at 31 December 2009. Of this amount €14,197,000 comprised loans and €2,397,000 related to avals and documentary credits (2008: €17,566,000, including €15,000,000 in loans and €2,566,000 in avals and documentary credits). The average rate of interest charged was 3.12% (2008: 4.70%). Deposits by directors totalled €4,788,000 (€7,672,000 in 2008). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 202
Salary payments to members of the senior management group (other than those sitting on the Board as executive directors, for whom details are given above) amounted to €6,321,000 in 2009(2008: €7,529,000). Premiums paid in respect of accrued pension entitlements of senior managers totalled €3,827,000 in 2009 (2008: €2,195,000). Loan and guarantee risks undertaken by the Bank and consolidated undertakings for the senior management group (other than executive directors, for whom details are provided above) totalled €14,586,000 at 31 December 2009. Of this amount €11,924,000 comprised loans and €2,662,000 related to avals and documentary credits. Deposits by senior managers totalled €11,155,000. Vested entitlements in respect of share appreciation rights granted to members of the senior management group including executive directors resulted in personnel expenses of €5,131,000 during the year (2008: €5,039,000)(see note 32 (f)). Details of existing agreements between the company and members of the Board and senior managers with regard to compensation on severance of contract are set out in the report of the directors that follows these annual accounts. The members of the senior management group and their areas of responsibility at 31 December 2009 are set out Statutory information Statutory below:
José Oliu Creus Chairman Jaime Guardiola Romojaro Managing Director José Luis Negro Rodríguez Deputy Secretary to the Board & Comptroller General Cirus Andreu Cabot Investment, Products and Analysis Luis Buil Vall Regional Director - Barcelona Area Ignacio Camí Casellas Assistant General Manager José Canalias Puig Regional Director - Catalonia María José García Beato Secretary General - Head of Legal Department Rafael José García Nauffal Risk Salvador Grané Terradas Real Estate Management Joan-Mateu Grumé Sierra Corporate Operations Jaime Matas Vallverdú Regional Director - Valencia, Murcia & Balearic Islands Blanca Montero Corominas Regional Director - Madrid, Castile & Galicia Miquel Montes Güell Operations and Corporate Development Fernando Pérez-Hickman Muñoz Business Development - Americas Jaume Puig Balsells Commercial Banking Ramón de la Riva Reina Markets and Private Banking Enric Rovira Masachs Corporate Banking and Global Operations
Banco Sabadell Tomás Varela Muiña Chief Financial Officer Javier Vela Hernández Human Resources Carlos Ventura Santamans Corporate Banking Annual Report 2009 Annual Report
Note 41. Directors’ duty of loyalty
Pursuant to article 127 ter of the Spanish Companies Act, introduced by Law 26/2003 of 17 July amending Law 24/1988 of 28 July on the Securities Market and the consolidated text of the Companies Act, in the interests of corporate transparency, the Directors have made the following statement to the Company:
a. No situation has arisen that would directly or indirectly give rise to a conflict between an individual's private interest and the interests of the Company. b. No Director holds shares in the equity of any company whose objects are identical, similar or complementary to 202 those of the Company, with the following exceptions:
Director Company Proportional shareholding (%)
Jaime Guardiola Romojaro Banco Bilbao Vizcaya Argentaria, S.A. 0.00137 José Permanyer Cunillera Banco Santander Central Hispano, S.A. 0.00006 José Permanyer Cunillera Banco Bilbao Vizcaya Argentaria, S.A. 0.00021 José Oliu Creus Banco Comercial Português, S.A. 0.00028 Hector María Colonques Moreno Banco de Valencia, S.A. 0.00264 Maria Teresa García-Milà Lloveras Banco Santander Central Hispano, S.A. 0.0000064 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 203
The Directors have also confirmed that none of them holds any office or position of responsibility or performs any services, for their own account or for the account of any other person, in any company whose objects are identical, similar or complementary to those of the Company, with the following exceptions:
Director Company Position/office held
José Oliu Creus Banco Comercial Português, S.A. Member, General and Supervisory Board José Oliu Creus BanSabadell Holding, S.L., Sociedad Unipersonal Chairman Joan Llonch Andreu BancSabadell d'Andorra, S.A. Director Joan Llonch Andreu BanSabadell Holding, S.L., Sociedad Unipersonal Director Joan Llonch Andreu Sociedad de Cartera del Vallés, S.I.C.A.V.,S.A. Deputy Chairman Jaime Guardiola Romojaro Ibersecurities, Sociedad de Valores, S.A., Sociedad Unipersonal Chairman Miguel Bósser Rovira BanSabadell Holding, S.L., Sociedad Unipersonal Director Carlos Jorge Ramalho dos Santos Ferreira Banco Comercial Português, S.A. Chairman Carlos Jorge Ramalho dos Santos Ferreira Bank Millenium, S.A. Chairman, General and
Supervisory Board information Statutory José Permanyer Cunillera BancSabadell d'Andorra, S.A. Director José Permanyer Cunillera Aurica XXI, S.C.R., S.A. Chairman José Permanyer Cunillera BanSabadell Inversió Desenvolupament, S.A., Sociedad Unipersonal Chairman José Permanyer Cunillera Sinia Renovables, S.C.R. de Régimen Simplificado Chairman
Note 42. Post-balance sheet events
On 23 July 2009, Banco de Sabadell, S.A. concluded an agreement with the Bank of New York Mellon to buy 100% of the ordinary shares of its Miami, Florida subsidiary Mellon United National Bank ("MUNB"). On 15 January 2010, having obtained the necessary official and regulatory authorizations, Banco Sabadell discharged its obligations under the agreement for a final consideration of €111,000,000 (USD 160.6 million). As from that date the subsidiary acquired by Banco Sabadell has been operating under the name of Sabadell United Bank.
MUNB is a retail banking operation with a franchise in specialist services to professional customers. It currently Banco Sabadell possesses 15 branches in southern Florida with a strong presence in Miami-Dade, Broward and Palm Beach counties and 335 employees.
The acquisition will allow Banco Sabadell to increase its growing domestic banking business in southern Florida, 2009 Annual Report strengthen its operations platform in Miami and continue to develop its local banking programme in the area. With this acquisition, Banco Sabadell takes over deposits of USD 1,675 million and loans of USD 875 million, accounting for 60% of the lending book.
203 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 204
Annex: Banco Sabadell group undertakings at 31 December 2009
Proportional holding (%)
Name of company Principal business Registered office Direct Indirect
Fully consolidated companies
Assegurances Segur Vida, S.A. Insurance Andorra la Vella - 50.97 Aurica XXI, S.C.R., S.A. Venture capital company Barcelona 100.00 - Axel Group, S.L. Financial advisers Madrid 100.00 - Ballerton Corporation Serviços, S.A. Holding company Madeira - 100.00 Banco Atlantico Bahamas Bank and Trust Ltd. Banking Nassau, Bahamas 99.99 0.01 Banco Atlantico Mónaco S.A.M. Banking Monaco 100.00 - Banco de Sabadell, S.A. Banking Sabadell - - Banco Urquijo Sabadell Banca Privada, S.A. Banking Madrid 100.00 - BancSabadell d'Andorra, S.A. Banking Andorra la Vella 50.97 - BanSabadell Correduría de Seguros, S.A. Insurance brokers Sabadell 100.00 - BanSabadell Factura, S.L. Electronic billing services Sant Cugat del Vallès 100.00 - BanSabadell Financiación, E.F.C., S.A. Finance company Sabadell 100.00 - Statutory information Statutory BanSabadell Fincom, E.F.C., S.A. Finance company Sant Cugat del Vallès 100.00 - BanSabadell Holding, S.L. Holding company Sabadell 100.00 - BanSabadell Information System S.A. Computer services Sant Fruitós de Bages 81.00 - BanSabadell Inversió Desenvolupament, S.A. Holding company Barcelona 100.00 - BanSabadell Inversión, S.A., S.G.I.I.C. Investment fund managers Sant Cugat del Vallès 100.00 - BanSabadell Professional, S.A. (a) Services Barcelona 100.00 - BanSabadell Renting, S.L. Equipment leasing Sant Cugat del Vallès 100.00 - BanSabadell Securities Services, S.L Services Sabadell 100.00 - Compañía de Cogeneración del Caribe Dominicana, S.A. Electricity utility Santo Domingo (Dom. Rep.) - 100.00 Compañía de Cogeneración del Caribe, S.L. Electricity utility Barcelona - 99.99 Compañía de Electricidad y Cogeneración de Uvero, S.A. Electricity utility Higuey (Dom. Rep.) - 72.92 Europa Invest, S.A. Investment fund managers Luxembourg 22.00 78.00 Europea Pall Mall Ltd. Real estate London 100.00 - Explotaciones Energéticas SINIA XXI, S.L. Holding company Madrid - 100.00 Herrero International, S.A.R.L. Holding company Luxembourg - 100.00 Hobalear, S.A. Real estate Sabadell - 100.00 Ibersecurities Holding, S.A. Holding company Madrid 100.00 - Ibersecurities,Soc.de V., S.A., Soc.Unip. Stockbrokers Madrid - 100.00 Inmobiliaria Asturiana, S.A. Real estate Oviedo 99.63 - Interstate Property Holdings, LLC Company Instrumental Miami - 100.00 Promociones y Financiaciones Herrero, S.A. Holding company Oviedo 100.00 - Sabadell Asia Trade Services Ltd. Services Hong Kong 100.00 - Sabadell Brasil Trade Services - Ass.Cial Ltda. Representative office Brazil 99.99 0.01 Sabadell BS Select Fund of Hedge Funds, S.I.C.A.V., S.A. Holding company Luxembourg 60.16 - Banco Sabadell Sabadell Corporate Finance, S.L. Financial advisers Madrid 30.00 70.00 Sabadell d'Andorra Borsa, S.A. Investment company Andorra la Vella - 50.97 Sabadell d'Andorra Inversions Societat Gestora, S.A. Investment fund managers Andorra la Vella - 50.97 Sabadell International Equity Ltd. (b) Finance company George Town - - Sabadell International Finance, B.V. Finance company Amsterdam 100.00 - Annual Report 2009 Annual Report Sabadell Securities USA, Inc. Services Miami 100.00 - Santex Pluser, S.L. Real estate Barcelona - 100.00 Servicio de Administración de Inversiones, S.A. Holding company Madrid 100.00 - Servicios Reunidos, S.A. Services Sabadell 100.00 - Sinia Renovables, S.C.R. de R.S., S.A. Venture capital company Barcelona 100.00 - Solvia Development, S.L (c) Real estate Sant Cugat del Vallès 100.00 - Solvia Estate, S.L. Real estate Sant Cugat del Vallès 100.00 - Solvia Gestió Immobiliària, S.L. Property rentals Madrid 100.00 - Solvia Hotels, S.L. Real estate Sant Cugat del Vallès 100.00 - Solvia Housing, S.L. Real estate Madrid 100.00 - Solvia Properties, S.L. Real estate Sant Cugat del Vallès 100.00 - Transatlantic Bank Inc. Banking Miami - 100.00 Transatlantic Holding Corp. Holding company Miami 100.00 - Urquijo Gestión, S.G.I.I.C., S.A. Investment fund managers Madrid - 100.00
Total
(a) The company name was changed from Tecnocredit S.A. to BanSabadell Professional, S.L. in May 2009. 204 (b 100% of the voting rights are held by the parent company. (c) The company name was changed from Promociones Argañosa, S.L. to Solvia Development, S.L. in January 2009. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 205
Annex: Banco Sabadell group undertakings at 31 December 2009 €'000 Contribution to reserves Contribution Treated as Financial data (1) Group or losses of to consolidated Dividends Total net consolidated consolidated for tax Name of company Capital Reserves Results (2) paid (3) assets investment undertakings profit purposes
Fully consolidated companies
Assegurances Segur Vida, S.A. 602 114 227 175 257,746 602 16 116 No Aurica XXI, S.C.R., S.A. 14,200 144 17,402 0 125,516 17,492 (654) 17,402 Yes Axel Group, S.L. 26 182 1 392 1,009 7,792 944 1 Yes Ballerton Corporation Serviços, S.A. 50 24,213 158 0 24,422 3,140 (268) 158 No Banco Atlántico Bahamas Bank and Trust Ltd. 1,388 861 (37) 0 2,920 2,439 901 (37) No Banco Atlántico Mónaco S.A.M. 11,250 11,628 293 0 25,192 19,498 3,004 293 No Banco de Sabadell, S.A. 150,000 3,995,605 528,787 312,000 81,583,450 0 4,208,779 528,787 Yes Banco Urquijo Sabadell Banca Privada, S.A. 73,148 126,833 11,219 0 2,099,589 143,030 60,595 11,219 Yes BancSabadell d'Andorra, S.A. 30,069 10,887 5,249 765 652,186 15,326 3,490 2,077 No
BanSabadell Correduría de Seguros, S.A. 60 18 832 1,135 2,813 588 (612) 832 Yes information Statutory BanSabadell Factura, S.L. 100 (1,501) (898) 0 1,820 299 (1,589) (898) Yes BanSabadell Financiación, E.F.C., S.A. 24,040 25,591 8,816 0 658,217 24,040 25,591 8,816 Yes BanSabadell Fincom, E.F.C., S.A. 35,520 25,163 (25,167) 0 523,949 72,232 (6,042) (25,167) No BanSabadell Holding, S.L. 330,340 (117,963) (147,818) 0 333,293 239,544 (58,776) (147,818) Yes BanSabadell Information System, S.A. 240 (4,966) 10,571 0 96,126 3,962 (5,365) 10,571 Yes BanSabadell Inversió Desenvolupament, S.A. 15,025 (9,142) 16,593 0 86,372 19,368 (3,196) 16,593 Yes BanSabadell Inversión, S.A., S.G.I.I.C. 601 54,920 16,731 57,000 123,595 607 54,910 16,731 Yes BanSabadell Professional, S.A. 60 194 30 0 891 1,130 383 30 No BanSabadell Renting, S.L. 2,000 3,902 (360) 0 175,759 3,861 2,405 (360) Yes BanSabadell Securities Services, S.L. 2,500 0 4,098 0 7,939 2,500 0 4,098 Yes Compañía de Cogeneración del Caribe Dominicana, S.A. 69 (217) (5,051) 0 2,391 63 37 (5,051) No Compañía de Cogeneración del Caribe, S.L. 2,933 (4,310) (286) 0 687 3,007 (503) (286) Yes Compañía de Electricidad y Cogeneración de Uvero, S.A. 3,096 (288) (1,112) 0 2,704 2,410 855 (804) No Europa Invest, S,A, 125 267 (208) 0 501 336 47 (208) No Europea Pall Mall Ltd. 17,427 (3,795) (482) 0 13,369 20,843 (697) (482) No Explotaciones Energéticas SINIA XXI, S.L. 1,352 10,862 (761) 0 71,360 4,672 22,106 (761) Yes Herrero International, S.A.R.L. 429 3,820 2 0 4,349 1,139 197 2 No Hobalear, S.A. 60 478 34 0 596 414 478 34 Yes Ibersecurities Holding, S.A. 31,581 48,865 128 0 80,710 54,922 (84,881) 128 Yes Ibersecurities,Soc.de V., S.A., Soc.Unip. 3,000 53,309 4,045 0 63,847 76,794 48,323 4,045 Yes Inmobiliaria Asturiana, S.A. 198 40 244 4,286 559 2,468 (313) 243 Yes
Interstate Property Holdings, LLC 5,553 (1,112) (8,514) 0 56,999 5,405 (901) (8,514) No Banco Sabadell Promociones y Financiaciones Herrero, S.A. 3,456 271 (1) 0 3,726 24,185 10 (1) Yes Sabadell Asia Trade Services Ltd. 0 595 135 0 602 0 476 135 No Sabadell Brasil Trade Services - Ass.Cial Ltda. 1,362 (1,091) (22) 0 266 250 (29) (22) No Sabadell BS Select Fund of Hedge Funds, S.I.C.A.V.,S.A. 21,444 (1,718) 1,645 0 21,472 12,900 (1,026) 699 No
Sabadell Corporate Finance, S.L. 70 196 (655) 0 420 358 (1,151) (655) Yes 2009 Annual Report Sabadell d'Andorra Borsa, S.A. 60 14 0 0 74 60 7 0 No Sabadell d'Andorra Inversions Societat Gestora, S.A. 300 274 361 325 950 300 140 184 No Sabadell International Equity Ltd. 250,001 55 12 0 250,114 1 0 0 No Sabadell International Finance, B.V. 2,000 0 (37) 232 2,010 2,000 (27) (37) No Sabadell Securities USA, Inc. 548 (18) (137) 0 460 551 (26) (137) No Santex Pluser, S.L. 5,083 (1,036) 830 0 38,509 5,083 (950) 830 No Servicio de Administración de Inversiones, S.A. 6,010 762 (2) 0 6,770 16,690 (6,094) (2) Yes Servicios Reunidos, S.A. 60 20 0 0 80 67 13 0 Yes Sinia Renovables, S.C.R. de R.S., S.A. 15,000 (428) (219) 0 59,748 15,000 (381) (219) Yes Solvia Development, S.L 15,807 (28,233) (152,036) 0 1,403,407 41,155 (39,050) (152,035) Yes Solvia Estate, S.L. 60 (3) (17,393) 0 98,804 60 (3) (17,393) Yes Solvia Gestió Immobiliària, S.L 2,705 (87) 3,492 0 8,846 2,786 (168) 3,492 Yes Solvia Hotels ,S.L. 500 (5) (4) 0 491 500 0 (3) Yes Solvia Housing, S.L. 2,073 1,303 (55) 0 13,351 3,356 21 (55) Yes Solvia Properties,S.L. 500 (5) 283 0 30,824 500 0 283 Yes Transatlantic Bank Inc. 2,082 36,297 (1,601) 0 373,852 6,083 (1,808) (1,601) No Transatlantic Holding Corp. 0 19,265 (398) 0 23,284 146,955 (2,165) (398) No Urquijo Gestión, S.G.I.I.C., S.A. 3,606 3,419 (1,023) 0 12,684 5,286 1,654 (1,023) Yes 205
Total 376,310 1,034,049 4,218,707 263,832
(1) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2009. (2) Results are subject to approval by the Annual General Meeting of each company. (3) Includes final dividends for the previous year and interim dividends paid to the group during the year. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 206
Annex: Banco Sabadell group undertakings at 31 December 2009
Proportional holding (%)
Name of company Principal business Registered office Direct Indirect
Proportionally consolidated companies
Emte Renovables, S.L. Holding company Sant Joan Despí - 62.11 Financiera Iberoamericana, S.A. Finance company Havana 50.00 - Jerez Solar, S.L. Electricity utility Sant Joan Despí - 62.11 Plaxic Estelar, S.L. Real estate Barcelona - 45.01
Total
Equity-accounted companies (1)
Adelanta Corporación, S.A. Services Ourense - 24.00 Aviación Regional Cántabra, A.I.E. Services Boadilla del Monte 26.42 Aviones Alfambra CRJ-900, A.I.E. Services Madrid 25.00 - Statutory information Statutory Aviones Cabriel CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Gorgos CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Sella CRJ-900, A.I.E. Services Madrid 25.00 - Banco del Bajío, S.A. Banking León (Mexico) 20.00 - BanSabadell Pensiones , E.G.F.P., S.A. Pension fund managers Sabadell 50.00 - BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros Insurance Sant Cugat del Vallès 50.00 - BanSabadell Vida, S.A. de Seguros y Reaseguros Insurance Sabadell 50.00 - Biodiesel Aragón, S.L. Chemicals Altorricón - 40.86 Centro Financiero B.H.D., S.A. Financial services Santo Domingo 20.00 - Dexia Sabadell, S.A. Banking Madrid 40.00 - Sociedad de Inversiones y Participaciones COMSA EMTE, S.L (a) Holding company Esplugues de Llobregat - 20.00 Establecimientos Industriales y Servicios, S.L. Electricity utility Barcelona - 26.75 FS Colaboración y Asistencia, S.A. Services Barcelona - 35.00 Garnova, S.L. Food products Granollers - 25.00 Gaviel, S.A. Real estate investment Barcelona 50.00 - General de Biocarburantes, S.A. Chemicals Marina de Cudeyo - 25.00 Grafos, S.A. Arte sobre Papel Graphic artists Barcelona - 45.00 Intermas Nets, S.A. Chemicals Llinars del Vallès - 20.00 J. Feliu de la Penya, S.L Lighting products Canovelles - 20.00 Parc Eòlic Veciana-Cabaro, S.L. Electricity utility Barcelona - 40.00 Parque Eólico la Peñuca, S.L. Electricity utility León - 40.00 Parque Eólico Magaz, S.L. Electricity utility Magaz de Pisuerga - 49.00 SBD Creixent, S.A. Real estate Sabadell 23.01 - Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. Investment company Sant Cugat del Vallès 36.34 - Banco Sabadell Tolosa 161, S.L. Services Terrassa - 23.00
Total
(1) Accounted for by the equity method because the parent company does not have managerial control.
