Bond Banco de Sabadell 6.125% ( XS1720572848 ) in EUR

Banco de Sabadell

100 % ⇌

Spain

XS1720572848 ( in EUR )

6.125% per year ( payment 4 times a year)

Perpetual

Prospectus brochure of the bond Banco de Sabadell XS1720572848 en EUR 6.125%, maturity Perpetual

200 000 EUR

400 000 000 EUR

23/05/2025 ( In 33 days )

Banco de Sabadell is a Spanish multinational banking group offering a wide range of financial services including retail banking, corporate banking, and investment banking.

Banco de Sabadell issued a perpetual EUR 400,000,000 bond (ISIN: XS1720572848) with a 6.125% coupon, paying quarterly, currently trading at 100%, with a minimum trading lot of EUR 200,000.

BANCO DE SABADELL, S.A.
(incorporated with limited liability under the laws of the Kingdom of Spain)
Perpetual Non-Cumulative Contingent Convertible Additional
Tier 1 Preferred Securities
Issue Price: 100 per cent.
The 400,000,000 Perpetual Non-Cumulative Contingent Convertible Additional Tier 1 Preferred Securities of 200,000 liquidation preference each (the "Preferred
Securities") are being issued by Banco de Sabadell, S.A. (the "Bank", the "Issuer" or "Banco Sabadell") on 23 November 2017 (the "Closing Date"). The Bank and its
consolidated subsidiaries are referred to herein as the "Sabadell Group" or the "Group".
The Preferred Securities will accrue non-cumulative cash distributions ("Distributions") as follows: (i) in respect of the period from (and including) the Closing Date to (but
excluding 23 November 2022 (the "First Reset Date")), at the rate of 6.125 per cent. per annum, and (ii) in respect of each period from (and including) the First Reset Date and
every fifth anniversary thereof (each a "Reset Date") to (but excluding) the next succeeding Reset Date (each such period, a "Reset Period"), at the rate per annum, calculated
on an annual basis and then converted to a quarterly rate in accordance with market convention, equal to the aggregate of 6.051 per cent. per annum (the "Initial Margin") and
the 5-year Mid-Swap Rate (as defined in the terms and conditions of the Preferred Securities (the "Conditions")) for the relevant Reset Period. Subject as provided in the
Conditions, such Distributions will be payable quarterly in arrears on 23 February, 23 May, 23 August and 23 November, in each year (each a "Distribution Payment Date").
The Bank may elect, in its sole and absolute discretion, to cancel the payment of any Distribution in whole or in part at any time as further provided in Condition 3.3. Without
prejudice to the right of the Bank to cancel the payments of any Distribution: (a) payments of Distributions in any financial year of the Bank shall be made only out of
Distributable Items (as defined in the Conditions) of the Bank. To the extent that the Bank has insufficient Distributable Items to make Distributions on the Preferred Securities,
the Bank will only make partial or, as the case may be, no payment of the relevant Distribution on the Preferred Securities; (b) if the Competent Authority (as defined in the
Conditions) requires the Bank to cancel the relevant Distribution in whole or in part, the Bank will only make partial or, as the case may be, no payment of the relevant
Distribution on the Preferred Securities; (c) no payments will be made on the Preferred Securities if and to the extent that such payment would cause a breach of any regulatory
restriction or prohibition on payments on Additional Tier 1 Capital (as defined in the Conditions) pursuant to Applicable Banking Regulations (as defined in the Conditions);
and (d) if the Trigger Event (as defined in the Conditions) occurs at any time on or after the Closing Date (as defined in the Conditions), the Bank will not make any further
Distribution on the Preferred Securities including any accrued and unpaid Distributions.
The Preferred Securities are perpetual. All, and not some only, of the Preferred Securities may be redeemed at the option of the Bank on any Distribution Payment Date falling
on or after the First Reset Date, at the liquidation preference of 200,000 per Preferred Security plus any accrued and unpaid Distributions for the then current Distribution
Period (as defined in the Conditions) to (but excluding) the date fixed for redemption (the "Redemption Price"). The Preferred Securities are also redeemable on or after the
Closing Date at the option of the Bank in whole but not in part, at any time, at the Redemption Price if there is a Capital Event or a Tax Event (each as defined in the Conditions).
Any redemption is subject to the prior consent of the Competent Authority and must be made otherwise in accordance with Applicable Banking Regulations (as defined in the
Conditions) then in force.
In the event of the occurrence of the Trigger Event (as defined in the Conditions) (i.e. if at any time the CET1 ratio (as defined in the Conditions) of the Issuer and/or
