BS Informe Anual 09 ANG · 2021. 2. 11. · Number of branches 1,214 1,247 ... prominent role on...

128th128

Annual Report 2009

128th year

001-003-Indice ANG 12/3/10 11:58 Página 1

—Index————————


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—Annual Report 2009

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5 —The Banco Sabadell group in 2009

financial highlights

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9 —Chairman's letter

12 —Financial and share

performance information

35 —Group businesses

64 —Excellence

71 —Risk management

83 —Board of Directors

and Senior Management Team

86 —Report of the Audit

and Control Committee

97 —Report on Directors’ remuneration

101 —Corporate Social Responsibility

109 —Statutory information

110 —Directors' statement

of responsibility

111 —Auditor's report

113 —Annual Accounts

212 —Report of the Directors

226 —Banco Sabadell group contact details

CD —Annual Report on Corporate

Social Responsibility

—Report on Corporate Governance


004-007-Magnituts ANG 12/3/10 12:00 Página 4

—The BancoSabadellgroup in 2009financial highlights ————


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Financial highlights 2009 2008 % 09/08

Own funds 5,226,333 4,627,216 12.9

Total assets 82,822,886 80,378,065 3.0

Loans and advances to customers - gross 65,012,792 64,704,240 0.5

On-balance sheet deposits and issued securities 64,165,053 63,478,952 1.1

Customer deposits ex repos 38,131,235 36,134,150 5.5

Assets held in mutual funds 9,150,665 9,436,042 (3.0)

Assets held in pension funds

and insurance policies sold 8,168,367 6,526,684 25.2

Deposits and assets under management 82,247,095 80,414,900 2.3

€'000

Income and earnings performance

Interest margin 1,600,647 1,452,844 10.2

Gross income 2,505,030 2,226,846 12.5

Operating profit before impairment and other provisions 1,325,477 1,114,614 18.9

Net attributable profit 522,489 673,835 (22.5)

Resources

Number of branches 1,214 1,247

Number of employees 9,466 9,929


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Ratios 2009 2008

Profitability and efficiency ratios

ROA (Net profit / average total assets) 0.64 0.85

ROE (Net attributable profit / average shareholders' equity) 11.36 16.16

Cost:income (general administrative expenses / gross income) 43.05 43.97

BIS capital ratios

Core capital 7.66 6.67

Core capital (including generic provisions net of tax) 8.14 8.06

TIER I 9.10 7.28

TIER I (including generic provisions net of tax) 9.58 8.68

Total 10.80 9.78

Risk management

Loan loss ratio 3.73 2.35

Loan loss coverage ratio 69.03 106.93

Loan loss coverage ratio including mortgage security 125.11 160.75

Share data

Number of shares 1,200,000,000 1,200,000,000

Number of shareholders 89,910 88,289

Quoted share price (€) 3.875 4.850

Attributable earnings per share (€) 0.44 0.56

Attributable earnings per share including

bonds mandatorily convertible to shares (€) 0.41 --


008-011-Carta Presidente ANG 12/3/10 12:02 Página 8

—Chairman's letter—


Dear Shareholder,

At the end of another year — the 128th in its long history — Banco Sabadell hasshown that with the right kind of management it is possible to successfully face a troubled and uncertain economic and financial climate. This is clear from ourconsolidated results which can be described as very satisfactory.

The global financial crisis that began in 2007 continued in 2009. The first few months of the year were marked by high degrees of uncertainty and instability.However, the exceptional economic policy measures taken by the authorities indifferent countries, the strengthening of the global financial system, moves towardbetter regulation and a more active role by international financial institutions sawconsiderable progress being made in restoring financial stability, boosting globaleconomic recovery and improving market conditions as the year advanced. Economicactivity generally revived in the second half of the year with the emerging markets,especially Asia, taking the lead.

In Spain, 2009 was characterized by the continuing adjustment in domesticdemand, although exports recovered from the second quarter onwards. Against thisbackdrop, the country's current account deficit narrowed sharply, household savingsrates rose to historically high levels, property prices continued to fall, unemploymentclimbed to levels not seen since the inception of the single European currency and the state of the public finances worsened considerably.