Annual Report 2009 Annual Report (a) In July 2009 Aurica XXI, S.C.R., S.A. took a shareholding in Sociedad de Inversiones y Participaciones COMSA EMTE, S.L. in exchange for its holding in Emte Grupo Empresarial y Corporativo, S.L.
206 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 207
Annex: Banco Sabadell group undertakings at 31 December 2009 €'000 Contribution to reserves Contribution Treated as Financial data (2) Group or losses of to consolidated Dividends Total net undertakings consolidated for tax Name of company Capital Reserves Results (3) paid (4) assets investment undertakings profit purposes
Proportionally consolidated companies
Emte Renovables, S.L.(a) 8,050 (32) (56) 0 8,028 5,000 0 (35) No Financiera Iberoamericana, S.A. 14,577 797 2,260 1,007 52,695 7,443 (703) 1,130 No Jerez Solar, S.L. 3,050 (902) (1,006) 0 64,672 1,894 0 (625) No Plaxic Estelar, S.L. 3 (5,934) (2,237) 0 42,691 1 (3,372) (1,007) No
Total 1,007 14,338 (4,075)(537)
Equity-accounted companies (1)
Adelanta Corporación, S.A. (c) 301 32,894 547 50 39,968 37,202 619 288 No information Statutory Aviación Regional Cántabra, A.I.E. (a) 29,606 (1,056) 1,528 37 122,552 7,824 356 440 No Aviones Alfambra CRJ-900, A.I.E. (a) 4,496 (1,329) (119) 0 22,049 1,060 (192) (32) No Aviones Cabriel CRJ-900, A.I.E. (a) 4,495 (1,327) (118) 0 22,039 1,060 (192) (32) No Aviones Gorgos CRJ-900, A.I.E. (a) 4,495 (1,324) (119) 0 22,015 1,060 (192) (33) No Aviones Sella CRJ-900, A.I.E. (a) 4,495 (1,322) (119) 0 21,963 1,060 (192) (33) No Banco del Bajío, S.A. (a) 119,015 331,646 32,348 4,403 4,060,700 84,803 19,248 7,145 No BanSabadell Pensiones , E.G.F.P., S.A. 7,813 16,694 2,760 3,152 31,416 9,378 3,667 1,380 No BanSabadell Seguros Generales, S.A. de Seg. y Reaseg. 10,000 2,029 1,199 0 44,112 5,000 1,398 600 No BanSabadell Vida, S.A. de Seguros y Reaseguros 43,858 164,888 45,702 0 5,994,330 27,106 75,045 22,851 No Biodiesel Aragón, S.L. (c) 7,061 (843) (2,911) 0 38,927 2,815 (489) (1,226) No Centro Financiero B.H.D., S.A. (a) 87,492 19,119 41,487 9,608 1,512,573 32,863 2,413 10,986 No Dexia Sabadell, S.A. (a) 237,061 87,030 62,574 0 16,324,612 101,226 36,169 27,305 No Sociedad de Inversiones y Participaciones COMSA EMTE, S.L. (d) 15,000 221,356 5,501 0 767,599 47,271 0 0 No Establecimientos Industriales y Servicios, S.L. (a) 49 6,106 (41) 1,817 35,548 37,443 1,671 1,846 No FS Colaboración y Asistencia, S.A. (a) 600 857 571 0 4,044 887 (202) 217 No Garnova, S.L. (a) 48,072 15,304 14,614 1,343 91,880 42,814 4,017 2,794 No Gaviel, S.A. (b) 1,203 49 52 0 1,307 630 21 (3) No General de Biocarburantes, S.A. (a) 6,000 (2,848) (311) 0 10,787 2,250 (130) 0 No Grafos, S.A. Arte sobre Papel 1,800 7,134 795 0 30,575 3,781 (1,114) 273 No Intermas Nets, S.A. (a) 845 25,880 2,603 480 66,220 22,213 343 1,290 No J. Feliu de la Penya, S.L (a) 851 28,442 (3,534) 120 67,545 10,501 (120) (800) Parc Eòlic Veciana-Cabaro, S.L. (b) 3,300 (718) (74) 0 45,047 1,320 (216) (30) No
Parque Eólico la Peñuca, S.L. (b) 3,333 5,847 (233) 0 37,030 1,339 1,928 80 No Banco Sabadell Parque Eólico Magaz, S.L. (a) 1,500 (485) (789) 0 46,724 6,582 (157) (294) No SBD Creixent, S.A. (a) 12,895 (253) (90) 0 21,637 2,968 (78) (21) No Sociedad de Cartera del Vallés, S.I.C.A.V., S.A.(a) 4,818 180 517 0 5,533 422 1,794 248 No Tolosa 161, S.L. (b) 9 (5) (4) 0 3 2 0 (1) No Annual Report 2009 Annual Report Total 21,010 492,880 145,415 75,238
Consolidation adjustments 183,956
Total 398,327 1,541,267 4,360,047 522,489
(1) Accounted for by the equity method because the parent company does not have managerial control. (2) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2009. (3) Results are subject to approval by the Annual General Meeting of each company. (4) Includes final dividends for the previous year and interim dividends paid to the group during the year. (a) Data shown for these undertakings under "Financial data" are correct as of 30 November 2009. (b) Data shown for these undertakings under "Financial data" are correct as of 31 October 2009. (c) Data shown for these undertakings under "Financial data" are correct as of 30 September 2009. (c) Data shown for these undertakings under "Financial data" are correct as of 31 August 2009.
Total revenues of associated undertakings accounted for by the equity method were €4,583,837,000 in the year to 31 December 2009. The overall liabilities of associated undertakings at the close of 2009 totalled €27,669,527,000. 207 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 208
Annex: Banco Sabadell group undertakings at 31 December 2008
Proportional holding (%)
Name of company Principal business Registered office Direct Indirect
Fully consolidated companies
Assegurances Segur Vida, S.A. Insurance Andorra la Vella - 50.97 Aurica XXI, S.C.R., S.A. Venture capital company Barcelona 100.00 - Axel Group, S.L. Financial advisers Madrid 100.00 - Ballerton Corporation Serviços, S.A. Holding company Madeira - 100.00 Banco Atlantico Bahamas Bank and Trust Ltd. Banking Nassau, Bahamas 99.99 0.01 Banco Atlantico Mónaco S.A.M. Banking Monaco 100.00 - Banco de Sabadell, S.A. Banking Sabadell - - Banco Urquijo Sabadell Banca Privada, S.A. Banking Madrid 100.00 - BancSabadell d'Andorra, S.A. Banking Andorra la Vella 50.97 - BanSabadell Correduría de Seguros, S.A. Insurance brokers Sabadell 100.00 - BanSabadell Factura, S.L. Electronic billing services Sant Cugat del Vallès 100.00 - BanSabadell Financiación, E.F.C., S.A. Finance company Sabadell 100.00 - Statutory information Statutory BanSabadell Fincom, E.F.C., S.A. Finance company Sant Cugat del Vallès 100.00 - BanSabadell Holding, S.L. Holding company Sabadell 100.00 - BanSabadell Inversió Desenvolupament, S.A. Holding company Barcelona 100.00 - BanSabadell Inversión, S.A., S.G.I.I.C. Investment fund managers Sant Cugat del Vallès 100.00 - BanSabadell Renting, S.L. Equipment leasing Sant Cugat del Vallès 100.00 - Compañía de Cogeneración del Caribe Dominicana, S.A. Electricity utility Santo Domingo (Dom. Rep.) - 100.00 Compañía de Cogeneración del Caribe, S.L. Electricity utility Barcelona - 99.99 Compañía de Electricidad y Cogeneración de Uvero, S.A. Electricity utility Higuey (Dom. Rep.) - 72.92 Dish, S.A. Hotel management Sant Cugat del Vallès 100.00 - Europa Invest, S.A. Investment fund managers Luxembourg 22.00 78.00 Europea Pall Mall Ltd. Real estate London 100.00 - Explotaciones Energéticas SINIA XXI, S.L. Holding company Madrid - 100.00 Gestora Plan HF94, S.L. Services Oviedo 100.00 - Herrero International, S.A.R.L. Holding company Luxembourg - 100.00 Hobalear, S.A. Real estate Sabadell - 100.00 Ibersecurities Holding, S.A. Holding company Madrid 100.00 - Ibersecurities,Soc.de V., S.A., Soc.Unip. Stockbrokers Madrid - 100.00 Inmobiliaria Asturiana, S.A. Real estate Oviedo 99.63 - Interstate Property Holdings, LLC Company Instrumental Miami - 100.00 Promociones Argañosa, S.L. (a) Real estate Oviedo 100.00 - Promociones y Financiaciones Herrero, S.A. Holding company Oviedo 100.00 - Promotora de Negocios y Representaciones, S.A. Property rentals Madrid 100.00 - Sabadell Asia Trade Services Ltd. Services Hong Kong 100.00 - Sabadell Brasil Trade Services - Ass.Cial Ltda. Representative office Brazil 99.99 0.01 Banco Sabadell Sabadell Corporate Finance, S.L. Financial advisers Madrid 30.00 70.00 Sabadell d'Andorra Borsa, S.A. Investment company Andorra la Vella - 50.97 Sabadell d'Andorra Inversions Societat Gestora, S.A. Investment fund managers Andorra la Vella - 50.97 Sabadell Information Systems, S.A. Computer services Sant Fruitós de Bages 81.00 - Sabadell International Equity Ltd. (b) Finance company George Town - - Annual Report 2009 Annual Report Sabadell International Finance, B.V. Finance company Amsterdam 100.00 - Sabadell Securities USA, Inc. Services Miami 100.00 - Santex Pluser, S.L. Real estate Barcelona - 100.00 Servicio de Administración de Inversiones, S.A. Holding company Madrid 100.00 - Servicios Reunidos, S.A. Services Sabadell 100.00 - Sinia Renovables, S.C.R. de R.S., S.A. Venture capital company Barcelona 100.00 - Solvia Estate, S.A. Real estate Sant Cugat del Vallès 100.00 - Tecnocredit, S.A. Services Barcelona 100.00 - Transatlantic Bank Inc. Banking Miami - 100.00 Transatlantic Holding Corp. Holding company Miami 100.00 - Urquijo Gestión, S.G.I.I.C., S.A. Investment fund managers Madrid - 100.00 Urquijo Servicios Patrimoniales, S.L. (c) Real estate Madrid 100.00 -