the Group falls below 5.125 per cent.), the Preferred Securities are mandatorily and irrevocably convertible into newly issued ordinary shares in the capital of the
Bank ("Ordinary Shares") at the Conversion Price (as defined in the Conditions).
In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Bank, holders will be entitled to receive (subject to the limitations described
in the Conditions), in respect of each Preferred Security, their respective liquidation preference of 200,000 plus any accrued and unpaid Distributions for the then
current Distribution Period to the date of payment of the Liquidation Distribution (as defined in the Conditions).
The Preferred Securities will be issued in bearer form and will be represented by a global Preferred Security deposited on or about the Closing Date with a common depositary
for Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream, Luxembourg").
The Preferred Securities are expected, upon issue, to be assigned a B+ rating by S&P Global Ratings ("S&P"). S&P is established in the European Union ("EU") and is registered
under Regulation (EC) No. 1060/2009 (as amended) (the "CRA Regulation"). As such, S&P is included in the list of credit rating agencies published by the European Securities
and Markets Authority on its website in accordance with the CRA Regulation. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to
revision, suspension or withdrawal at any time by the assigning rating organisation.
Each Joint Lead Manager has represented and agreed that the Preferred Securities may not be offered or sold in Spain other than by institutions authorised under the consolidated
text of the Securities Market Law approved by legislative Royal Decree 4/2015 of 23 October (Real Decreto Legislativo 4/2015, de 23 de octubre, por el que se aprueba el texto
refundido de la Ley del Mercado de Valores) (the "Securities Market Law") and related legislation, and Royal Decree 217/2008 of 15 February on the Legal Regime Applicable
to Investment Services Companies (Real Decreto 217/2008, de 15 de febrero, sobre el Régimen Jurídico de las empresas de servicios de inversión y de las demás entidades que
prestan servicios de inversión), to provide investment services in Spain. The Preferred Securities may not be offered, sold or distributed, nor may any subsequent resale of
Preferred Securities be carried out in Spain, except in circumstances which do not constitute a public offer of securities in Spain within the meaning of the Securities Market
Law, as amended and restated, or without complying with all legal and regulatory requirements under Spanish securities laws. Neither the Preferred Securities nor this Offering
Circular have been registered with the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores) and therefore this Offering Circular is not intended
for any public offer of the Preferred Securities in Spain.
The Preferred Securities are not intended to be sold and should not be sold to retail clients in any jurisdiction of the EEA, as defined in the rules set out in the Product Intervention
(Contingent Convertible Instruments and Mutual Society Shares) Instrument 2015 (as amended or replaced from time to time, the "PI Instrument") other than in circumstances
that do not and will not give rise to a contravention of those rules by any person. Prospective investors are referred to the section headed "Restrictions on marketing and sales
to retail investors" on pages 4, and 5 of this Offering Circular for further information.
An investment in the Preferred Securities involves certain risks. For a discussion of these risks see "Risk Factors" beginning on page 6.
This Offering Circular does not comprise a prospectus for the purposes of Article 5.3 of Directive 2003/71/EC as amended. Application has been made to the Irish Stock
Exchange Plc (the "Irish Stock Exchange") for the Preferred Securities to be admitted to the Official List and trading on the Global Exchange Market of the Irish Stock
Exchange. This Offering Circular constitutes listing particulars for the purpose of such application and has been approved by the Irish Stock Exchange.
The Preferred Securities and any Ordinary Shares to be issued and delivered in the event of the occurrence of the Trigger Event have not been, and will not be, registered under
the United States Securities Act of 1933, as amended (the "Securities Act"), and are subject to United States tax law requirements. The Preferred Securities are being offered
outside the United States in accordance with Regulation S under the Securities Act ("Regulation S"), and may not be offered, sold or delivered within the United States or to,
or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
Structuring Advisor
Nomura
Joint Lead Managers
Banco Sabadell
Barclays
Nomura
The date of this Offering Circular is 13 November 2017.

