Banco Sabadell Begins to Pay the Price for TSB’s Self-Inflicted IT Fiasco

The horribly botched IT upgrade hits the income statement.

Spain’s Banco Sabadell on Friday announced a second-quarter loss of €139 million, including costs of €203 million related to the IT fiasco at its British subsidiary TSB. Those costs included €40 million euros from fraud losses and €92 million euros to cover future customer claims. The income statement reflects a 51% drop in results from financial operations, as well as a 10% increase in expenses (due to the TSB-related costs).

The deterioration in the bank’s performance was reported in as positive light as possible, both by Sabadell itself and by Spain’s financial and general press. In just about every single national article (here’s an example from El Pais) on Sabadell’s losses the word “losses” is conspicuously absent. Instead, the focus is on the bank’s “first-half” results, that net out the loss in Q2 with the profit in Q1, and so these “first-half profits have decreased by 67% in the three months from April to June.”

This desperate attempt to obscure reality didn’t stop investors’ from immediately dumping Sabadell’s shares, triggering a 7.3% plunge in its share price in early trading today.

Sabadell’s stock has lost almost 25% of its value since TSB’s self-inflicted IT nightmare began on April 19. To try to stem, or at least slow, the rout, Sabadell has sharply increased its purchases of its own stock, despite receiving a €1.6-million slap-on-the-wrist fine from the ECB earlier this year for doing just that. By mid-July, it bought back 1.1% of its total outstanding shares

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