001-003-Index ing 18/3/08 11:25 Página 1 Annual Report 2007 126th year 001-003-Index ing 18/3/08 11:26 Página 2 Contents 001-003-Index ing 25/3/08 13:25 Página 3 Annual Report 2007 5 The Banco Sabadell 97 Risk management group in 2007 0 111 Channels 8 Letter from the Chairman 112 Domestic branch network 116 International network 13 Macroeconomic environment 117 ATM network 117 Remote access channels 17 Share performance 121 Excellence 23 2007 - a year of growth and value 127 Management team 128 Board of Directors 29 Financial review 130 Executive Committee Balance sheet 131 Senior executives Income statement 133 Corporate governance 57 Group businesses 58 Customer-facing businesses 143 Report of the Audit 58 Commercial Banking and Control Committee 66 Corporate Banking 70 Wealth Management 153 Report on Directors’ 71 Cross-selling businesses remuneration 71 Bancassurance 72 Asset Management 157 Corporate social 74 Treasury and Capital Markets responsibility 76 Ibersecurities 77 International 168 Statutory information 78 Diversification businesses 170 Directors’ statement 78 Development capital of responsibility 80 Associate businesses 171 Auditor’s report 80 Banco Urquijo 173 Annual accounts 81 BancSabadell d’Andorra 258 Report of the Directors 81 Dexia Sabadell 82 BanSabadell Fincom 277 Banco Sabadell Group 83 TransAtlantic Bank contact details 83 Centro Financiero BHD 83 Banco del Bajío 83 Banco Millennium BCP 85 Resources CD • Annual Report on Corporate 85 Operations Social Responsibility 92 Resources • Report on Corporate Governance 004-007-The Group BS ing 18/3/08 11:30 Página 4 004-007-The Group BS ing 18/3/08 11:30 Página 5 The Banco Sabadell group in 2007 004-007-The Group BS ing 18/3/08 11:30 Página 6 €'000 Financial highlights 2007 2006 % 07/06 Group shareholders' equity 4,501,383 4,041,205 11.4 Total assets 76,776,002 72,779,833 5.5 Loans and advances to customers - gross 63,219,330 55,632,966 13.6 On-balance sheet deposits and issued securities 65,620,880 59,304,579 10.7 T he of which: Customer deposits 33,350,687 30,090,641 10.8 B an Customer deposits ex repos 29,929,049 25,572,584 17.0 c o Sa Assets held in investment funds 15,548,492 16,482,067 (5.7) b a d ell g Assets held in pension funds 3,502,159 3,317,514 5.6 rou Deposits and assets under management 86,578,086 80,247,702 7.9 p in 2 0 0 7 €'000 Income and earnings performance Net interest income 1,317,237 1,097,871 20.0 Net income from basic operations 2,046,696 1,726,434 18.6 Gross operating income 2,196,395 1,811,476 21.2 Net operating income 1,059,029 813,718 30.1 Profit before tax 989,840 629,781 57.2 Net attributable profit 782,335 908,398 (13.9) B an Net attributable profit - comparable basis (1) 782,335 569,308 37.4 c o S a b a d e ll A n n Resources u a l R e po Number of branches 1,249 1,204 rt 2 00 Number of employees 10,234 10,066 7 Share data (2) Number of shares 1,224,013,680 1,224,013,680 Number of shareholders 80,669 67,633 Quoted share price (€) 7.41 8.48 Attributable earnings per share (€) 0.64 0.74 6 Dividend per share (€) 0.28 0.21 Total dividend paid (€'000) 342,724 253,983 004-007-The Group BS ing 18/3/08 11:30 Página 7 % Ratios 2007 2006 Balance sheet and cost/income ratios: ROA (net profit/average total assets) 1.08 1.48 ROA - comparable basis (net profit/average total assets) (1) 1.08 0.93 ROE (net attributable profit/average shareholders' equity) 20.37 28.09 T ROE - comparable basis (net attributable profit/average shareholders' equity) (1) 20.37 17.61 he B Cost/income (general administrative expenses/gross operating income) 46.67 50.47 an c o Cost/basic income (general administrative expenses/income from basic operations) 50.08 52.96 Sa b a d e BIS capital ratios: ll gro u p Total 10.87 11.42 in 2 0 Tier I 7.22 7.33 0 7 Risk management: Loan loss ratio 0.47 0.39 Provisions/bad and doubtful debts 394.29 466.56 (1)Previous year comparisons are distorted by the extraordinary gain on the sale of Landscape group in December. (2)Adjusted to eliminate the effect of the 4-to-1 share split in May 2007. B a n c o S a b a d e ll A n n u a l R e p o rt 2 0 0 7 7 008-011-Carta Presidente ing 18/3/08 11:33 Página 8 Chairman’s letter 008-011-Carta Presidente ing 18/3/08 11:33 Página 9 Dear Shareholder, I am happy to say that 2007 has been another excellent year for Banco Sabadell. The end-of-year results show that we are reaping the benefits of our efforts over the last three years to grow and create value. Growth and value creation were,of course,the principal aims of the 2005-2007 master plan which came to an end on 31 December. It is clear from the final result that these aims were more than achieved and that the actions we took to bring this about were the right ones. Our consolidated balance sheet is now 68% above what it was when we launched the plan,and during this time lending has C h increased by 84% and customer funds under management by airm a 90%. Our cost:income ratio has improved by 9% and our profitability n’s le as measured by ROE is 7 points higher,having risen to 20.4%. tte r The growth of the world economy continued at a high rate in 2007 thanks to the strength of the European economy and the key role played by the powerhouse economies of the emerging markets,China foremost among them. The Spanish economy again performed very well and grew by 3.8%,outstripping the growth of the other euro zone economies. A high level of capital investment and an improved contribution from exports