Total
(a) A change of name from Promociones Argañosa, S.L. to Solvia Development, S.L. was registered with the Mercantile Registry in January 2009. (b) 100% of the voting rights are held by the parent company. (c) A change of name from Urquijo Servicios Patrimoniales, S.L. to Solvia Housing, S.L. was registered with the Mercantile Registry in January 2009. 208 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 209
Annex: Banco Sabadell group undertakings at 31 December 2008 €'000 Contribution to reserves Contribution Treated as Financial data (1) Group or losses of to consolidated Dividends Total net undertakings consolidated for tax Name of company Capital Reserves Results (2) paid (3) assets investment undertakings profit purposes
Fully consolidated companies
Assegurances Segur Vida, S.A. (a) 602 32 728 728 261,902 602 16 372 No Aurica XXI, S.C.R., S.A. 14,200 3,118 (2,592) 0 114,238 17,492 (982) (2,592) Yes Axel Group, S.L. 26 36 1,338 0 1,401 6,544 1,344 1,338 Yes Ballerton Corporation Serviços, S.A. 50 23,451 726 0 24,640 3,140 (1,000) 726 No Banco Atlantico Bahamas Bank and Trust Ltd. 1,571 999 (28) 0 3,304 2,439 909 (28) No Banco Atlantico Mónaco S.A.M. 11,250 10,502 649 0 24,984 19,498 2,085 649 No Banco de Sabadell, S.A. 150,000 3,540,673 788,386 378,481 78,799,924 0 3,772,215 788,387 Yes Banco Urquijo Sabadell Banca Privada, S.A. 73,148 120,314 6,520 0 2,215,164 143,030 50,541 6,520 Yes BancSabadell d'Andorra, S.A. 30,069 7,068 4,343 1,724 682,659 15,326 2,881 2,988 No
BanSabadell Correduría de Seguros, S.A. 60 18 1,135 1,762 4,343 588 (612) 1,135 Yes information Statutory BanSabadell Factura, S.L. 100 (570) (1,018) 0 1,023 100 (570) (1,018) Yes BanSabadell Financiación, E.F.C., S.A. 24,040 26,030 (439) 0 582,748 24,040 26,030 (439) Yes BanSabadell Fincom, E.F.C., S.A. 35,720 (4,728) (1,385) 0 557,403 38,476 (3,742) (1,582) No BanSabadell Holding, S.L. 330,340 (11,948) (106,016) 0 314,129 239,544 19,726 (106,016) Yes BanSabadell Inversió Desenvolupament, S.A. 15,025 3,005 (10,749) 67,905 140,171 15,025 7,817 (10,749) Yes BanSabadell Inversión, S.A., S.G.I.I.C. 601 84,515 27,405 0 184,134 607 84,724 27,405 Yes BanSabadell Renting, S.L. 2,000 3,935 205 0 168,102 3,861 2,519 205 Yes Compañía de Cogeneración del Caribe Dominicana, S.A. 7 65 24 0 14,243 63 0 24 No Compañía de Cogeneración del Caribe, S.L. 2,933 (568) (4,030) 0 2,602 3,007 (2,504) (4,030) Yes Compañía de Electricidad y Cogeneración de Uvero, S.A. 3,205 (596) 325 0 6,829 2,410 680 255 No Dish, S.A. 87 33 6 0 131 136 (16) 6 No Europa Invest, S.A. 125 249 (7) 0 563 336 32 (7) No Europea Pall Mall Ltd. 16,249 (3,466) (108) 0 12,903 20,843 (616) (108) No Explotaciones Energéticas SINIA XXI, S.L. 1,352 3,146 7,730 0 66,073 4,672 10,360 7,730 Yes Gestora Plan HF94, S.L. 3 0 0 0 88 3 0 0 Yes Herrero International, S.A.R.L. 429 3,755 66 0 4,433 1,139 130 66 No Hobalear, S.A. 60 441 37 0 563 414 441 37 Yes Ibersecurities Holding, S.A. 31,581 48,199 666 0 80,648 54,922 (85,547) 666 Yes Ibersecurities,Soc.de V., S.A., Soc.Unip. 3,000 43,766 9,543 0 69,845 76,794 38,737 9,543 Yes Inmobiliaria Asturiana, S.A. 198 4,968 2 0 5,551 3,094 3,970 2 Yes Interstate Property Holdings, LLC. 5,748 0 (901) 0 63,298 5,748 0 (901) No Promociones Argañosa, S.L. (b) 15,807 477 (41,548) 0 877,433 16,455 91 (41,548) Yes
Promociones y Financiaciones Herrero, S.A. 3,456 271 0 0 3,727 24,185 10 0 Yes Banco Sabadell Promotora de Negocios y Representaciones, S.A. (c) 2,705 81 (168) 0 2,649 2,786 0 (168) Yes Sabadell Asia Trade Services Ltd. 0 330 147 0 483 0 330 147 No Sabadell Brasil Trade Services - Ass.Cial Ltda. 1,054 (862) 17 0 225 250 (46) 17 No Sabadell Corporate Finance, S.L. 70 27 267 1,923 695 358 (1,417) 267 Yes
Sabadell d'Andorra Borsa, S.A. 60 14 0 0 45 60 7 0 No 2009 Annual Report Sabadell d'Andorra Inversions Societat Gestora, S.A. 300 216 507 723 816 300 110 259 No Sabadell Information Systems, S.A. 240 (15,350) 9,986 0 95,358 0 (15,351) 9,986 Yes Sabadell International Equity Ltd. 250,001 54 1 0 250,110 1 (11) 11 No Sabadell International Finance, B.V. 2,000 0 205 253 2,239 2,000 20 205 No Sabadell Securities USA, Inc. 137 7 (24) 0 121 127 0 (24) No Santex Pluser, S.L. 5,083 (39) (912) 0 37,554 5,083 (39) (912) No Servicio de Administración de Inversiones, S.A. 6,010 762 0 0 6,772 16,690 (6,094) 0 Yes Servicios Reunidos, S.A. 60 20 0 0 80 67 13 0 Yes Sinia Renovables, S.C.R. de R.S., S.A. 15,000 (7) (423) 0 57,774 15,000 0 (423) Yes Solvia Estate, S.A. 60 0 (3) 0 16,480 60 0 (3) Yes Tecnocredit, S.A. 60 176 293 0 728 1,130 91 293 No Transatlantic Bank Inc. 2,156 39,754 (1,889) 0 325,931 6,469 3,161 (1,889) No Transatlantic Holding Corp. 2,156 9,188 (948) 0 15,651 138,631 (391) (948) No Urquijo Gestión, S.G.I.I.C., S.A. 3,606 15,821 (963) 0 26,411 18,286 2,546 (963) Yes Urquijo Services Patrimoniales (d) 2,073 1,347 (43) 0 13,108 3,356 63 (43) Yes
Total 453,499 955,187 3,912,661 684,848
(1) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2008. 209 (2) Results are subject to approval by the Annual General Meeting of each company. (3) Includes final dividends for the previous year and interim dividends paid to the group during the year. (a) Data shown for these undertakings under "Financial data" are correct as of 30 November 2008. (b) A change of name from Promociones Argañosa, S.L. to Solvia Development, S.L. has been filed for registration with the Mercantile Registry. (c) A change of name from Promotora de Negocios y Representaciones, S.L. to Solvia Gestió Immobiliària, S.L. was registered with the Mercantile Registry in 2009. (d) A change of name from Urquijo Services Patrimoniales, S.L. to Solvia Housing, S.L. was registered with the Mercantile Registry in 2009. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 210
Annex: Banco Sabadell group undertakings at 31 December 2008
Proportional holding (%)
Name of company Principal business Registered office Direct Indirect
Proportionally consolidated companies
Financiera Iberoamericana, S.A. Finance company Havana 50.00 - Plaxic Estelar, S.L. Real estate Barcelona - 45.01 Sabadell BS Select Fund of Hedge Funds, S.I.C.A.V., S.A. Holding company Luxembourg 35.59 -
Total
Equity-accounted companies (1)
Adelanta Corporación, S.A. Services Ourense - 24.00 Aviación Regional Cántabra, A.I.E. Services Boadilla del Monte 26.42 - Aviones Alfambra CRJ-900, A.I.E. Services Madrid 25.00 -
Statutory information Statutory Aviones Cabriel CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Gorgos CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Sella CRJ-900, A.I.E. Services Madrid 25.00 - Banco del Bajío, S.A. Banking León (Mexico) 20.00 - BanSabadell Pensiones, E.G.F.P., S.A. Pension fund managers Sabadell 50.00 - BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros Insurance Sant Cugat del Vallès 50.00 - BanSabadell Vida, S.A. de Seguros y Reaseguros Insurance Sabadell 50.00 - Biodiesel Aragón, S.L. Chemicals Altorricón - 37.51 Centro Financiero B.H.D., S.A. Financial services Santo Domingo 20.00 - Dexia Sabadell, S.A. Banking Madrid 40.00 - EMTE Grupo Empresarial y Corporativo, S.L. Holding company Esplugues de Llobregat - 20.00 Establecimientos Industriales y Servicios, S.L. Electricity utility Barcelona - 26.75 FS Colaboración y Asistencia, S.A. Services Barcelona - 35.00 Garnova, S.L. Food products Granollers - 25.00 Gaviel, S.A. Real estate investment Barcelona 50.00 - General de Biocarburantes, S.A. Chemicals Marina de Cudeyo - 25.00 Grafos, S.A. Arte sobre Papel Graphic artists Barcelona - 45.00 Intermas Nets, S.A. Chemicals Llinars del Vallès - 20.00 Parc Eòlic Veciana-Cabaro, S.L. Electricity utility Barcelona - 40.00 Parque Eólico la Peñuca, S.L. Electricity utility León - 40.00 Parque Eólico Magaz, S.L. Electricity utility Magaz de Pisuerga - 49.00 SBD Creixent, S.A. Real estate Sabadell 23.01 - Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. Investment company Sant Cugat del Vallès 36.34 - Telstar, S.A. Services Terrassa - 20.00
Banco Sabadell Tolosa 161, S.L. Services Terrassa - 23.00
Total
Consolidation adjustments Annual Report 2009 Annual Report
Total
(1) Accounted for by the equity method because the parent company does not have managerial control.