IMPORTANT NOTICES
The Issuer accepts responsibility for the information contained in this Offering Circular and declares that,
having made all reasonable enquires and having taken all reasonable care to ensure that such is the case, the
information contained in this Offering Circular is, to the best of its knowledge, in accordance with the facts
and contains no omission likely to affect its import.
This Offering Circular is to be read in conjunction with all documents which have been incorporated by
reference herein (see "Information Incorporated by Reference"). This Offering Circular shall be read and
construed on the basis that such documents are incorporated and form part of this Offering Circular.
The Issuer has not authorised the making or provision of any representation or information regarding the Issuer
or the Preferred Securities other than as contained in this Offering Circular or as approved for such purpose by
the Issuer. Any such representation or information should not be relied upon as having been authorised by the
Issuer or Banco de Sabadell, S.A., Barclays Bank PLC and Nomura International plc (together, the "Joint
Lead Managers").
None of the Joint Lead Managers has separately verified the information contained or incorporated by
reference in this Offering Circular. None of the Joint Lead Managers nor any of their respective affiliates has
authorised the whole or any part of this Offering Circular and none of them makes any representation or
warranty or accepts any responsibility as to the accuracy or completeness of the information contained in this
Offering Circular. Neither the delivery of this Offering Circular nor the offering, sale or delivery of any
Preferred Security shall in any circumstances create any implication that there has been no change in the affairs
of the Issuer, or any event reasonably likely to involve any adverse change in the condition (financial or
otherwise) of the Issuer, since the date of this Offering Circular or that any other information supplied in
connection with the Preferred Securities is correct as of any time subsequent to the date on which it is supplied
or, if different, the date indicated in the document containing the same.
None of the Joint Lead Managers makes any representation, express or implied, or accepts any responsibility,
with respect to the accuracy or completeness of any of the information contained or incorporated by reference
in this Offering Circular or any other information supplied by the Issuer in connection with the Preferred
Securities. Neither this Offering Circular nor any such information or financial statements of the Issuer are
intended to provide the basis of any credit or other evaluation and should not be considered as a
recommendation by the Issuer or the Joint Lead Managers that any recipient of this Offering Circular or such
information or financial statements should purchase the Preferred Securities. Each potential purchaser of
Preferred Securities should determine for itself the relevance of the information contained or incorporated by
reference in this Offering Circular and its purchase of Preferred Securities should be based upon such
investigation as it deems necessary. None of the Joint Lead Managers undertakes to review the financial
condition or affairs of the Issuer during the life of the arrangements contemplated by this Offering Circular nor
to advise any investor or potential investor in the Preferred Securities of any information coming to the
attention of the Joint Lead Managers.
The Joint Lead Managers are acting exclusively for the Bank and no one else in connection with any offering
of the Preferred Securities. The Joint Lead Managers will not regard any other person (whether a recipient of
this Offering Circular or otherwise) as their client in relation to any such offering and will not be responsible
to anyone other than the Bank for providing the protections afforded to their clients or for giving advice in
relation to such offering or any transaction or arrangement referred to herein.
This Offering Circular does not constitute an offer of, or an invitation to subscribe for or purchase, any
Preferred Securities.
1