In these difficult conditions Banco Sabadell reported a year-end profit of €522.5million after strengthening its balance sheet according to a policy of the utmostprudence by setting aside provisions totalling €837.7 million. The group profit beforeprovisions was €1,325.5 million, an 18.9% improvement on the year-end figure for 2008.

Banco Sabadell has faced the crisis by adapting its management policies andoperating parameters to the realities of the global economic and financial situation.This meant ensuring that good earnings performance went hand-in-hand with boostingsolvency and liquidity to meet the demands of the current operating environment.Significantly, in 2009 Banco Sabadell was one of the few Spanish lending institutionsthat successfully tapped the wholesale markets for capital to fund its lending, withouthaving recourse to state guarantees and at a time when market conditions were attheir most difficult. At the same time, it continued its policy of strengthening its capitaladequacy position to meet the standards that markets now require. This included anissue of mandatorily convertible subordinated bonds and certain transactions in thepreference share market which won it praise from numerous market analysts. Finally,capital resources were further strengthened by sales of real estate assets during theyear; this also freed up capital to support the group's lending business.

Managing the rising rate of recession-driven loan arrears and defaults was a keyaspect of the Bank's response to the crisis. Its below industry average delinquencyrates testify to the skill and strength of its risk management function.

The creation of Solvia and a proactive approach to managing risk in theconstruction and real estate sector helped to ensure that foreclosure actions wereavoided and resulted in the execution of a plan to sell off real estate assets. Thisinvolved setting up Solvia's property finder website www.solvia.es and coming toagreements with developers to enable viable construction projects to proceed at siteswhere the property market looked more favourable.

The Bank ended the year, as forecast, with zero lending growth in a general climateof recession; at the same time, it strengthened its deposit base and saw a turnaroundin its asset management and personal and private banking businesses.

Although our domestic banking business has always played a vital role in meetingthe Bank's need for growth and increased profitability, and will continue to play thatrole going forward, the Bank has decided to make the first moves in a policy ofinternational diversification by building on the expansion already taking place inFlorida, based on the growth of its operations in that state. In 2009 the Bank was able

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to acquire for a reasonable sum the Mellon United National Bank (MUNB), a highlyreputed organization founded in 1978 and operating in southern Florida. As a result of this purchase, together with TransAtlantic Bank and BBVA's private bankingbusiness in Miami, both acquired in 2007, Banco Sabadell is now the sixth largestlocal bank by volume of deposits.

Banco Sabadell also continued to extend its international office network servingSpanish businesses abroad by opening an operating branch in Casablanca and arepresentative office in Dubai. The Dubai office is the first such establishment to beset up by a Spanish bank in the United Arab Emirates at the heart of a region thatoffers huge potential to Spanish companies.

Quality of service has always formed the basis of the Bank's strategic positioning.It is for this reason that it can boast the Seal of Excellence awarded by the EuropeanFoundation for Quality Management (EFQM), testifying not only to the quality of servicedelivered but also to the commitment to corporate social responsibility shown by its prioritizing of stakeholder engagement. Banco Sabadell was the lowest scoringSpanish bank in terms of the number of complaints reported to the Bank of Spain,according to data published by the Bank of Spain's complaints department. In a yearas complex as 2009 has been, this is no minor achievement. Banco Urquijo, thegroup's private banking and wealth management subsidiary, received an accolade this year from the business publication Euromoney which named it Spain's bestprivate bank.

The annual report sets out all the key facts and figures that define this reportingyear and the Bank's position at this very difficult time. The report also confirms thestrength and solid performance of the Bank which are due, in no small measure,to our well-coordinated and highly experienced management team and the fine body ofpeople working under them. Two and a half years after the onset of the global financialcrisis and the economic recession that it brought in its wake, the Bank is in a strongposition to face the coming year. This, together with its conservative, professionalapproach, will ensure that it can continue to strengthen its relative position within thefinancial system, lay the foundations for value creation in the future, and make goodprofits for our shareholders.