210 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 211
Annex: Banco Sabadell group undertakings at 31 December 2008 €'000 Contribution to reserves Contribution Treated as Financial data (2) Group or losses of to consolidated Dividends Total net consolidated consolidated for tax Name of company Capital Reserves Results (3) paid (4) assets investment undertakings profit purposes
Proportionally consolidated companies
Financiera Iberoamericana, S.A. 15,089 576 2,373 661 57,453 7,443 (371) 1,186 No Plaxic Estelar 3 0 (7,492) 0 43,794 1 0 (3,372) No Sabadell BS Select Fund of Hedge Funds S.I.C.A.V.,S.A. 27,817 1,055 (3,958) 0 25,106 9,900 377 (1,407) No
Total 661 17,344 6 (3,593)
Equity-accounted companies (1)
Adelanta Corporación, S.A. (d) 300 18,288 (210) 0 21,889 37,202 0 669 No Statutory information Statutory Aviación Regional Cántabra, A.I.E. (a) 29,606 (1,618) 403 40 131,003 7,824 546 116 No Aviones Alfambra CRJ-900, A.I.E. (a) 4,390 (854) (205) 0 30,913 1,060 (150) (56) No Aviones Cabriel CRJ-900, A.I.E. (a) 4,389 (854) (203) 0 30,941 1,060 (150) (55) No Aviones Gorgos CRJ-900, A.I.E. (a) 4,388 (858) (198) 0 31,023 1,060 (152) (54) No Aviones Sella CRJ-900, A.I.E. (a) 4,387 (855) (200) 0 31,050 1,060 (151) (54) No Banco del Bajío, S.A. (a) 111,302 269,411 50,126 3,325 3,617,585 78,318 12,024 11,985 No BanSabadell Pensiones, E.G.F.P., S.A. 7,813 16,694 6,304 9,324 35,196 9,378 3,441 3,152 No BanSabadell Seguros Generales, S.A. de Seg. y Reas. 10,000 1,737 781 0 40,639 5,000 908 391 No BanSabadell Vida, S.A. de Seguros y Reaseguros 43,858 142,242 22,645 0 5,206,839 27,106 65,829 11,323 No Biodiesel Aragón, S.L. (a) 4,630 302 (642) 0 28,152 2,137 0 (263) No Centro Financiero B.H.D., S.A. (a) 77,327 18,759 37,858 4,656 1,436,638 27,978 755 10,596 No Dexia Sabadell, S.A. (a) 237,061 50,732 34,837 0 15,084,403 101,226 20,556 15,824 No EMTE Grupo Empresarial y Corporativo, S.L. (b) 15,000 112,008 992 0 244,985 26,177 876 1,400 No Establecimientos Industriales y Servicios, S.L. (a) 49 6,110 45 0 35,548 37,436 0 1,671 No FS Colaboración y Asistencia, S.A. (b) 600 857 426 0 3,454 887 (388) 175 No Garnova, S.L. (a) 52,303 8,293 17,560 0 101,057 42,814 0 4,017 No Gaviel, S.A. (a) 1,203 13 34 0 2,418 630 2 18 No General de Biocarburantes, S.A. (a) 4,960 (3,516) (284) 0 11,919 2,250 (131) 0 No Grafos, S.A. Arte sobre Papel (b) 1,800 7,107 (1,458) 0 29,593 3,781 (351) (788) No Intermas Nets, S.A. (b) 24,581 5,850 3,629 65 105,784 22,213 0 780 No Parc Eòlic Veciana-Cabaro, S.L. (a) 2,850 (571) (494) 0 25,821 1,320 0 (216) No Parque Eólico la Peñuca, S.L. (a) 3,333 2,838 2,312 0 42,581 1,339 1,056 1,000 No Parque Eólico Magaz, S.L. (a) 1,500 (28) (296) 0 14,820 4,390 0 (157) No SBD Creixent, S.A. (a) 12,895 (284) (11) 0 20,906 2,968 (6) 0 No Banco Sabadell Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. 4,818 4,779 (802) 127 5,961 422 2,090 (291) No Telstar, S.A. (d) 700 25,637 (1,050) 0 91,145 6,110 697 100 No Tolosa 161, S.L. (a) 9 (2) (1) 0 6 2 0 0 No
Total 17,537 453,148 107,301 61,283 2009 Annual Report
Consolidation adjustments (68,703)
Total 471,697 1,425,679 4,019,968 673,835
(1) Accounted for by the equity method because the parent company does not have managerial control. (2) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2008. (3) Results are subject to approval by the Annual General Meeting of each company. (4) Includes final dividends for the previous year and interim dividends paid to the group during the year. (a) Data shown for these undertakings under "Financial data" are correct as of 30 November 2008. (b) Data shown for these undertakings under "Financial data" are correct as of 31 October 2008. (c) Data shown for these undertakings under "Financial data" are correct as of 30 September 2008. (d) Data shown for these undertakings under "Financial data" are correct as of 30 June 2008.
211 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 212
Consolidated report of the directors for the year 2009
Macroeconomic environment
The early months of the year 2009 continued to be characterized by high degrees of financial market and economic uncertainty and instability. In the global markets financial institutions continued to struggle to gain access to wholesale funding and share prices fell sharply. The economic downturn that had begun the previous year became deeper and more widespread as the first quarter progressed, exacerbated by a sharp fallback in international trade. Meanwhile, fears of a possible deflationary spiral became more acute. Against this worsening backdrop, economic policymakers continued to implement exceptional fiscal and monetary Statutory information Statutory measures to boost expansion, including additional support for the financial system. Central banks continued to inject large amounts of liquidity into the system, encouraged by levels of inflation that remained subdued and in some cases negative. With official interest rates at historically low levels, monetary authorities continued to pursue unorthodox policies focused mainly on purchases of government and corporate bonds. In the euro area the European Central Bank maintained its fixed-rate tender procedure with full allotment at maturities up to one year; it also launched a programme to buy up euro zone issues of guaranteed and mortgage-backed covered bonds. The financial crisis spurred efforts to strengthen the global financial system through new regulation and a more prominent role on the part of international financial institutions. In Spain, the government's policy of fiscal easing has been significant from an international perspective, and has favoured increases in spending as well as tax cuts. Of the various financial initiatives adopted in Spain, one of the most significant was the establishment of a Fund for Orderly Restructuring of the Banks (Spanish abbreviation: FROB) with the aim of guiding restructuring processes within the financial sector and boosting capital resources in a number of banking consolidations. The large-scale, exceptional economic policy measures taken throughout the world saw considerable progress being made in restoring financial stability and stimulating global economic recovery as the year progressed. Financial markets improved from the second quarter onwards as risk premia declined in the interbank and credit markets and financial markets gradually resumed normal functioning. Stock market prices rebounded strongly and there was a significant Banco Sabadell decline in market volatility. This allowed the financial system to reduce its dependence on government support programmes and a number of banks that had been saved by government intervention were able to reduce the proportion of their share capital in public ownership. Economic activity showed a general improvement in the second half of the year,
Annual Report 2009 Annual Report having suffered the worst recession since World War II. Recovery was spearheaded by the emerging markets, especially in Asia. The speed and strength of recovery in countries like China and Brazil contrasted with a tardier and more sluggish revival in Mexico and Eastern Europe. Developed countries benefited from the pick-up in world trade and some of them have begun to see signs of stabilisation in their housing markets. In Spain domestic demand continued to slow, although exports recovered from the second quarter onwards. As a result the country's current account deficit narrowed sharply, while household savings rates reached historic highs, property prices fell further and unemployment reached its highest level since the inception of monetary union. On the inflation front, consumer price indices generally responded to the improved economic climate as deflation fears subsided, although any inflationary pressures were kept at bay by large amounts of spare capacity and raw material prices below 2008 levels. In the fiscal domain, the expansionary policies pursued by governments and the automatic triggering of stabilization mechanisms resulted in a severe and widespread worsening in public finances, with a number of countries showing double-digit government deficits by the end of the year. This meant that the risks taken on by financial institutions were 212 transferred to the public sector, and credit rating agencies responded by downgrading the credit ratings of the sovereign debt of several economies, including a number of peripheral euro area countries. Despite the improving economic and financial environment, economic policymakers have remained cautious on the timing of any withdrawal of financial support measures. Underlying this reticence are doubts about the sustainability and strength of economic recovery and the fact that a number of financial markets have still not recovered. Consequently, only a few central banks have begun to be clearer about their exit strategies from unorthodox policies. One of these is the European Central Bank, which announced the withdrawal of some of its loan facilities from the start of 2010. For similar reasons, governments are not anxious to move towards an active exit strategy until economic recovery has consolidated. Only certain countries with very large budget deficits have begun to take steps to contain their borrowing. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 213
Turning to market returns, long-term government bonds ended the year in negative territory on both sides of the Atlantic as yields picked up in the first half of the year. In the second half, however, yields remained relatively static despite an improving economic outlook, increasing levels of government bond issuance and risk appetite on a rising trend. These factors were neutralized by a strong demand for bonds from financial institutions and central banks, official interest rates that remained at unusually low levels, and uncertainty over the sustainability of economic recovery. In the euro area, credit spreads on the debt of a number of countries over the German Bund at the beginning of the year reached their highest point since the inception of economic and monetary union. These spreads subsequently eased, although they remained well above their long-term averages. Meanwhile, the emerging markets continued to benefit from the support of international financial institutions and, as the year progressed, from an increase in risk appetites globally. As a result, country risk premia for these markets have fallen back to levels similar to what they were before the Lehman Brothers collapse. In the currency markets the dollar continued to weaken against the euro. The US currency was weighed down by doubts over the sustainability of the country's public finances and over the dollar's future as a reserve currency. A climate of declining risk aversion and a negative interest rate gap for the US also contributed to this decline. Elsewhere, the yen information Statutory began to appreciate against the dollar from the second quarter onwards, reaching levels not seen since 1995. The yen was supported by Japan's balance of trade surplus and improving economic performance. However, the yen's upward movement saw a partial reversal in December as the Japanese authorities threatened to intervene on the currency markets to prevent the currency from rising too far. Sterling remained weak against the euro on the back of aggressive monetary easing by the Bank of England. The equity markets ended the year with sharp rises. Apart from the gradual recovery of economic and financial market conditions, this strong performance was helped by positive corporate earnings surprises.