The distribution of this Offering Circular and the offering, sale and delivery of Preferred Securities in certain
jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required
by the Issuer and the Joint Lead Managers to inform themselves about and to observe any such restrictions.
In particular, the Preferred Securities and the Ordinary Shares have not been and will not be registered under
the Securities Act and are subject to United States tax law requirements. Subject to certain exceptions,
Preferred Securities may not be offered, sold or delivered within the United States or to U.S. persons.
In this Offering Circular, unless otherwise specified, references to a "member state" are references to a
Member State of the European Economic Area, references to "U.S." are to United States dollars, references to
"", "EUR" or "euro" are to the currency introduced at the start of the third stage of European economic and
monetary union, and as defined in Article 2 of Council Regulation (EC) No 974/98 of 3 May 1998 on the
introduction of the euro, as amended.
Words and expressions defined in the Conditions (see "Conditions of the Preferred Securities") shall have the
same meanings when used elsewhere in this Offering Circular unless otherwise specified.
Potential investors are advised to exercise caution in relation to any offering of the Preferred Securities. If a
potential investor is in any doubt about any of the contents of this Offering Circular, it should obtain
independent professional advice. Prior to making an investment decision, potential investors should consider
carefully, in light of their own financial circumstances and investment objectives, all the information contained
in this Offering Circular or incorporated by reference herein. A potential investor should not invest in the
Preferred Securities unless it has the expertise (either alone or with its financial and other professional advisers)
to evaluate how the Preferred Securities will perform under changing conditions, the resulting effects on the
value of the Preferred Securities and the impact this investment will have on the potential investor's overall
investment portfolio. See further "Risk Factors - The Preferred Securities may not be a suitable investment for
all investors".
Restrictions on marketing and sales to retail investors
The Preferred Securities are complex financial instruments and are not a suitable or appropriate investment for
all investors. In some jurisdictions, regulatory authorities have adopted or published laws, regulations or
guidance with respect to the offer or sale of securities such as the Preferred Securities to retail investors.
In particular, in June 2015, the U.K. FCA published the Product Intervention (Contingent Convertible
Instruments and Mutual Society Shares) Instrument 2015, which took effect from 1 October 2015 (the "PI
Instrument"). Under the rules set out in the PI Instrument (as amended or replaced from time to time, the "PI
Rules"):
(i)
certain contingent write-down or convertible securities (including any beneficial interests therein), such
as the Preferred Securities, must not be sold to retail clients in the EEA; and
(ii)
there must not be any communication or approval of an invitation or inducement to participate in,
acquire or underwrite such securities (or the beneficial interest in such securities) where that invitation
or inducement is addressed to or disseminated in such a way that it is likely to be received by a retail
client in the EEA (in each case, within the meaning of the PI Rules), other than in accordance with the
limited exemptions set out in the PI Rules.
Each of the Bank and the Joint Lead Managers is required to comply with the PI Rules. By purchasing, or
making or accepting an offer to purchase, any Preferred Securities (or a beneficial interest in such Preferred
Securities) from the Issuer and/or the Joint Lead Managers (acting as Joint Lead Managers), each prospective
2

investor will be deemed to represent, warrant, agree with, and undertake to the Issuer and each of the Joint
Lead Managers that:
(a)
it is not a retail client in any jurisdiction of the EEA (as defined in the PI Rules);
(b)
whether or not it is subject to the PI Rules, it will not:
(i)
sell or offer the Preferred Securities to retail clients in any jurisdiction of the EEA; or
(ii)
communicate (including the distribution of this Offering Circular) or approve an invitation or
inducement to participate in, acquire or underwrite the Preferred Securities (or any beneficial
interests therein) where that invitation or inducement is addressed to or disseminated in such a
way that it is likely to be received by a retail client in any jurisdiction of the EEA (in each case
within the meaning of the PI Rules),
in any such case other than (i) in relation to any sale of or offer to sell Preferred Securities (or any
beneficial interests therein) to a retail client in or resident in the United Kingdom, in circumstances that
do not and will not give rise to a contravention of the PI Rules by any person and/or (ii) in relation to
any sale of or offer to sell Preferred Securities (or any beneficial interests therein) to a retail client in
any EEA member state other than the United Kingdom, where (a) it has conducted an assessment and
concluded that the relevant retail client understands the risks of an investment in the Preferred Securities
(or such beneficial interests therein) and is able to bear the potential losses involved in an investment
in the Preferred Securities (or such beneficial interests therein) and (b) it has at all times acted in relation
to such sale or offer in compliance with the Markets in Financial Instruments Directive (2004/39/EC)
("MiFID") to the extent it applies to it or, to the extent MiFID does not apply to it, in a manner which
would be in compliance with MiFID if it were to apply to it; and
(c)
it will at all times comply with all applicable laws, regulations and regulatory guidance (whether inside
or outside the EEA) relating to the promotion, offering, distribution and/or sale of the Preferred
Securities (or any beneficial interests therein), including (without limitation) any such laws, regulations
and regulatory guidance relating to determining the appropriateness and/or suitability of an investment
in the Preferred Securities (or any beneficial interests therein) by investors in any relevant jurisdiction.
Where acting as agent on behalf of a disclosed or undisclosed client when purchasing, or making or accepting
an offer to purchase, any Preferred Securities (or any beneficial interests therein) from the Issuer and/or the
Joint Lead Managers (acting as Joint Lead Managers), the foregoing representations, warranties, agreements
and undertakings will be given by and be binding upon both the agent and its underlying client.
FINANCIAL INFORMATION
The following principles should be noted in reviewing the financial information contained in this Offering
Circular:
·
Unless otherwise stated, any reference to loans refers to both loans and advances.
·
Interest income figures include interest income on non-accruing loans to the extent that cash payments
have been received in the period in which they are due.
·
Financial information with respect to subsidiaries may not reflect consolidation adjustments.
·
Certain numerical information in this Offering Circular may not sum due to rounding adjustments. In
addition, information regarding period-to-period changes is based on figures which have not been
rounded; accordingly, figures shown for the same category presented in different tables may vary
3

slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures
which precede them. Any stabilisation action or over-allotment must be conducted by the Stabilisation
Manager (or any person acting on behalf of the Stabilisation Manager) in accordance with all applicable
laws and rules.
STABILISATION
In connection with the issue of the Preferred Securities, Nomura (the "Stabilisation Manager") (or any person
acting on behalf of the Stabilisation Manager) may, to the extent permitted by applicable laws and directives,
over-allot Preferred Securities or effect transactions with a view to supporting the market price of the Preferred
Securities at a level higher than that which might otherwise prevail. However, there is no assurance that the
Stabilisation Manager (or any person acting on behalf of the Stabilisation Manager) will undertake stabilisation
action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms
of the offer of the Preferred Securities is made and, if begun, may be ended at any time, but it must end no
later than the earlier of 30 days after the issue date of the Preferred Securities and 60 days after the date of the
allotment of the Preferred Securities.
4

TABLE OF CONTENTS
Page
IMPORTANT NOTICES .................................................................................................................................. 1
RISK FACTORS ............................................................................................................................................... 6
INFORMATION INCORPORATED BY REFERENCE ................................................................................ 51
OVERVIEW OF THE OFFERING ................................................................................................................. 52
CONDITIONS OF THE PREFERRED SECURITIES ................................................................................... 57
USE OF PROCEEDS ...................................................................................................................................... 95
CAPITAL ADEQUACY ................................................................................................................................. 96
DESCRIPTION OF THE ISSUER AND ITS GROUP ................................................................................... 98
MARKET INFORMATION .......................................................................................................................... 122
DESCRIPTION OF THE SHARE CAPITAL ............................................................................................... 126
TAXATION ................................................................................................................................................... 140
SUBSCRIPTION AND SALE ...................................................................................................................... 156
GENERAL INFORMATION ........................................................................................................................ 158
5

