BBVA target Sabadell forecasts higher lending income, lifts payouts

By Jesús Aguado

MADRID (Reuters) -Spain's Sabadell raised its lending income outlook for 2024 and lifted its shareholder distribution target on Tuesday, as it tries to fend off a hostile takeover by BBVA.

Higher-than-expected interest rates have boosted lending income at Spanish banks, which have benefited from charging customers higher costs for floating rate loans, while keeping a lid on what they pay savers.

Sabadell said it now expects 5% growth in net interest income (NII) for 2024 from a previous estimate of around 3% and for NII to keep growing in 2025 compared to this year.

In April, it forecast NII, the difference between earnings on loans minus deposit costs, would remain stable in 2025.

NII in the second quarter rose 7.8% year-on-year to 1.26 billion euros, slightly higher than analysts' forecasts, and rose 2.5% against the previous quarter.

Sabadell also announced a 2.9 billion euro shareholder pay-out policy against 2024 and 2025 results, leaving the door open to an even a higher remuneration. This new figure was revised up from previous target of 2.4 billion euros as part of the bank's strategy to promote its stand-alone business case.

The total shareholder remuneration includes 250 million euros resulting from the updated lower impact from the implementation of international capital rules and 250 million euros of a cancelled share buyback.

Sabadell said that its board decided to distribute among investors 60% of profits against 2024 results, at the upper-end of its between 40% and 60% pay-out policy.

At 1000 GMT, shares in Sabadell were up 1% to 2.018 euros, their highest level in nine years, after having risen 15% since BBVA's bid. BBVA is offering one newly issued share for 4.83 Sabadell shares, a premium of 30% over the target's closing price on April 29.

The offer had valued Sabadell at 12.28 billion euros, but a 7.5% drop in BBVA shares since has reduced it to 11.36 billion euros with Monday's closing prices, according to Reuters calculations.

The bank's fully-loaded core tier-1 core capital ratio, the strictest measure of solvency, rose 18 basis points against the previous quarter to 13.48%.

Net profit rose 34.5% to 483 million euros in the April to June period, above the 422 million euros analysts forecast, backed by a rise in new lending to businesses, mortgages and consumer loans.

Higher margins helped the bank improve its return-on-tangible equity (ROTE), a measure of profitability, to 13.1% from 12.2% in the previous quarter.

In that context, it forecast ROTE to end 2024 above 13% from a previous goal of above 12%. For 2025, it also aimed for a ROTE of above 13%.

At its British unit, net profit on a standalone basis fell 18% year-on-year in the second quarter to 41 million pounds following a decline of 8% in lending income.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro and Alexander Smith)