BNDSY - Banco de Sabadell Dogged By Weak Earnings And A Heavily Discounted Valuation

• Sabadell has been mentioned as a potential target for both BBVA and Santander, and Sabadell would give either significant cost-cutting and corporate-lending leverage in Spain.
• On its own, Sabadell is going to struggle a while longer due to weak rates and a still-too-high expense structure in both its Spanish and UK operations.
• Non-performing loan levels remain elevated, but the bank's reserves and capital look healthy and the bank can readily absorb 300bp or more of full-cycle losses.
• A buyout would likely be the best option for Sabadell management and shareholders, and could come at a meaningful premium to today's price, but the shares also trade below long-term standalone value.

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