Summary: Banco de Sabadell S.A.

Valuable commercial banking franchise in Spain, especially in small and midsize enterprises (SMEs). Management's proven ability to successfully implement strategic and integration plans. Geographical diversification provided by the acquisition of U.K.-based bank TSB. Limited profitability and modest quality of capitalization. Sizable portfolio of foreclosed assets in Spain. Lack of scale and challenging IT migration in the competitive U.K. market. The positive outlook indicates that we could raise our long- and short-term ratings over the next 12 months if Banco de Sabadell S.A. delivers on its strategic objectives. Specifically, we could raise the ratings if the bank further strengthens its solvency, with its risk-adjusted capital (RAC) ratio sustainably exceeding 7%, and substantially reduces its still-high stock of nonperforming assets (NPAs) while

...Lack of scale and challenging IT migration in the competitive U.K. market. Outlook: Positive The positive outlook indicates that we could raise our long- and short-term ratings over the next 12 months if Banco de Sabadell S.A. delivers on its strategic objectives. Specifically, we could raise the ratings if the bank further strengthens its solvency, with its risk-adjusted capital (RAC) ratio sustainably exceeding 7%, and substantially reduces its still-high stock of nonperforming assets (NPAs) while successfully completing the integration of its U.K. subsidiary. The positive outlook also reflects the possibility of Spain's economic and operating environment becoming more supportive, ultimately resulting in the banks' creditworthiness strengthening and therefore a higher anchor for Spanish banks. We could revise the outlook back to stable if we anticipate that the bank will not be able to reach a more adequate capital position over the outlook horizon--most likely due to weak profits hindering...

Summary