José Oliu Creus

Chairman


—Financialand share performanceinformation—————

012-034-Información Financiera ANG 12/3/10 12:16 Página 12

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—Macroeconomic environment

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The first few months of 2009 continued to be marked by highdegrees of financial market and economic uncertainty andinstability. In the global markets financial institutions continued tostruggle to gain access to wholesale funding and share prices fellsharply. The economic downturn that had begun the previous yearbecame deeper and more widespread as the first quarterprogressed, exacerbated by a sharp fallback in international trade. Meanwhile, fears of a possible deflationary spiral becamemore acute.

Against this worsening backdrop, economic policymakerscontinued to implement exceptional measures of fiscal andmonetary easing, including additional support for the financialsystem. Central banks continued to inject large amounts of liquidityinto the system, helped by levels of inflation that remainedsubdued and in some cases negative. With official interest rates at historically low levels, monetary authorities continued to pursueunorthodox policies focused mainly on purchases of governmentand corporate bonds. In the euro area the European Central Bankmaintained its fixed-rate tender procedure with full allotment atmaturities up to one year; it also launched a programme to buy up euro zone issues of covered bonds backed by mortgage or othercollateral. The financial crisis spurred efforts to strengthen theglobal financial system through new regulation and a moreprominent role on the part of international financial institutions. In Spain, the government’s policy of fiscal easing has beensignificant from an international perspective, and has emphasizedspending policies as well as tax cuts. Of the various financialinitiatives adopted in Spain, one of the most significant was theestablishment of a Fund for Orderly Restructuring of the Banks(Spanish abbreviation: FROB) with the aim of guiding restructuringprocesses within the financial sector and boosting capitalresources in a number of banking consolidations.

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—Risk premium in the euro interbank market

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Far-reaching, exceptional economic policy measures throughoutthe world led to considerable progress being made in restoringfinancial stability and stimulating global economic recovery as theyear progressed. Financial markets improved from the secondquarter onwards as risk premia in the interbank and credit marketsdeclined and financial markets gradually resumed normalfunctioning. Stock market prices rebounded strongly and there was a significant decline in market volatility. This allowed the globalfinancial system to reduce its dependence on government supportprogrammes and a number of banks that had been saved bygovernment intervention were able to reduce the proportion of theirshare capital in public ownership. Economic activity showed ageneral improvement in the second half of the year, having sufferedthe worst recession since World War II. Recovery was spearheadedby the emerging markets, especially in Asia. The speed andstrength of recovery in countries like China and Brazil contrastedwith a tardier and more sluggish revival in Mexico and EasternEurope. Developed countries benefited from the pickup in worldtrade and some of them have begun to see signs of stabilisation in their housing markets.

In Spain domestic demand continued to slow, although exportsrecovered from the second quarter onwards. As a result thecountry’s current account deficit narrowed sharply, while householdsavings rates reached historic highs, property prices fell further andunemployment reached its highest level since the inception ofmonetary union. On the inflation front, consumer price indicesgenerally responded to the improved economic climate as deflationfears subsided, although any inflationary pressures were kept atbay by large amounts of spare capacity and raw material pricesbelow 2008 levels. In the fiscal domain, the expansionary policiespursued by governments and the automatic triggering ofstabilization mechanisms resulted in a severe and widespreadworsening in public finances, with a number of countries showingdouble-digit government deficits by the end of the year. This meantthat the risks taken on by financial institutions were transferred tothe public sector, and credit rating agencies responded by

—GDP and economic confidence in the euro zone

—Annual rate of growth % (left hand scale)

—Confidence level (right hand scale)

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downgrading the credit ratings of the sovereign debt of severaleconomies, including a number of peripheral euro area countries.

Despite the improving economic and financial environment,economic policymakers have remained cautious on the timing of any withdrawal of financial support measures. Underlying thisreticence are doubts about the sustainability and strength ofeconomic recovery and the fact that a number of financial marketshave yet to recover. Consequently, only a few central banks havebegun to be clearer about their exit strategies from unorthodoxpolicies. One of these is the European Central Bank, whichannounced the withdrawal of some of its loan facilities from thestart of 2010. For similar reasons, governments are not anxious tomove towards an active exit strategy until economic recovery hasconsolidated. Only certain countries with the largest budget deficitshave begun to take steps to contain their borrowing.

