Obligation Banco de Sabadell 6.5% ( XS1611858090 ) en EUR

Banco de Sabadell

100 % ▲

Espagne

XS1611858090 ( en EUR )

6.5% par an ( paiement trimestriel )

Perpétuelle

Prospectus brochure de l'obligation Banco de Sabadell XS1611858090 en EUR 6.5%, échéance Perpétuelle

200 000 EUR

750 000 000 EUR

18/05/2025 ( Dans 28 jours )

Banco de Sabadell est une banque espagnole multinationale offrant une large gamme de services financiers aux particuliers et aux entreprises, notamment la banque de détail, la banque privée et les services d'investissement.

L'Obligation émise par Banco de Sabadell ( Espagne ) , en EUR, avec le code ISIN XS1611858090, paye un coupon de 6.5% par an.
Le paiement des coupons est trimestriel et la maturité de l'Obligation est le Perpétuelle

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 750,000,000 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 18 May 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 18 May 2022 (the "First Reset Date"), at the rate of 6.5 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 6.414 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 18 February, 18 May, 18 August and 18
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 Pre ferred 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 or the Group falls below 5.125 per cent.), the Preferred Securities are mandatorily and irrevocably convertible into newly issued or dinary 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 B2 rating by Moody's Investors Service, Inc. ("Moody's"). Moody's is established in the
European Union ("EU") and is registered under Regulation (EC) No. 1060/2009 (as amended) (the "CRA Regulation"). As such, Moody's 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 8.
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 and Joint Lead

Manager

Deutsche Bank

Joint Lead Managers

Banco Sabadell
Goldman Sachs International
HSBC

J.P. Morgan

UBS Investment Bank

The date of this Offering Circular is 8 May 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., Deutsche Bank AG, London Branch, Goldman Sachs
International, HSBC Bank plc, J.P Morgan Securities plc and UBS Limited (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.

i

This Offering Circular does not constitute an offer of, or an invitation to subscribe for or purchase, any
Preferred Securities.
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.

ii

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
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.

iii

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
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, Deutsche Bank AG, London Branch (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.

iv

TABLE OF CONTENTS
Page
IMPORTANT NOTICES ................................................................................................................................... i
RISK FACTORS ............................................................................................................................................... 6
INFORMATION INCORPORATED BY REFERENCE ................................................................................ 51
OVERVIEW OF THE OFFERING ................................................................................................................. 52
CONDITIONS OF THE PREFERRED SECURITIES ................................................................................... 58
USE OF PROCEEDS ...................................................................................................................................... 97
CAPITAL ADEQUACY ................................................................................................................................. 98
DESCRIPTION OF THE ISSUER AND ITS GROUP ................................................................................. 100
MARKET INFORMATION .......................................................................................................................... 122
DESCRIPTION OF THE SHARE CAPITAL ............................................................................................... 126
TAXATION ................................................................................................................................................... 140
SUBSCRIPTION AND SALE ...................................................................................................................... 156
GENERAL INFORMATION ........................................................................................................................ 158

v

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.
6

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 (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 (depreciation which however was soon
reverted), 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. On 4 December 2016,
voters in Italy rejected constitutional reform proposals put forward by the Italian Prime Minister by way of

7

referendum (the "Italian Referendum"), withdrawing the political support to the Italian Prime Minister and
causing his resignation and the Euro to fall to a 20-month low against the US dollar.
Following the results of the UK EU Referendum and the Italian Referendum, the risk of further instability in
the Eurozone cannot be excluded, particularly in Germany, which is due to hold elections in 2017. The
increase in the political influence of Eurosceptic political parties in these 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.
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.
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.
Recently, the International Monetary Fund has reviewed the expected growth of the Spanish economy and has
projected an increase of its GDP by 2.3 per cent. in 2017, while the Bank of Spain expects a growing rate of
the GDP of 2.5 per cent. However, the Spanish economy is particularly sensitive to economic conditions in
the Eurozone, the main market for 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

8