July 26, 2019 / 5:41 AM / 25 days ago

Spain's Caixabank and Sabadell cut income forecasts, shares plunge

MADRID (Reuters) - Shares in Spanish banks Caixabank (CABK.MC) and Banco Sabadell (SABE.MC) plummeted on Friday after both lenders cut their income forecasts for 2019 because interest rates were expected to be lower for longer than expected in the euro zone.

FILE PHOTO: A man walks past a Caixa bank branch in Barcelona, Spain October 6, 2017. REUTERS/Yves Herman

Caixabank, the country’s third-largest lender in terms of assets, reduced its guidance for core revenue to a growth of around 1% in 2019 from the 3% expected previously.

Sabadell, the fourth-largest lender, revised its net interest income (NII) guidance to between 0% and -1% in 2019. It had previously forecast a NII growth of 1% to 2% for 2019.

In a precursor to a rate cut, the European Central Bank said on Thursday it saw rates at present or lower levels through mid-2020, a subtle change to its previous pledge to keep rates unchanged through next June.

Lending income at both banks remained under pressure in the second quarter and in the first half of the year.

Net interest income - a measure of earnings on loans minus deposit costs - at Caixabank rose 0.9% in the second quarter to 1.24 billion euros (£1.11 billion). Analysts had forecast a NII of 1.25 billion euros, according to a Reuters poll.

At Sabadell, NII rose 0.6% to 905 million euros against the same quarter last year. Analysts expected NII to come in at 909 million euros. In the first six months of 2019 NII edged 0.2% lower to 1.81 billion euros compared to the first half of last year, in line with analysts’ forecasts.

Caixabank shares fell 7%, while Sabadell’s were down around 6% after the downward revisions.

Brokers, such as JPMorgan, said that falling euribor would continue to weigh on the NII outlook for Spanish banks, especially in 2020-2021.

Shares in state-owned Bankia (BKIA.MC) were also falling over 4% ahead of its second-quarter earnings on Monday.

Analysts polled by Reuters expect Bankia’s NII to fall 2% in the second quarter against the same period a year ago.

According to Reuters calculations based on data from Refinitiv, the three Spanish lenders had lost 1.6 billion euros in their combined market valuation.

COST-CUTTING STRATEGY TO OFFSET LOW RATES

Faced with the ongoing pressure from low interest rates, Spanish lenders are also reducing the number of branches, boosting efforts to sell services on digital platforms.

Caixabank posted a steep 85% fall in second-quarter net profit to 89 million euros due to one-off restructuring costs of 685 million euros.

FILE PHOTO: People line up at a Sabadell Bank ATM machine in Barcelona to withdraw money as part of an action to protest the transfer of the bank's headquarters out of Barcelona, Spain, October 20, 2017. REUTERS/Ivan Alvarado

To offset pressure at home, both lenders have expanded abroad in search of higher revenue while also battling over more profitable household lending.

While Caixabank took over Portuguese lender BPI in February 2017, Sabadell bought small British bank TSB in 2015, but the latter acquisition backfired when information technology glitches sent costs spiralling and last year TSB racked up losses of 240 million euros.

Sabadell seems to have overcome the IT troubles in the first quarter when TSB booked a 7 million euros net profit, although in the second quarter the British bank lost 5 million euros.

Reporting By Jesús Aguado; additional reporting by Andrés González and Jose Elias Rodriguez; Editing by Andrei Khalip and David Evans

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