On the currency markets the dollar continued to weaken againstthe euro. The US currency was weighed down by doubts over thesustainability of the country's public finances and over the dollar'sfuture as a reserve currency. A climate of declining risk aversionand a negative interest rate gap for the US also contributed to thisdecline. Elsewhere, the yen began to appreciate against the dollarfrom the second quarter onwards, reaching levels not seen since1995. The yen was supported by Japan’s balance of trade surplusand improving economic performance. However, the yen's upwardmovement saw a partial reversal in December as the Japaneseauthorities threatened to intervene on the currency markets toprevent the currency from rising too far. Sterling remained weakagainst the euro on the back of aggressive monetary easing by the Bank of England.

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——Banco Sabadell anticipated economic slowdown in2009 and did more to support the economy.——


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Long-dated government bonds ended the year in negativeterritory on both sides of the Atlantic as yields picked up in the first half of the year. In the second half, however, yields remainedrelatively static despite an improving economic outlook, increasinglevels of government bond issuance and risk appetite on a risingtrend. These factors were neutralized by a strong demand for bondsfrom financial institutions and central banks, official interest ratesthat remained at unusually low levels, and uncertainty over thesustainability of economic recovery. In the euro area, credit spreadson the debt of a number of countries over the German Bund at thebeginning of the year reached their highest point since theinception of economic and monetary union. These spreadssubsequently eased, although they remained well above their long-term averages. Meanwhile, the emerging markets continued tobenefit from the support of international financial institutions and,as the year progressed, from an increase in risk appetites globally.As a result, country risk premia for these markets have fallen backto levels similar to what they were before the Lehman Brotherscollapse.

The equity markets ended the year with significant gains. Apart from the gradual recovery of economic and financial marketconditions, this strong performance was helped by positivecorporate earnings surprises. The S&P 500 index increased by 20.2% in euro terms, the European Dow Jones Stoxx 50 indexwas up 24.1%, Spain's IBEX 35 climbed 29.8% and the NIKKEI 300rose by 1.8%. In Latin America, too, stock market indices saw somenotable rises as recovering raw materials prices provided additionalsupport.

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—Spread of Spanish sovereign debt over German Bund

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—Share performance

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Against this economic backdrop, the market preferred morediversified stocks and was less attracted by stocks exposed whollyor mainly to the domestic market. The following chart provides acomparative view of how Banco Sabadell shares have performedsince December 2001.

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—S&P 500 (VIX) volatility index

—Banco Sabadell share price - comparative performance

—Banco Sabadell—IBEX 35—Comparable Spanish banks—DJ Stoxx 600

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With the share price at €3.875 and a market capitalization of€4,650 million at the end of the year, Banco Sabadell maintainedits position as Spain’s fourth largest banking group by market valueas well as by most other financial measures.

—Monthly share price movements in 2009

Month Closing Maximum Minimum IBEX at end Average daily

price of month trading volume

(€) (€) (€) ('000 shares)

December 2008 4.850 5.410 4.810 9,195.8 3,509

January 3.920 5.200 3.820 8,450.4 3,575February 3.280 3.980 3.110 7,620.9 3,028March 3.780 3.980 2.940 7,815.0 2,891April 4.380 4.410 3.660 9,038.0 3,026May 4.520 4.780 4.340 9,424.3 2,012June 4.450 4.690 4.215 9,787.8 2,026July 4.680 4.680 4.100 10,855.1 2,338August 5.260 5.300 4.670 11,365.1 2,214September 5.055 5.220 4.815 11,756.1 3,091October 4.595 5.110 4.545 11,414.8 4,202November 4.240 4.730 4.170 11,644.7 6,427December 3.875 4.315 3.875 11,940.0 3,957

Average daily trading volume in 2009

By number 3,226,000By value 14,102,000

—Earnings per share and book value per share 2005-2009

Mn. €Mn. € €Mn. €

Number of Net attributable Net attributable Shareholders' Book value

shares(1) profit earnings per share equity per share

2005 1,224 453 0.37 3,374 2.762006 1,224 908 0.74 4,041 3.302007 1,224 782 0.64 4,501 3.682008 1,200 674 0.56 4,627 3.862009 1,200 522 0.44 5,226 4.362009* 1,300 522 0.41 5,226 4.02

(1) Adjusted for 4 x 1 share split

* assuming an additional 100,340,000 shares resulting from an issue of subordinated bonds mandatorily convertible to shares.