Balance Sheet
Total assets stood at €82,822.9 million at the end of 2009, a rise of 3.0% compared with the previous year. Gross loans and advances to customers reached a year-end figure of €65,012.8 million, up 0.5% on the previous year. In a context of reduced lending activity throughout the financial services industry, mortgage loans nonetheless grew by 3.0% over the year, reaching a figure of €32,022.0 million. Other forms of credit such as factoring and "confirming" increased by 9.6% overall. Banco Sabadell On-balance sheet customer funds were €38,131.2 million, a year-on-year rise of 5.5% that was driven by the Bank's focus on increasing the supply of funds available for lending. Of particular significance was the growth of term deposits,
which reached a year-end total of €22,149.9 million (€899.6 million up on the previous year's figure) and of current 2009 Annual Report accounts, which grew by €97.5 million to reach a year-end total of €14,981.4 million. Debt certificates and bonds increased to €22,812.4 million, up 3.6% compared with the end of the previous year. Assets held in Collective Investment Schemes (CIS's) totalled €9,150.7 million at the close of 2009, a fall of 3.0% that was consistent with the economic and financial market conditions that prevailed throughout the year. Assets in pension funds sold by the group, on the other hand, increased by 14.2% on the year before, rising to €2,788.0 million by the end of the year. Sales of insurance policies were up 31.7%, with end-year sales reaching €5,380.4 million compared with €4,086.2 million at the end of 2008. Overall, customer funds under management at the close of the year 2009 amounted to €82,247.1 million, up from €80,414.9 million in 2008.
213 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 214
Income and profit performance
In a business climate affected by adverse trading conditions, success in ensuring that average levels of lending and deposits remained steady, plus the ability to effectively manage business margins and keep recurring costs firmly under control, were critical to the attainment of a consolidated profit and loss account for 2009 that continued to show positive margin growth across the group's core businesses. In a year characterized by rates of interest at historic lows and fierce competition for funds to finance new lending, the interest margin for 2009 totalled €1,600.6 million, an increase of 10.2% on the previous year's figure. The contribution of equity-accounted undertakings to group profits for the year increased by 13.0% to €71.9 million, with significant contributions from Dexia Sabadell and the group's Bancassurance associates. Net fee and commission income was €511.2 million. This was a fall of 8.4% on the previous year and reflected the prevailing economic and financial market situation, although there was a slight improvement in the latter months of 2009. Net gains on financial assets and liabilities amounted to €248.2 million and included gains of €96.8 million on Statutory information Statutory redemptions of preference shares, and net gains of €112.7 million on the disposal of financial assets available for sale. Gross income totalled €2,505.0 million, up 12.5% on the figure for 2008. Operating costs in 2009 reached €1,036.8 million, including €86.6 million in severance payments. Recurring costs in operating expenses for 2009 were down by 1.0% overall from the 2008 figure thanks to cost control initiatives and actions carried out as part of the group's programme to improve operating efficiency. The cost:income ratio, if non- recurring costs and the €96.8 million profit on the preference share buy-back are ignored, was 39.46%, a significant improvement on the 43.12% achieved in 2008. All this brought the consolidated operating profit for the year to €1,325.5 million, up 18.9% on the year before. Net loan loss provisions amounted to €192.1 million; this included an extraordinary provision for €391.5 million, which was more than offset by released generic provisions of €756.6 million. The year 2009 also saw write-downs of financial and property assets totalling €645.6 million, including impairment provisions in respect of real estate assets and equity holdings in BCP and Metrovacesa. The net profit for the year 2009 was €522.5 million, down from the previous year's €673.8 million, which had included a profit of €418.4 million on the sale of 50% of the group's insurance business to Zurich. The group's Tier 1 capital ratio was 9.10% and core capital was 7.66%. Banco Sabadell
Branch network
Annual Report 2009 Annual Report Banco Sabadell ended the year with a total of 1,214 branches, 33 less than at the close of 2008. Of this total, 908 branches were operating under the SabadellAtlántico name (including 52 specialist business banking branches and 2 specialist corporate banking branches); 181 (including 4 business banking branches) were part of the Banco Herrero network in Asturias and León; 14 were part of the Banco Urquijo network; 85 were operating under the Solbank brand that serves foreign residents in Spain's coastal areas, and the remaining 24 made up the group's international network. Two ActivoBank customer service centres completed the network.
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Divisional review
Commercial Banking
€'000 2009 2008 Change y.o.y. (%)
Interest margin 1,340,226 1,260,343 6.3
Fees and commissions (net) 428,089 462,447 (7.4) Other income 45,551 64,470 (29.3)
Gross income 1,813,866 1,787,260 1.5
Operating expenses (861,022) (862,596) (0.2)
Operating profit 952,844 924,664 3.0 information Statutory
Impairment losses (579,638) (462,501) 25.3
Profit or loss before tax 373,206 462,163 (19.2)
Ratios (%): ROE 11.0% 12.6% Cost:income ratio 45.7% 46.5% Loan loss ratio 4.2% 2.4% Doubtful debt coverage ratio 69.2% 104.4%
Business volumes (€Mn) Loans and advances 50,384 51,996 (3.1) Customer accounts 41,328 39,452 4.8 Securities 6,886 7,505 (8.2)
Other information: Employees 6,505 7,454 (12.7) Branches in Spain 1,172 1,208 (3.0) Banco Sabadell
Commercial Banking is the largest of the group's business lines. It focuses on providing financial products and services to large and medium-sized businesses, SMEs, retailers and individuals – including private banking, personal banking and
mass market services – and to non-residents and professional groupings. A strong focus on market specialization 2009 Annual Report ensures that customers receive a personalized service to suit their needs, whether from expert staff assigned to branches operating under the various group brands, or via other channels that support the customer relationship and provide access to remote banking services. In 2009 the interest margin attributable to the Commercial Banking division totalled €1,340.2 million, an annual rise of 6.3%. It's pre-tax profit was €373.2 million. The ROE for the division was 11.0% and the cost:income ratio was 45.7%, an improvement of 0.8 percentage points compared with the previous year. Loans and advances totalled €50,384 million and customer funds stood at €41.328 million.
Corporate Banking and Global Businesses
Corporate Banking and Global Businesses offers a range of products and services to large corporates and financial 215 institutions in Spain and abroad, and covers the following business areas: International Trade, Consumer Finance, Development Capital, Treasury and Capital Markets, Corporate Finance and Structured Finance. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 216
Corporate Banking The Bank's major clients are served by a team of expert managers located in Madrid, Barcelona, London, Paris and Miami. The division's business model is based on an offering of specialized financing services and a comprehensive range of solutions from transaction banking to more sophisticated, tailor-made solutions in such areas as financing, treasury services and corporate finance. The year 2009 was made particularly difficult by market liquidity problems and a generally worsening economic environment. These adverse conditions were key to establishing the division's priorities for the year: close monitoring of debtor performance; extreme caution in the acceptance and pricing of new loans; and ensuring that the good levels of funding achieved the previous year were maintained. As in 2008, there was an noticeable reduction in business activity by some financial institutions which had previously been active players in corporate banking. Banco Sabadell, however, continued to serve this market actively, taking over some of the business of banks that had reduced their market presence and thus strengthening its position and boosting its image among larger corporates. Statutory information Statutory
€'000 2009 2008 Change y.o.y. (%)
Interest margin 140,322 124,569 12.6
Fees and commissions (net) 40,835 34,850 17.2 Other income 8,245 9,040 (8.8)
Gross income 189,402 168,459 12.4
Operating expenses (32,919) (37,665) (12.6)
Operating profit 156,483 130,794 19.6
Impairment losses (91,642) (64,447) 42.2 Other gains/losses 0 (16) (100.0)
Profit or loss before tax 64,841 66,331 (2.2)
Ratios (%): Banco Sabadell ROE 6.2% 6.8% Cost:income ratio 17.2% 22.2% Loan loss ratio 0.9% 1.2% Doubtful debt coverage ratio 158.5% 176.3% Annual Report 2009 Annual Report
Business volumes (€Mn) Loans and advances 10,712 9,450 13.4 Customer accounts 4,175 4,306 (3.0) Securities 1,363 2,657 (48.7)
Other information: Employees 95 110 (13.6) Branches in Spain 2 2 0.0 Branches abroad 2 2 0.0
The division's performance during the year was very positive, with lending growing by 13.4% and customer deposits falling by 3.0%; this, combined with rigorous pricing and cost controls, helped to bring about a 19.6% increase in operating profit. Default rates, thanks to constant monitoring throughout the year, remained practically unchanged compared with 216 2008. Sales and promotional activity remained at a high level during the year, with business growth in both working capital products and long and medium-term investment products. Fee and commission income was another priority area in 2009 (up 17.2%), the aim being to maximize returns on credit exposures from the point of view of their associated capital cost. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 217
Banco Urquijo
Banco Urquijo SBP
€'000 2009 2008 Change y.o.y. (%)
Interest margin 26,146 31,810 (17.8)
Fees and commissions (net) 19,633 20,715 (5.2) Other income 4,810 5,748 (16.3)
Gross income 50,589 58,273 (13.2)
Operating expenses (36,360) (38,369) (5.2)
Operating profit 14,229 19,904 (28.5) information Statutory
Provisioning expense (net) 923 (167) -- Impairment losses (1,664) (7,209) (76.9) Other gains/losses (148) (294) (49.7)
Profit or loss before tax 13,340 12,234 9.0
Ratios (%): ROE 5.6% 3.4% Cost:income ratio 61.7% 56.4% Loan loss ratio 0.9% 0.8% Doubtful debt coverage ratio 158.5% 180.3%
Business volumes (€Mn): Loans and advances 1,078 1,247 (13.6) Customer accounts 3,818 4,064 (6.1) Securities 3,303 4,003 (17.5)
Other information:
Employees 240 275 (12.7) Banco Sabadell Branches in Spain 14 15 (6.7)
