Sabadell’s Profit Drop Tests Its Standalone Strategy After TSB Sale and BBVA Bid Failure

Sabadell’s first-quarter results show the pressure European banks are facing as the interest-rate cycle becomes less favorable. The Spanish lender reported net profit of €347 million for January to March, down 29% from the same period in 2025 and below the €424 million expected by analysts in a Reuters poll. The main drag came from lower lending income as client borrowing costs eased, reducing the profitability of loans that had previously benefited from higher rates. Net interest income, which measures earnings from loans minus deposit costs, fell 3.5% year on year to €872 million and declined 2.5% from the previous quarter.

Costs were another major reason behind the weak result. Overall costs rose 13.4% year on year, partly because Sabadell booked €55 million in non-recurring expenses linked to an early retirement plan in Spain and a €14 million charge connected to the sale of TSB. The TSB transaction was completed on May 1, with Santander buying the UK bank for around €3.3 billion. The deal gives Sabadell a capital gain of about €300 million and boosts its capital position by more than 400 basis points, while also allowing the bank to pay a special dividend of €0.50 per share later in May.

The strategic context matters as much as the quarterly numbers. Sabadell is now entering a new phase as a more Spain-focused bank, after selling TSB and after BBVA’s failed hostile takeover bid. BBVA had tried to win support from more than 50% of Sabadell voting rights, but only 25.47% of shareholders tendered their shares, ending the €16.32 billion attempt to create Spain’s second-largest bank by assets. That failure gave Sabadell more independence, but also more pressure to deliver on its own strategy without the benefits of a larger balance sheet or merger synergies.

There are still some positive signals. Sabadell expects net interest income to grow by more than 1% this year, which suggests management does not see the first-quarter decline as the start of a deeper earnings slide. The bank also has a stronger capital base after the TSB sale, and the special dividend may help reassure shareholders who rejected BBVA’s bid in favor of Sabadell’s standalone plan. However, the market will likely demand clearer evidence that the bank can maintain profitability as interest-rate support fades and restructuring costs remain visible.

The broader takeaway is that Sabadell’s independence now comes with a sharper performance test. The bank successfully defended itself against BBVA and simplified its structure by selling TSB, but the first-quarter profit drop shows that a standalone future will not be easy. To keep investor confidence, Sabadell needs to prove that its Spanish franchise can offset weaker loan margins, absorb restructuring costs and generate enough capital to support both growth and shareholder payouts. If it succeeds, the failed BBVA bid may look like a turning point in favor of independence. If earnings continue to disappoint, investors may again question whether Sabadell is large enough to compete alone in a consolidating European banking market.