—Ratios

Share price at 31.12.09 €3.875P/E ratio 2009* 9.48xP/B ratio 2009* 0.96xDividend yield 2009 6.71%

* assuming an issue of subordinated bonds mandatorily convertible to shares.


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In line with the group's dividend policy, three dividends were paidduring the year: a final dividend for 2008 of €0.12 per share and twointerim dividends for 2009 of €0.07 each. The full dividend for theyear, including the final dividend for 2009 which will be proposed tothe Annual General Meeting for approval, will be €0.14 per shareplus an additional payment to each shareholder of €0.08 per share.This means a payout ratio of 50.5%.

At the end of June the Bank, as part of its strategy of activelymanaging its capital to provide a platform for growth and increasedsolvency in line with the highest banking industry standards, carriedout a €500 million issue of subordinated bonds mandatorilyconvertible to shares. The bond issue was directed primarily at retailinvestors resident in Spain although it was also open to qualifiedinvestors, whether resident or non-resident. The term of the issue is four years with interest payable quarterly, subject to having beenpreviously declared by Banco Sabadell, at a fixed nominal rate ofinterest of 7% (7.30% AER) in the first year and 3-month Euribor plus4.5% from the second year until maturity. On 17 July the conversionprice was fixed at €4.983 per share.

——Healthy trading volumes confirm the strength ofsupport for Banco Sabadell shares——

—Analysis of shareholdings at 31 December 2009

Size of holding Number of Number % of total

shareholders of shares

12,000 or less 80,950 150,490,211 12.54%From 12,001 to 120,000 8,101 260,630,255 21.72%From 120,001 to 240,000 468 78,338,314 6.53%From 240,001 to 1,200,000 324 150,107,758 12.51%From 1,200,001 to 18,000,000 60 220,562,440 18.38%More than 18,000,000 7 339,871,022 28.32%

Total 89,910 1,200,000,000 100.00%

—Analysis of shareholdings at 31 December 2008

Size of holding Number of Number % of total

shareholders of shares

12,000 or less 79,234 146,099,192 12.18%From 12,001 to 120,000 8,171 260,779,837 21.73%From 120,001 to 240,000 476 78,942,509 6.58%From 240,001 to 1,200,000 346 158,659,013 13.22%From 1,200,001 to 18,000,000 55 207,276,087 17.27%More than 18,000,000 7 348,243,362 29.02%

Total 88,289 1,200,000,000 100.00%


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At the end of 2009 the number of Banco Sabadell outstandingordinary shares was 1,200 million and the shareholder base wasmade up of private investors with 56.3% of the share capital, andinstitutional investors with the remaining 43.7%. This number doesnot include the ordinary shares to be issued on the conversion of mandatorily convertible subordinated bonds.

Banco de Sabadell, S.A. own equity instruments held by thirdparties but under the management of other group companiesnumbered 2,230,199 and had a nominal value of €9,238,000; ofthese equity instruments 2,221,239 were Banco Sabadell sharesand the rest were mandatorily convertible subordinated bonds.

Banco Sabadell has a Shareholder Relations Desk and an Investor Relations Department whose functions are to providedetailed information on the performance of the group and respondto enquiries, suggestions and views of existing or potentialshareholders, whether private or institutional, on any aspect relatedto the Bank and its performance.

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—Financial review

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Against a backdrop of continuing high levels of economic andfinancial market uncertainty and turbulence, Banco Sabadell endedthe year 2009 with numbers that showed a steadily improvingbalance sheet position, significant growth in results from ordinaryactivities and a loan loss ratio that was once again one of thelowest in the financial system.

Active capital and balance sheet management by the Bank waskey to achieving the high capital ratios reached at the end of theyear. Banco Sabadell maintained its position as one of Spain's bestcapitalized financial institutions, putting us in an excellent positioncompared with the Spanish financial system as a whole. As a resultthe Bank continued to have access to the capital markets and wasone of the few Spanish banks that did not have to rely on stateguarantees.