Banco Urquijo is one of the most highly regarded and well-established names in the Spanish banking market, and is Annual Report 2009 Annual Report looking to consolidate its position as Spain's best private banking organization thanks to the ability to adapt constantly to a changing financial environment that it has shown throughout its 130-year history. For the second year in succession, Banco Urquijo was selected by the authoritative business publication Euromoney for its Best Spanish Private Bank award and given top ranking in ten categories of the award. The magazine also included Banco Urquijo in its list of the top 25 most highly valued specialist private banks. This accolade is a clear confirmation of Banco Urquijo's leading position and its commitment to excellence in service delivery, professionalism, value creation – through its prime objective of maximizing customer returns – and innovation. Along with the Euromoney award, Banco Urquijo earned recognition from other sources such as the business daily Expansión, which awarded Banco Urquijo its prize for best manager of conservatively managed funds for 2009. These differentiating factors were recognized in a research study of the private banking market by consultants PricewaterhouseCoopers, which identified the strength of its customer relationships as being well above the industry average and one of Banco Urquijo's outstanding features. Banco Urquijo currently has a network of 14 branches located in all the country's main financial centres and a team of 217 240 highly qualified people who are committed to working with the customer, rather than just for the customer. A 360-degree relationship model, together with a fully comprehensive product and service package, ensure the highest degree of personalization across all services: asset management through Urquijo Gestión, S.G.I.I.C. – the first asset manager to register with Spain's securities market regulator, the CNMV; financial planning; wealth and tax planning; and research. These services go hand in hand with an ongoing commitment to innovation and new technology, ensuring that Banco Urquijo customers can be served via a variety of channels, including telephone and online banking; mobile phone services and email communication; and specialist publications catering for different interests: Urquijo Diario, Urquijo Opinión and Urquijo Notas Jurídicas, all regarded as authoritative sources by the financial services industry. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 218
Despite tough economic and financial conditions in Spain and abroad, Banco Urquijo was able to report top line revenue of €8,199 million, with funds under management and customer deposits totalling €7,121 million and loans and advances to customers of €1,078 million, together with stringent measures to keep costs and loan defaults to a minimum. Pre-tax profits were €13.3 million, up 9% on the previous year. In its asset management operations, Banco Urquijo was offering a total of 157 OEICs managed by Urquijo Gestión, S.G.I.I.C., with assets under management of €1,146 million, making it Spain's third largest asset manager in terms of OEIC assets. In 2009 Banco Urquijo was one of the most successful banks in terms of asset inflows, attracting a total of €130 million of investment in new OEICs or increased shareholdings in existing ones and continuing to build and strengthen customer relationships in this way. Through its policy of combining profitability with social responsibility, Banco Urquijo confirmed its continuing aim of showing its commitment to the environment and to society. For this reason, it has entered into a partnership with the Fundación Empresa y Sociedad (Foundation for Business and Society) and the Fundación Lealtad (Loyalty Foundation) Statutory information Statutory which gives it access to advice on all matters related to ethical and socially responsible investment as well as on community-based activities to complement those already being carried on by Banco Sabadell. Banco Urquijo was the first bank to launch a socially responsible OEIC on the Spanish market and currently holds a leading position among financial institutions offering socially responsible products. It has two ethical and socially aware Collective Investment Schemes: Urquijo Cooperación SICAV and Urquijo Inversión Solidaria FI. These corporate social responsibility programmes are managed by an Ethics Committee, which in 2009 set up the first highly successful volunteer programmes among the bank's employees in partnership with two charitable organizations, Junior Achievement España and the Theodora Foundation.
Asset Management
Banco Sabadell has a team of highly skilled people to perform the roles of directing and managing investments for customers, selecting saving and investment solutions, analysing, making and publishing investment recommendations and generally operating the business of managing collective investment schemes.
Asset Management Banco Sabadell
€'000 2009 2008 Change y.o.y. (%)
Annual Report 2009 Annual Report Gross income 34,779 41,192 (15.6)
Operating expenses (18,130) (17,509) 3.5
Operating profit 16,649 23,683 (29.7)
Other gains/losses 0 1,401 --
Profit or loss before tax 16,649 25,084 (33.6)
Ratios (%): ROE 30.5% 45.9% Cost:income ratio 52.2% 42.5%
Business volumes (€Mn) Assets under management in CIS's 8,239 8,548 (3.6) 218 Total assets in CIS's including schemes sold but not managed 9,151 9,436 (3.0)
Other information: Employees 144 148 (2.7) Branches in Spain ------
The group's Asset Management business, which is part of its investment management operations, combines asset management with the selling and operation of collective investment schemes (CISs); it also manages investments for other Banco Sabadell businesses that hold portfolios of assets. At the close of 2009 total assets under management by the Spanish-domiciled mutual fund industry, including real estate investment funds, were €169,031.7 million after the industry had seen a cumulative net outflow of €11,640.1 million. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 219
The Banco Sabadell group, with mutual fund assets under management amounting to €6,633.6 million at the close of the year, did slightly better than the industry as a whole, outperforming it by 0.1%. A €184.9 million overall increase in the value of its funds offset the 45.3% of value lost through net redemptions. Guaranteed return funds suffered the highest net outflows during the year, with redemptions amounting to €392.6 million. The group's offering of guaranteed return funds was maintained during the year and return guarantees were issued in respect of five guaranteed funds totalling €439 million at 31 December 2009. Assets in guaranteed return funds amounted to €2,005.5 million at the end of the year. Sabadell BS Inmobiliario, FII, launched in early 2004, with a total of 12,991 fundholders and assets of €1,024.1 million in 2009, had firmly established its position as the Spanish market's leading real estate investment vehicle. The year saw Banco Sabadell mutual funds once again being awarded accolades and distinctions. Sabadell BS Fondtesoro Largo Plazo, F.I. was selected by independent investment analysts Morningstar and business daily La Gaceta de los Negocios for the Best Fund prize in the three-year euro short-term fixed-income category. Fidefondo F.I. was chosen by Interactive Data, a world leader in the provision of financial information, and the business daily Expansión as the best mutual fund in the euro short-term fixed-income category. Urquijo Patrimonio Privado 2, F.I. received an award from Lipper, information Statutory a leading provider of mutual fund research, analytical tools and comment, as Best Fund in the euro three-year global balanced fund category. Sabadell BS Renta Fija Mixta España, F.I., a balanced fixed-income fund, and Sabadell BS Renta Variable Mixta España, F.I. a balanced Spanish equity fund, were awarded AA ratings indicating management of very high quality, by rating agency and mutual fund analyst Standard & Poor's. The agency also reviewed and confirmed its “very high” and “high” quality ratings for 11 mutual funds which had already been quality rated. BanSabadell Inversión once again took the lead as the fund manager with the highest number of quality rated funds and achieved 52% of the quality ratings awarded by Standard & Poor's to Spanish-domiciled mutual funds overall. The year 2009 saw the completion of 20 mergers in which a total of 22 funds and three investment companies (OEICs) were merged into other funds or OEICs with the same investment objectives in the best interests of investors; in addition, three new mutual funds were launched. At the close of the year the group's Spanish-domiciled collective investment schemes had reached a total of 256, with management split between BanSabadell Inversión, S.A., S.G.I.I.C. (97) and Urquijo Gestión, S.A. S.G.I.I.C. (159).
Research and development Banco Sabadell
The year 2009, like the one before, was overshadowed by the global financial crisis, the fall in business activity, rising default rates and tightening credit markets. Against this background, efforts on the information systems front were
focused on two main areas: first, providing innovative tools to break new ground in offering new products and services to 2009 Annual Report customers; and second, optimizing or eliminating processes and replacing them with new services made possible by the new technologies. These initiatives were directed mainly at minimizing risk, improving competitiveness and exploiting innovation to bring Banco Sabadell closer to its customers, more effectively and at a lower cost. Innovation was thus harnessed to further business aims, by providing multi-channel solutions to enhance the customer experience in an affordable way. Key IT projects in 2009 included the following:
• The Portal Móvil application: this has been developed for mobile devices to allow the user to access a range of on- line banking facilities and services combined, in some cases, with a phone call function to speak to an account manager or to manage SMS alerts, find the location of the nearest ATM or branch, find places on the map, top up a mobile phone, view and manage direct debits and generally access a whole range of mobile services that let
customers do their banking while on the move. 219 • Completion of the Workflow Manager project: this is part of the "Plan Óptima" programme and is improving operational efficiency by incorporating new workflows into the document manager. The Workflow Manager aims to minimize branch level workloads by re-allocating work to Regional Administrative Centres, thus achieving optimal levels of efficiency and process control. • Active Risk Management: This initiative will enable the Bank to actively manage credit risk as part of the selling process as well as during the approval, arrangement and management stages. The introduction of new risk management algorithms will allow a proactive approach and early action to be taken to prevent or anticipate possible situations of default. • A new communications network covering all Central Services buildings and all branches. The system will have sufficient bandwidth to support a multimedia, real time working environment and will include VoIP telephony. The network will provide the required degree of redundancy over critical sections to fully support contingency plans. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 220
• Mainframe platform upgrade: this will deliver increased power with a reduction in energy use and lower costs, and will support Central Services processes and new transaction synchronization technology to guarantee continuous operation of the two data processing centres in the event of a contingency occurring at one of them. • A pilot test of branch office virtualization: this means that computers in branches are replaced with Thin Client systems offering a number of advantages: lower energy consumption, reduced noise, shorter log-on times, higher data security and savings in system maintenance and management costs. The project will be extended to all branches in the course of 2010.
Outlook
Banco Sabadell will continue the “Plan Óptima” programme that it launched in 2008, which is well suited to the current economic climate.