RISK FACTORS
The Bank believes that the following factors may affect its ability to fulfil its obligations under the Preferred
Securities. Most of these factors are contingencies which may or may not occur and the Bank is not in a position
to express a view on the likelihood of any such contingency occurring.
The Bank believes that the factors described below represent the principal risk inherent in investing in the
Preferred Securities, but the non-payment by the Bank of any distributions, liquidation preferences or other
amounts on or in connection with the Preferred Securities may occur for other reasons and the Bank does not
represent that the statements below regarding the risk of holding the Preferred Securities are exhaustive.
Prospective investors should also read the detailed information set out elsewhere in, or incorporated by
reference into, this Offering Circular and reach their own views prior to making any investment decision.
Words and expressions defined in "Conditions of the Preferred Securities" below or elsewhere in this Offering
Circular have the same meanings in this section.
Macroeconomic Risks
Unfavourable global economic conditions, and, in particular, unfavourable economic conditions in
Spain, the United Kingdom or any deterioration in the British, Spanish or general European financial
systems, could have a material adverse effect on the business, financial condition, results of operations
and prospects of the Bank and its Group
Global economic conditions deteriorated significantly between 2008 and 2012 and Spain fell into a recession
from which it has only recently begun to recover. However, from 2014 the Spanish economy has had a good
performance and in the last three years the current account imbalances have been positive: Spain has
experienced GDP growths of 1.4 per cent. in 2014, 3.2 per cent. in 2015 and 3.2 per cent. in 2016 (Source:
National Statistics Institute of Spain, Press Notes, 15 September 2015, 14 September 2016 and 30 January
2017). During the financial crisis, many major financial institutions, including some of the world's largest
global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies
experienced significant difficulties.
Around the world numerous financial institutions had to seek additional capital, including obtaining assistance
from governments and many lenders and institutional investors reduced or ceased providing funding to some
borrowers (including to other financial institutions). In some countries such as Greece and Cyprus, there have
been runs on deposits at several financial institutions. Over this same period, financial systems worldwide have
experienced difficult credit and liquidity conditions and disruptions leading to less liquidity, greater volatility,
and general widening of spreads.
The crisis in worldwide financial and credit markets led to a global economic slowdown, with many economies
around the world showing significant signs of weakness or slow growth. Although in Europe there has been a
significant reduction in risk premiums since the second half of 2012 and economic growth for the Eurozone as
of whole has been positive since the second quarter of 2013, growing 1.7 per cent. in 2016 (Source: Eurostat,
News Release 40/2017, GDP and main aggregates estimate for the fourth quarter of 2016, 7 March 2017), the
possibility of future deterioration of the European economy as a whole or for the individual countries, remains
a risk. Any such deterioration could adversely affect the cost and availability of funding for Spanish and
European banks, including the Bank and its Group, and the quality of its loan portfolio, and require the Group
to take impairments on its exposures to the sovereign debt of one or more countries in the Eurozone or otherwise
have a material adverse effect on its business, financial condition, results of operations and prospects.
Furthermore, other factors or events may affect the Spanish, British, European and global economic conditions,
such as the exit of countries from the Eurozone, a sharp slowdown in China, a negative market reaction to
6

(stronger than expected) interest rate increases by the United States Federal Reserve, heightened geopolitical
tensions, war, acts of terrorism, natural disasters or other similar events outside the Group's control.
Exposure to UK political developments, including the outcome of the UK referendum on membership
of the European Union and the uncertain future relationship of the UK with the EU, could have a
material adverse effect on the business, financial condition, results of operations and prospects of the
Bank and its Group
On 23 June 2016, the United Kingdom ("UK") held a non-binding referendum (the "UK EU Referendum")
on its membership in the EU, in which a majority voted for the UK to leave the EU. Immediately following the
result, the UK and global stock and foreign exchange markets commenced a period of significant volatility,
including a steep depreciation of the pound sterling, in addition to which there is now prevailing uncertainty
relating to the process, timing and negotiation of the UK's exit from, and future relationship with, the EU.
On 29 March 2017, the UK delivered the official notice of its intention to withdraw from the EU to the European
Council president under article 50 of the Treaty of the European Union. As from that moment, a two-year period
of negotiation will begin to determine the new terms of the UK's relationship with the EU, after which period
its EU membership will cease. These negotiations are expected to run in parallel to standalone bilateral
negotiations with the numerous individual countries and multilateral counterparties with which the UK
currently has trading arrangements by virtue of its membership of the EU. The timing of, and process for, such
negotiations and the resulting terms of the UK's future economic, trading and legal relationships are uncertain.
While the longer term effects of the UK EU Referendum are difficult to predict, these are likely to include
further financial instability and slower economic growth as well as higher unemployment and inflation, in the
UK, continental Europe and the global economy, at least in the short to medium term. For instance, the UK
could lose access to the single EU market and to the global trade deals negotiated by the EU on behalf of its
members. A decline in trade could affect the attractiveness of the UK as a global investment centre and, as a
result, could have a detrimental impact on UK growth. In particular, London's role as a global financial centre
may also decline, particularly if financial institutions shift their operations to continental Europe and the EU
financial services passport is not maintained. Among the significant global implications of the UK EU
Referendum is the increased uncertainty concerning a potentially more persistent and widespread imposition
by central banks of negative interest rate policies. The Bank of Japan, the European Central Bank (the "ECB")
and several other monetary authorities in Europe have already introduced negative interest rates to address
deflationary concerns and to prevent appreciation of their respective currencies.
The UK EU Referendum has also given rise to calls for certain regions within the UK to preserve their place in
the EU by separating from the UK, as well as the potential for other EU member states to consider withdrawal.
For example, the outcome of the UK EU Referendum was not supported by the majority of voters in Scotland,
who voted in favour of remaining in the EU. This has revived the political debate on a second referendum on
Scottish independence, creating further uncertainty as to whether such a referendum may be held and as to how
the Scottish parliamentary process may impact the negotiations relating to the UK's exit from the EU and its
future economic, trading and legal relationship with the EU. As mentioned above, it has also encouraged anti-
EU and populist parties in other member states, raising the potential for other countries to seek to conduct
referenda with respect to their continuing membership of the EU.
Following the results of the UK EU Referendum, the risk of further instability in the Eurozone cannot be
excluded. The increase in the political influence of Eurosceptic political parties in European countries, or the
perception that any of these political parties could occur, have had and may continue to have a material adverse
effect on global economic conditions and the stability of global financial markets, and could significantly reduce
global market liquidity and restrict the ability of key market participants to operate in certain financial markets.
7

Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market
volatility. The major credit rating agencies have downgraded and changed their outlook to negative on the UK's
sovereign credit rating following the UK EU Referendum.
In addition, the Group is subject to substantial EU-derived regulation and oversight. There is now significant
uncertainty as to the respective legal and regulatory environments in which the Bank's UK subsidiaries will
operate when the UK is no longer a member of the EU, causing potentially divergent national laws and
regulations across Europe should EU laws be replaced, in whole or in part, by UK laws on the same (or
substantially similar) issues. For example, the Bank's UK subsidiaries are in the process of implementing a
number of key restructuring and strategic initiatives, such as the ring-fencing of their retail banking activities,
all of which will be carried out throughout this period of significant uncertainty. This may impact the prospects
for successful execution and impose additional pressure on management. Operationally, the Group's UK
subsidiaries and other financial institutions may no longer be able to rely on the European passporting
framework for financial services and could be required to apply for authorisation in multiple EU jurisdictions,
the costs, timing and viability of which are uncertain. This uncertainty, and any actions taken as a result of this
uncertainty, as well as new or amended rules, may have a significant impact on the Group's operations,
profitability and business. In addition, the lack of clarity of the impact of the UK EU Referendum on foreign
nationals' long term residency permissions in the UK may make it challenging for the Bank's UK subsidiaries
to retain and recruit adequate staff, which may adversely impact the Group's business.
The UK political developments described above, along with any further changes in government structure and
policies, may lead to further market volatility and changes to the fiscal, monetary and regulatory landscape to
which the Group is subject and could have a negative adverse effect on its financing availability and terms and,
more generally, on its business, financial condition and results of operation.
The Group's loan portfolio and its overall business are highly concentrated in Spain and the UK and
the Group is particularly exposed to any deterioration in the Spanish and British economy
The Bank is a Spanish financial institution with a nationwide footprint and a particularly strong presence in the
regions of Catalonia, the Valencian Community, the Balearic Islands, Asturias and Murcia. The majority of the
Bank's gross income (which comprises primarily interest and similar income plus fee and commission income,
gains or losses on financial assets and liabilities and other operating income) is derived from Spain, which
accounted for 71.8 per cent. and 83.7 per cent. of its income for the years ended 31 December 2016 and 2015,
respectively. Accordingly, the performance of the Spanish economy impacts the Bank's business, financial
condition, results of operations and prospects.
The Group has historically developed its lending business in Spain. The Group's loan portfolio in Spain has
been adversely affected by the deterioration of the Spanish economy since 2009. After rapid economic growth
until 2007, Spanish gross domestic product ("GDP") contracted in the period 2009-2013 (except for 2010 with
a GDP growth of 0.0 per cent). The effects of the financial crisis were particularly pronounced in Spain given
its heightened need for foreign financing as reflected by its high current account deficit, resulting from the gap
between domestic investment and savings, and its public deficit. While the current account imbalance has now
been corrected (with GDP growth of 3.2 per cent. in 2016) (Source: National Statistical Institute) and the public
deficit is diminishing, real or perceived difficulties in servicing public or private debt could increase Spain's
financing costs. In addition, unemployment levels continue to be high and a change in the current recovery of
the labour market would adversely affect households' gross disposable income of the Group's retail customers
and may adversely affect the recoverability of the Group's retail loans, resulting in increased loan losses.
The most recent forecast by the International Monetary Fund sets the growth of the Spanish economy GDP at
a 3.1 per cent. in 2017. The Bank of Spain's most recent forecast is in line, setting also a 3.1 per cent. However,