The Bank's success in maintaining stable average levels oflending and deposit-taking, plus its ability to effectively manage

——A solid balance sheet, a strong capital base and a highlevel of solvency—A healthy interest margin thanks to active managementof pricing and provisions —Fee and commission income is picking up —New loan defaults now on a downward trend—Our loan loss coverage ratio remains high——


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business margins and keep recurring costs firmly under controlwere critical to the attainment of a consolidated profit and lossaccount for 2009 that continued to show positive margin growthacross the group's core businesses.

€'000

Assets 2009 2008 % 09/08

Cash and deposits with central banks 1,820,157 2,357,573 (22.8)Assets held for trading. derivatives and other financial assets 1,990,688 1,959,492 1.6

Available-for-sale financial assets 8,031,761 5,759,158 39.5 Loans and receivables 65,777,852 65,629,692 0.2

Loans and advances to credit institutions 2,544,962 2,623,491 (3.0)Loans and advances to customers 63,232,890 63,006,201 0.4

Equity investments 706,075 587,966 20.1 Tangible assets 1,140,190 1,080,917 5.5 Intangible assets 669,980 718,536 (6.8)Other assets 2,686,183 2,284,731 17.6

Total assets 82,822,886 80,378,065 3.0

Liabilities 2009 2008 % 09/08

Liabilities held for trading and derivatives 1,680,022 1,692,628 (0.7)Financial liabilities measured at amortized cost 74,957,805 73,348,773 2.2

Deposits from central banks 1,064,909 3,926,578 (72.9)Deposits from credit institutions 8,512,365 4,795,465 77.5 Deposits from other creditors 39,130,722 39,199,242 (0.2)Debt certificates including bonds 22,812,447 22,024,260 3.6 Subordinated liabilities 2,039,698 2,093,687 (2.6)Other financial liabilities 1,397,664 1,309,541 6.7

Liabilities under insurance contracts 182,186 161,763 12.6 Provisions 313,267 366,904 (14.6)Other liabilities 392,236 359,932 9.0

Total liabilities 77,525,516 75,930,000 2.1

Equity 2009 2008 % 09/08

Own funds 5,226,333 4,627,216 12.9 Valuation adjustments 43,656 (193,214) -- Minority interests 27,381 14,063 94.7

Total equity 5,297,370 4,448,065 19.1

Total liabilities and equity 82,822,886 80,378,065 3.0

Off-balance sheet items 2009 2008 % 09/08

Contingent exposures 7,658,536 7,680,760 (0.3)Contingent commitments 17,019,738 18,880,975 (9.9)

Total off-balance sheet items 24,678,274 26,561,735 (7.1)


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Capital management

The high level of active capital management that Banco Sabadellhas maintained in recent years was intensified in 2009 and anexcellent degree of financial strength was achieved, as can be seen from the end-year capital ratios shown below.

Some of the actions taken during the year to further strengthenthe Bank's solvency were as follows:

—-a €500 million preference share issue in February, raisingthe Tier I ratio by 84 basis points;

—-a €152 million buyback of preference shares issued in2006, generating a capital gain of €96 million and adding 11 basis points to core capital;

BIS capital ratios

€'000

2009 2008 % 09/08

Capital 150,000 150,000 0.0 Reserves 4,456,488 4,336,383 2.8 Convertible bonds 500,000 0 -- Minority interests 30,612 19,296 58.6 Deductions (613,995) (584,990) 5.0

Core capital 4,523,105 3,920,689 15.4

Core capital ratio (%) 7.66 6.67

Preference shares 1,098,150 750,000 46.4 Valuation adjustments (21,064) (191,480) (89.0)Deductions (229,278) (195,677) 17.2

Primary capital 5,370,913 4,283,532 25.4

Tier I capital ratio (%) 9.10 7.28

Generic provisions 329,564 329,306 0.1 Subordinated debt 880,200 1,318,000 (33.2)Valuation adjustments 25,327 15,000 68.8 Deductions (229,278) (195,678) 17.2

Secondary capital 1,005,813 1,466,628 (31.4)

Tier II capital ratio (%) 1.70 2.49

Capital base 6,376,726 5,750,160 10.9

BIS Ratio (%) 10.80 9.78

Minimum capital requirement 4,722,851 4,704,740 0.4

Capital surplus 1,653,875 1,045,420 58.2

Memorandum item:

Risk-weighted assets 59,035,638 58,809,250 0.4

——Our capital management in 2009 makes us a leaderamong European banks ——


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20082009

64,704 65,013

—Gross loans and advances to customers

(€Mn.)