Statutory information Statutory In an environment of higher loan delinquency, tight liquidity and slower lending growth, the Bank will continue to focus on improving performance in sales productivity and operating efficiency, balance sheet and capital management, risk control and ever stricter cost management. Plan Óptima, as its name suggests, is all about business optimization. It has two main aims: to maintain performance stability in an extremely difficult economic climate, and to strengthen and consolidate Banco Sabadell's franchise as a leading provider of banking services to businesses and individuals through to the post-crisis period.
Risk management
A full description of risk management policy in the Banco Sabadell group can be found in Note 35.
Customer Service Department
The Customer Service Department is part of the control function within the Banco Sabadell group. The head of the
Banco Sabadell Department is appointed by the Board of Directors and reports directly to the Comptroller General. The Department is responsible for looking into and resolving claims or complaints from customers and other users of the group's financial services that relate to their legal rights and interests under contracts or arising from disclosure requirements, customer
Annual Report 2009 Annual Report protection regulations and financial services industry best practice. In addition to this primary function, the Department provides assistance and information to customers and users on matters that do not amount to complaints within the meaning of the Spanish Economics Ministry's Order 734/2004 of 11 March and the group's own Regulations for the Protection of Customers and Users. A total of 954 cases of this type were handled by the Department in 2009, down from 1,237 in 2008. Average response times in dealing with claims and complaints were 39.30 days in highly complex cases (30.92 days in 2008); 16.63 days for cases of medium complexity (7.95 days in 2008); and 9.85 days in cases of low complexity (6.73 days in 2008). This compares with the 60-day maximum response time under the Economics Ministry's Order and the group's own Regulations for the Protection of Customers and Users. According to the annual report published by the Bank of Spain's Complaints Department for the year 2008, Banco Sabadell continued to show the lowest ratio (number of complaints/turnover in €Mn.) of complaints handled by the Bank of Spain.
220 Cases handled In 2009 the Customer Service Department received 3,064 cases (2,318 in 2008), of which 2,991 (2,267 in 2008) were looked into according to the procedure established by the Economics Ministry's Order 734/2004 of 11 March. A total of 3,006 cases were resolved or otherwise dealt with (2,116 in 2008), of which 58% were complaints and 42% were claims (same percentages in 2008). At the end of the year 224 cases remained unresolved (243 in 2008). Of the total number of cases examined by the Customer Service Department, 25% resulted in a decision favourable to the customer or user (same percentage in 2008); 1% were settled by agreement with the customer or user (3% in 2008%), and 9% were resolved partly in the customer or user's favour (8% in 2008). The remaining 65% of cases resulted in a decision favourable to the group (64% in 2008). 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 221
Customer and Stakeholder Ombudsman The group has a Customer and Stakeholder Ombudsman, a role which is performed by Esteban María Faus Mompart. The Ombudsman deals with claims or complaints referred to him by customers or users of the Banco Sabadell group, either directly or on appeal from a prior procedure. He also adjudicates on cases referred to him by the Customer Service Department. A total of 401 cases were received by the Ombudsman directly (301 in 2008) and another 48 were referred to him by the Customer Service Department (34 in 2008). Of the 449 claims received (335 in 2008), 441 were looked into and resolved by the Ombudsman (298 in 2008), with 55% being decided in the group's favour (62% in 2008) and 21% in the customer's favour (23% in 2008). Of the other cases where a decision or other settlement was reached, the Bank accepted the claim or complaint in 3% of cases (same percentage in 2008) and 17% resulted in decisions only partly favourable to the group (7% in 2008%). In 2% of cases (same percentage in 2008), the Ombudsman declared the matter to be beyond his competence (without prejudice to the claimant's right to take his claim elsewhere) and a further 2% were settled by agreement with the customer or user (7% in 2008). Statutory information Statutory
Complaints to Supervisory Authorities Under Spanish law customers and other users of financial services are entitled to submit complaints or claims to the Bank of Spain's complaints department, to the stock market regulator (CNMV), or to the Directorate-General for Insurance and Pension Plans. To do so, however, they must first have sought a resolution of the issue by raising it directly with the bank or other institution involved. Banco Sabadell Annual Report 2009 Annual Report
221 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 222
Corporate Governance
As required by Article 116 of the Stock Market Law, the Banco Sabadell group has prepared an Annual Report on Corporate Governance for the year 2009, which forms part of this Report of the Directors and has been provided with this volume in CD format. The information provided in the report is that required by Ministerial Order ECO 3722/2003 of 26 December and CNMV Circular 4/2007 of 27 December and includes a section setting out the procedures put in hand by the Bank to verify compliance with the recommendations on corporate governance that currently exist in Spain. All information required by Article 117 of the Stock Market Law as redrafted by Law 26/2003 of 17 July and by Order ECO 3722/2003 of 26 December can be found on the Banco Sabadell website www.bancsabadell.com, under "Corporate Governance".
Additional Information for listed companies Statutory information Statutory
Capital structure Details of the group's capital structure can be found in note 26 of this Report, including details of any classes or series of shares, the rights and obligations attaching to those classes or series and the proportion of the share capital they represent.
Transferability restrictions and associative agreements Under Article 30 of the Bank's Articles of Association shares are freely transferable. On 27 July 2006 an associative agreement was entered into by a number of shareholders, the purpose of which was to regulate certain limitations on the transferability of shares in the Bank held by them directly or indirectly. Clause 2.2 of the associative agreement reads as follows: “Without prejudice to the relevant articles of the Articles of Association or to the provisions of Clause 2.1 hereof on transfers of shares, and with the binding force inherent in any agreement, we hereby agree and bind ourselves to abstain from selling, transferring, assigning, surrendering up or otherwise dealing with or charging the rights in the shares or any voting or dividend rights attaching thereto without granting a preferential right of purchase to the others in respect of any shares to be so transferred.” The agreement will remain in force for ten years, after which the agreement (unless expressly terminated) will be Banco Sabadell renewed automatically for successive periods of five years.
Significant shareholdings and restrictions on voting rights
Annual Report 2009 Annual Report Significant shareholdings in Banco Sabadell and restrictions on voting rights are set out in note 26 to these annual accounts.
Appointment and removal of directors Under the Bank's Articles of Association, the Board of Directors must consist of not more than 13 or less than 11 members, made up of shareholders appointed by the General Meeting, who hold office for five years and may be reelected; directors are not required to furnish any guarantee except as required by article 54 of the Articles of Association, and are bound to perform their duties faithfully and with all due care and diligence; they are prohibited from disclosing any confidential information of which they become aware in the course of their duties, notwithstanding that they have ceased to hold office as directors. On reaching the age of 70, a director may serve out the term for which he was appointed, but is not eligible for reelection. 222 Any vacancies arising on the Board of Directors are filled by the General Meeting unless the Board of Directors, in the interests of the Company, avails itself of its power to co-opt under article 138, paragraph 2 of the SA Companies Act [Ley de Sociedades Anónimas]. The holders of any shares that are combined in the manner and subject to the requirements set out in Article 137 of the SA Companies Act may appoint directors in respect of those shares. A director may be removed from office by the General Meeting at any time. Holding office as a director is compatible with the holding of any other office or situation in or under the Company. The Board of Directors may submit nominations for honorary directors to the General Meeting in respect of any directors who have retired by reason of age or have declined to offer themselves for reelection. Honorary directors may attend meetings of the Board if invited to do so, and may speak but not vote at such meetings. The appointment of a director will take effect on acceptance by the appointee. 109-223-Blau 09 ang.qxp 12/3/10 12:58 Página 223
Amendments to the Articles of Association Amendments to the Articles of Association require a resolution of the General Meeting and the following rules apply:
a) The directors or, if applicable, shareholders proposing the amendment must prepare a written statement giving reasons for the amendment. b) The proposed amendments must be clearly set out in the notice calling the General Meeting. c) The notice calling the General Meeting must include a clear statement of the right of any shareholder to examine, at the Company office, the full text of the proposed amendment and the written statement of reasons for the amendment, and to have these documents delivered or sent to him free of charge on request. d) A resolution to amend the Articles of Association must be adopted by the General Meeting in accordance with articles 41 or 44 of the Articles of Association.
Any amendment to the Articles of Association that would impose new obligations on shareholders is subject to the
shareholders concerned being willing to accept the amendment. information Statutory
Powers of the Board of Directors, including powers relating to the issue or repurchase of shares Article 58 of the Bank's Articles of Association states that, with the exception of those matters that require a resolution of the General Meeting, the Board of Directors is the highest organ of governance of the Company and is responsible under the law and the Articles of Association for managing the Company and acting on its behalf. Subject to the Articles of Association and to any resolution of the General Meeting, the Board of Directors acts on behalf of the Company and its decisions are binding on the Company. The Board of Directors has the power to take such action as may be necessary for the realization of the objects of the Company in accordance with the Articles of Association. Without prejudice to the aforesaid powers, the basic function of the Board of Directors is to act as an instrument of supervision and control and to delegate responsibility for the ordinary business of the Company to the executive functions and to senior management. No powers which, by law or by these Articles of Association, are required to be exercised directly by the Board or are necessary for the responsible exercise of its overall supervisory function may be delegated as aforesaid. Accordingly, to ensure that the Board's overall supervisory function is performed in a proper and diligent manner, the
Board shall by directly responsible for: Banco Sabadell
a) Approving the overall strategy of the Company.
b) Appointing and removing the most senior executives of the Company and of other companies forming part of the 2009 Annual Report consolidated group. c) Appointing and removing directors of subsidiary companies. d) Identifying the main risks to which the Company is exposed and implementing and supervising suitable internal controls and reporting systems. e) Establishing policies for reporting to and communicating with shareholders, markets and the general public. f) Deciding on policy with regard to the holding of treasury shares in accordance with any guidelines laid down by the General Meeting. g) Authorizing any transactions between the Company and directors or significant shareholders that could result in a conflict of interest. h) Generally deciding on any business or financial transaction of particular significance to the Company.
Agreements between the Company and persons in managerial or executive posts involving the payment of compensation on termination of their employment 223 Contracts have been entered into with members of the senior management group that contain guarantee or protection clauses in the event of dismissal or of a change in the control of the Company, and provide for the payment of two years' basic salary plus any compensation payable under the terms of the collective agreement for the banking industry and the Workers' Statute (consolidated text).
Other information
For information on purchases of the Bank's own shares and post-balance sheet events, see notes 26 and 42 respectively.