did much to offset a slowdown in consumer spending and a downturn in construction after several years of very rapid growth. The second half of the year,however,was marked by a global financial crisis stemming from credit practices in the US mortgage market and the distribution throughout the world of the associated credit risk. Spanish banks,unlike banks in other European B a countries,did not have any exposure to bonds linked to US nc o S mortgages,but the country’s financial system and the performance ab a d of Spanish financial companies were affected by the lack ell A n of confidence that dominated the markets. nu a Rapidly rising borrowing costs and the difficulties faced by banks l Re p o in tapping sources of medium-term finance resulted in a loss rt 2 0 of confidence in near-term economic prospects and this adversely 07 affected the securities markets,which fell sharply in the last few months of 2007 and early 2008. Uncertainty over the depth and duration of the likely economic downturn is now a factor in all decision-taking by economic agents. Despite the generally unstable environment that we have been seeing since mid-2007,Banco Sabadell completed its 126th year of trading with a net attributable profit of €782.34 million,up 37.4% on the year before in comparable terms,i.e. after adjusting 9 for the one-off profit in 2006 generated by the sale of the Landscape real estate business. The profit from ordinary activities is the best in the group’s history. A healthy consolidated profit and excellent results across all group businesses are not only a reflection of the strength of the Bank and its successful business strategy,but a sure sign of its ability to turn its recent acquisitions to account and to respond swiftly and positively to changes in market conditions,no matter how challenging. In 2007 the new Banco Urquijo,created from the integration of the private banking business of the old Banco Urquijo with that 008-011-Carta Presidente ing 18/3/08 11:33 Página 10 of Sabadell Banca Privada,completed its first year of trading and confirmed its leading position in the Spanish private banking industry. The good growth achieved this year and a €29.8 million contribution to group profits clearly show that the purchase in May 2006 was justified. Of the Bank’s many achievements this year,one that I would like to highlight is the design and roll-out of a new strategic plan that will take us through to the end of 2009. The two-year plan is based on flexibility and prudence and has been designed for the environment of economic slowdown that we now face. Its aims are to boost operational efficiency and commercial productivity and thus increase business volumes by more than the average for the banking system as a whole,while C h airm keeping operating costs at a low level and without affecting our a n’s le excellent risk and service quality levels,and to continue to build up tte our financial strength and increase liquidity to be able to withstand r any change for the worse on the economic front. Optima ’09,as our new strategic plan is called,focuses on innovation and leveraging the Bank’s capabilities and strengths to ensure that it remains one of the most efficient and profitable financial institutions in the Spanish market,consolidating its leadership and its unique positioning in corporate banking and retail banking targeted on high and medium-income earners. Another major achievement was to boost the Bank’s position in the Miami international banking market,where it has been operating since 1993. This year saw the acquisition of Transatlantic Bank, a local Miami-based operation,and the conclusion of an agreement with BBVA to purchase its private banking business in that city. These two purchases have significantly increased the Bank’s B a nc operational capability and market position in the business o S ab and personal customer-focused private and corporate banking a d ell businesses being carried on by our Miami branch. A n nu To ensure that we had the best IT systems available,and that a l Re innovation would continue to be a key area of excellence and p o rt 2 a differentiating factor for the Bank within the marketplace,a number 0 07 of major agreements were reached in the course of the year with top- ranking IT suppliers such as Telefónica,Hewlett Packard and IBM. This is the kind of initiative that will help to increase sustainability and underpin confidence in the Bank in the coming years. Another development this year was the start of work to extend the Bank’s main central services building in Sant Cugat del Vallès, which was opened in 2003. The extension has been made necessary by high levels of usage of other Bank premises and to accommodate anticipated growth in the coming years. 10 2007 has been a difficult year for financial companies generally, and these difficult conditions have continued into 2008. The solid results achieved by the Bank are therefore all the more remarkable and clearly reflect the exacting standards and the mature approach of the management. Our senior managers form a solid and close-knit team,led by the heads of the various business units into which the Bank is structured. Not only have they proved themselves capable of achieving the objectives that were set for 2007– plus the added burden of integrating a bank into the organization – but they have also shown their ability to act firmly and cohesively when changes in key personnel have occurred.