—a €500 million issue of subordinated bonds mandatorilyconvertible to shares, carried out in July 2009, bringing afurther 84 basis points to the Tier I ratio;

—in the course of the year the Bank realized gains of over €160million by managing its fixed-income portfolio and by enteringinto sale and leaseback arrangements on buildings,increasing the core capital ratio by another 18 basis points.

By means of these actions to boost capital and by activelymanaging its balance sheet as part of its risk and capitalmanagement policy in line with the Basel II framework, the Bankwas able to considerably widen the gap between its minimumcapital requirements and its available capital resources.

The market has publicly acknowledged the Bank's proactiveapproach to solvency and the leadership and capacity forinnovation that its actions in 2009 have demonstrated.

Balance sheet management

Gross loans and advances to customers totalled €65,012.8 millionat the end of 2009, growing by 0.5% compared with the previousyear. Specialist types of business finance were strong contributorsto this performance. "Confirming" (without-recourse discounting of supplier invoices) and factoring showed increases of 15.8% and 4.9%, respectively.

€'000

2009 2008 % 09/08

Secured loans 36,279,639 35,677,281 1.7 Other loans and receivables 19,401,593 20,402,667 (4.9)Factoring 1,494,931 1,425,741 4.9 "Confirming" 1,253,774 1,082,564 15.8 Other loans 6,582,855 6,115,987 7.6

Loans and advances to customers - gross 65,012,792 64,704,240 0.5

Provisions for bad and doubtful debts and country risk (1,779,902) (1,698,039) 4.8

Loans and advances to customers - net 63,232,890 63,006,201 0.4

Memorandum item: total securitized assets 9,706,556 11,443,903 (15.2)

Of which: Securitized mortgage assets 6,229,809 7,011,776 (11.2)Other securitized assets 3,476,747 4,432,127 (21.6)

Of which: Securitization issues after 01.01.04 9,613,606 11,222,422 (14.3)Of which: Securitized mortgage assets 6,141,923 6,809,498 (9.8)Other securitized assets 3,471,683 4,412,924 (21.3)


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The loan loss ratio at 31 December 2009 was held to a below-industry average of 3.73% thanks to rigorous application of thegroup's risk control policy.

The loan loss coverage ratio was 69.03%. If mortgages securityis included the loan loss coverage ratio at the close of 2009 risesto 125.11%.

—Gross loans and advances

to customers by sector

31.12.2009

1 Construction 5%2 Real estate development 11%3 Agriculture, livestock

and fisheries 1%4 Services and other 38%5 Mortgage loans to

individual customers 22%6 Other loans to

individual customers 3%7 Industry 20%

1

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5

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2

7

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2009 2008 % 09/08

Bad and doubtful debts

Opening balance 1,698,182 331,673 412.0 Increase due to new loan defaults 3,115,965 1,831,166 70.2 Recoveries (2,034,351) (360,350) 464.5 Loans written off (67,378) (104,307) (35.4)

Total bad and doubtful debts 2,712,418 1,698,182 59.7

Gross loans and advances to customers 65,012,792 64,704,240 0.5 Contingent liabilities 7,658,536 7,680,760 (0.3)

Total credit risk 72,671,328 72,385,000 0.4

Specific provisions 1,461,429 645,416 126.4 Generic provisions 411,014 1,170,427 (64.9)

Provisions for bad and doubtful debts 1,872,443 1,815,843 3.1

Loan loss ratio (%) 3.73 2.35

Loan loss coverage ratio (%) 69.03 106.93

—Loans and advances to customers

31.12.2009

1 Mortgage loans and credit 49%2 Other secured loans

and receivables 7%3 Commercial loans 4%4 Factoring and confirming 4%5 Other loans 14%6 Other receivables 14%7 Finance leases 6%8 Overdrafts and other accounts 2%

