Sabadell's Rate-Hike Pinch: A Better Bank, A Slower NII
Q3 shows costs and Amundi fees beating plan, but a faster ECB path trims 2026 NII and pushes the 2027 €3.9bn target onto a later, brighter stage.
SAB.MC · Earnings Call · 2026-10-29
The quarter is strong; the guidance is the story
Banco Sabadell's third quarter is a study in timing. The headline is not a stumble: net profit reached EUR 405 million, recurring RoTE was 14.2%, the NPL ratio fell to 2.4%, and cost of risk held at 40 basis points. Management's framing was that “positive jaws keep widening driven both by growing revenues and contained costs” — Marc Dulcet · 2026-10-29. That is the widening of jaws story in one line — revenues growing, costs contained, provisions stable.
But the same call trimmed 2026 NII growth to around 1%, marginally below previous guidance. The reason is not weaker commercial momentum but a faster rate path: the ECB deposit facility rate is now expected at 2.75% by year-end, 25 basis points above the prior assumption. The company still expects customer margin to reach circa 290 basis points by year-end and around 300 basis points in 2027, and it reconfirmed the EUR 3.9 billion NII target for 2027. The tension is that the rate hike pinches before it pays.
The rate hike arrives before the repricing
Sergio Tome's explanation was unusually clean. Sabadell has more assets than liabilities repricing over time, but the sequence matters: deposits linked to overnight rates reprice immediately, while only about 60% of the loan book reprices within twelve months and only about 40% of the deposit book does. Hence the first quarter after a hike is adverse, the second neutral, and the third net positive.
interest rates, high interest rate at the end of the day is a net positive because we have more assets repricing than liabilities ... in the very short term, following the rate increase, we have more liabilities that reprice ... the first quarter following the rate hike is a bit adverse. The second quarter is kind of neutral and from the third quarter is net positive.
That is why the 2026 NII trim is not a thesis break. It is a timing shift. The ECB rate assumption moved up, and the company's customer spread expansion is now expected to progress more gradually. The key question for 2027 is whether the loan book repricing — concentrated in the first half, especially the second quarter — outruns deposit costs. Management says yes, and the 2027 target depends on it.
Costs, Amundi, and a new capital-return rhythm
Costs were the clean beat. Reported recurring costs rose 3.8% year-on-year, but 2.7% after adjusting for the payment-business reclassification. Guidance improved to around 2% for 2026, helped by early-retirement savings already flowing through. Fees rose 3.7% quarter-on-quarter, led by asset management. The renewed Amundi agreement — extended through 2035 and with better economics — contributed about EUR 10 million in the quarter and adds roughly EUR 5 million to the quarterly run-rate. Success fees may be a bit below last year's EUR 12 million because of market volatility, but the fee base is stronger.
Capital return has also changed character. Sabadell announced a new interim cash dividend of EUR 0.07 per share, with a 60% payout policy and distribution of excess capital above a 13% CET1 threshold. The language was deliberately ordinary: “that is going to be the normality, and that connects with the expectation that we mentioned last year of paying more than EUR 0.20 per share cash on a regular basis” — Sergio Alejandro Tome · 2026-10-29. That is a shift from the prior quarters' emphasis on the TSB sale and an extraordinary dividend. In July, Marc Dulcet was still pointing to “EUR 331 million share buyback that is part of the remuneration to shareholders as an interim payment for the 2026 results” — Marc Dulcet, CEO · 2026-07-24. Now the buyback is ongoing, but the new news is a cash dividend and a strategic shareholder.
BPCE acquired a 7% stake with a long-term investment perspective and will take a board seat; the public commitment caps the stake at 9.9%. That is genuinely company-specific. It opens potential cooperation in corporate and investment banking, equipment leasing, consumer finance and cross-border business, though management gave no committed timeline. This is not a sector-wide theme — it is Sabadell-specific capital-structure news.
Deposits are the quiet battleground
The company's keyword mix tells the same story. Term deposit is now a top-ranked theme, and deposit competition runs through the Q&A. Management leans on the relationship-bank defense: more than 85% of retail deposits are transactional, with low individual balances and deep primacy. In the quarter, deposit costs rose 6 basis points while three-month Euribor rose 28 basis points, so the deposit beta remained contained. That is a better outcome than the headline rate path might imply.
But the mix is shifting. In a higher-rate world, growth is expected in remunerated deposits and term deposits rather than non-remunerated current accounts. The company assumes the non-remunerated share stays stable, not grows. That is a change from earlier hopes of current-account growth, and it is why high interest rate conditions are both a NII tailwind and a deposit-cost headwind.
This is also where Sabadell converges with the broader bank tape. Recent reporters across Europe and the US are thick with core deposits, cost of deposits and lending-rate language. Sabadell is not alone in fighting for deposits; it is simply doing so from a relatively transactional base. The company-specific parts are Amundi, BPCE and the capital-return reset — not the deposit war itself.
What management stopped saying
The most interesting omission is M&A. Asked directly whether the closing valuation gap made Sabadell a stronger consolidator, Marc Dulcet was blunt: “We remain focused on our organic plans. So we don't see any change on the M&A space.” — Marc Dulcet · 2026-10-29 That is consistent with July's stance, when he said Sabadell had a right to compete in high-value customer segments but saw no current consolidation opportunity. The difference now is that the takeover-defense subplot is gone. The story is execution: simplification, AI teams, higher-value segments and BPCE cooperation.
That makes this a less dramatic but more investable quarter. The bank is not guiding up — it trimmed 2026 NII — but it beat on costs, improved fee economics, raised cost guidance, kept asset quality stable and added a cash dividend. The 2027 RoTE target of 16% and the EUR 3.9 billion NII target remain intact. In February, management was already pointing to a “customer spread ... around 300 basis points” — Sergio Palavecino, CFO · 2026-02-06 as the path; the current call says the path is intact but the timing is later. The market's question is whether the deposit side behaves. If it does, the rate hike that pinches in 2026 is the same one that pays in 2027.