the Spanish economy is particularly sensitive to economic conditions in the Eurozone, the main market for
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Spanish goods and services exports, so that, an interruption in the recovery of the Eurozone might have an
adverse effect on Spanish economic growth.
It is also worth mentioning that, investor confidence may fall due to uncertainties arising from the results of
election processes or a referendum in the different geographies in which the Bank operates, which may
ultimately result in changes in laws, regulations and policies. This applies not only to specific Spanish regions
such as Catalonia but also to the central Spanish government, where the government that has finally been formed
on October 2016 is not supported by the majority of the Spanish parliament.
In particular, political tensions in Catalonia have increased recently due to the so-called "independence
movement", which has given rise to an atmosphere of uncertainty that could affect one of the areas in which
Banco Sabadell operates.
Considering that, as of 30 June 2015, the Group took control of TSB Banking Group plc ("TSB" or the "TSB
Banking Group") (which represents about 21 per cent. of the Group's total assets as of 31 December 2016),
the outcome of the UK EU Referendum could significantly impact the environment in which the TSB Banking
Group operates and the fiscal, monetary, legal and regulatory requirements to which it is subject. See "Exposure
to UK political developments, including the outcome of the UK referendum on membership of the European
Union and the uncertain future relationship of the UK with the EU, could have a material adverse effect on the
business, financial condition, results of operations and prospects of the Bank and its Group".
After the TSB acquisition, the Group has increased its international footprint, mainly in the UK. As of 31
December 2016, the Group's loan exposure to the UK was 24 per cent.
The Group's exposure to inherent risks arising from general macro-economic conditions in the UK, therefore,
has increased. During the global financial crisis that started in mid-2008, the UK economy experienced a
significant degree of turbulence and periods of recession, adversely affecting, among other things, the state of
the housing market, market interest rates, levels of unemployment, the cost and availability of credit and the
liquidity of the financial markets.
Economic indicators in the UK show signs of moderation in the performance of its economy in the first half of
2017, after initial resilience in the aftermath of the UK EU Referendum. The outlook for the UK economy
remains somewhat uncertain in the mid-term reflecting the challenges of UK EU Referendum, with some
forecasts predicting the subdued performance to continue as such, with modest levels of GDP growth and
continued relatively low interest rates over the near to medium term. The Group's customer revenue in the UK
is particularly exposed to the condition of the UK economy, including house prices, interest rates, levels of
unemployment and consequential fluctuations in consumers' disposable income. If these economic indicators
and the UK economic conditions weaken, or if financial markets exhibit uncertainty and/or volatility, TSB's
impairment losses may increase and its ability to grow its business could be materially adversely impacted.
Any deterioration in the global economy, a reduction in the transactions made in Europe, a setback in the current
sustainable path of growth, deterioration in the solvency of Spanish, British or international banks or certain
other economic changes in the Eurozone could have a negative impact on the Spanish and British economies
which, given the relevance of the Group's loan portfolio in Spain and the UK, would have a material adverse
effect on the Group's business, financial condition, results of operations and prospects.
Finally, the Group is also sensitive to developments in other economies, such as the United States (with a gross
income of 159 million as of 31 December 2016) and Mexico (with total investments of 398 million as of 31
December 2016). Given the Group's banking operations in the United States and Mexico, unfavourable
economic conditions in those countries, including fluctuations in the U.S. dollar/euro exchange rate, adverse
developments in the real estate market, lower oil prices, or a higher interest rate environment, including as a
9