Sabadell’s Soaring Profit Fuels Hostile Takeover Defense with Record Shareholder Payouts

Sabadell, Spain’s fifth-largest bank, has thrown down the gauntlet to rival BBVA with its strongest financial performance in years. A 59% surge in first-quarter net profit to €489 million, paired with an elevated €1.3 billion shareholder payout plan, underscores the bank’s confidence in its independent future amid BBVA’s aggressive takeover bid. The results reflect a strategic pivot to bolster investor loyalty while addressing regulatory and political headwinds facing the merger.

The quarter’s standout performance was driven by a combination of reduced tax burdens and improved capital efficiency. The new Spanish banking tax regime slashed Q1 charges to €31 million—down sharply from €192 million in the same period last year—freeing up capital for profit growth. Meanwhile, the core tier-1 capital ratio rose to 13.31%, providing a buffer to support its expanded payout without diluting resilience.

But the bank’s true ace remains its UK subsidiary, TSB. The division contributed €253 million to 2024’s record annual profit, its highest since Sabadell acquired it in 2015. TSB’s 19% year-on-year rise in UK mortgage lending has been a steady growth engine, shielding Sabadell from Spain’s flattening interest rate environment. Net interest income, however, dipped 1.3% to €1.22 billion as lower rates weighed on margins—a trend that could test the bank’s profitability if sustained.

The shareholder payout strategy isSabadell’s most visible rebuttal to BBVA’s merger proposal. By committing to €3.3 billion in dividends and buybacks through 2025—up from €2.9 billion—the bank is returning 22% of its current share price to investors, a yield unmatched among Spanish peers. The minimum €20.44 per-share dividend for 2025, matched with €1.002 billion in buybacks, signals a deliberate effort to cement stakeholder loyalty.

Yet Sabadell’s defiance of BBVA hinges on more than just shareholder appeals. Its financial health metrics are strengthening: the NPL ratio fell to a decade-low 2.84%, and the cost of risk dropped to 26 basis points. Management projects a 14% return on tangible equity (RoTE) in 2025, rising further in 2026, underpinned by cost discipline and asset-quality improvements.

The merger’s viability, however, remains in doubt. BBVA’s bid faces regulatory scrutiny over competition concerns and Catalan political resistance, given Sabadell’s strong regional ties. Sabadell’s management has framed the merger as a threat to its “exceptional growth trajectory,” emphasizing its ability to thrive independently.

Critics, however, point to risks. Spain’s economic slowdown and the ECB’s prolonged low-rate environment could pressure net interest income. The bank’s reliance on TSB also carries geopolitical risks, as UK fiscal policies remain uncertain.

For investors, the decision boils down to whether Sabadell’s payout strategy and growth prospects outweigh the merger’s potential synergies. With a CET1 ratio of 13% post-buybacks—a solid buffer—and a RoTE target above peers’, the bank’s standalone case is compelling. Yet the payout’s sustainability depends on TSB’s continued outperformance and Spain’s macroeconomic stability.

In conclusion, Sabadell’s Q1 results mark a bold move to assert its independence. With shareholder returns at record levels, capital ratios improving, and TSB firing on all cylinders, the bank has built a credible counter-narrative to BBVA’s merger. While risks linger, the data suggests Sabadell is now a formidable opponent in its own right—a fact that could force BBVA to either escalate its bid or walk away.

The stakes could not be higher: Sabadell’s shareholder payouts aren’t just about returns—they’re a lifeline for its survival as an independent institution. With €0.53 per share in payouts over the next year and a CET1 ratio that meets regulatory comfort thresholds, the bank is proving that growth, not merger, is its best defense.