1

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—Loans and advances to customers

31.12.2008

2

8

1 Mortgage loans and credit 51%2 Other secured loans

and receivables 7%3 Commercial loans 4%4 Factoring and confirming 4%5 Other loans 17%6 Other receivables 10%7 Finance leases 5%8 Overdrafts and other accounts 2%

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6

7

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The Banco Sabadell group saw its investment portfolio increaseby 37.1% to a total of €8,940.0 million.

Banco Sabadell maintains a portfolio of fixed-incomeinvestments which originate from two sources. Some of theinvestments in the portfolio help to provide a macro-hedge of thegroup's on-balance sheet interest rate risk as well as returns toboost interest income, subject always to complying with the limitsfor interest rate risk. The remaining assets in the portfolio relate to the group's policy of putting its surplus cash to work by investingit in financial assets as part of its treasury management strategy.

The Bank endeavours to ensure that assets in the fixed-incomeportfolio are of a high credit quality overall; most of them have thehighest ratings awarded by rating agencies.

On-balance sheet deposits (including repurchase agreements)and debt securities amounted to €64,165.1 million at the end of the year, an absolute increase of €686.1 million on the figure for 2008.

Customer deposits remained fairly stable overall (down 0.2%),with good growth in both time deposits (up €899.6 million) and current accounts (up €97.5 million); repurchase agreements,on the other hand, declined by €1,033.4 million).

Debt securities and other negotiable instruments totalled€22,812.4 million, up €788.2 million (+3.6%) on the figure for2008. Major contributors to this growth were net increases of€1,414.3 million in euro commercial papers in issue and €588.5million in covered bonds; the increase was partly offset by a fall in the volume of bonds in issue by the Bank (down €969.1 million)and also in bonds issued by securitization funds (down €472.1million).

Subordinated liabilities showed a slight absolute fall of €54million, while liabilities under insurance contracts grew by 12.6%.

€'000

2009 2008 % 09/08

Government securitiesTreasury bills 1,191,783 602,179 97.9 Other government securities 1,475,537 1,964,881 (24.9)

Fixed-income securities 4,261,083 2,572,565 65.6 Doubtful assets 6,438 1,817 254.3

Total fixed-income securities 6,934,841 5,141,442 34.9

Shares and equity investmentsCredit institutions 177,473 358,682 (50.5)Other private sector issuers 1,121,621 431,301 160.1 Equity investments in unconsolidated companies 706,075 587,966 20.1

Total shares and equity investments 2,005,169 1,377,949 45.5

Total investment portfolio 8,940,010 6,519,391 37.1


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The value of assets in collective investment schemes (CIS's) at the end of the year was €9,150.7 million. This was a 3.0% fall compared with the previous year, caused by the downturn in the securities and financial markets. The last quarter of 2009,however, saw a reversal of this downward trend, with assets in CIS's up by 6.1% on the previous quarter.

On the other hand, assets in pension funds sold by the groupgrew by 347.4 million (14.2%) in the course of 2009 to reach a year-end total of €2,788.0 million.

1 Current accounts 34%2 Savings accounts 5%3 Time deposits 57%4 Repurchase agreements 4%

1

2

3

4

—Customers deposits (*)

31.12.2009

1 Current accounts 34%2 Savings accounts 5%3 Time deposits 54%4 Repurchase agreements 7%

—Customers deposits (*)

31.12.2008

1

2

3

4

(*) Before time period and hedging adjustments.

€'000

2009 2008 % 09/08

Current accounts 13,042,350 13,077,811 (0.3)Savings accounts 1,939,003 1,806,032 7.4 Time deposits 22,149,882 21,250,307 4.2 Repurchase agreements 1,723,792 2,757,162 (37.5)Accrued expenses and deferred income 194,632 250,455 (22.3)Adjustments due to hedging derivatives 81,063 57,475 41.0

Customer deposits 39,130,722 39,199,242 (0.2)

Debt securities and other negotiable instruments 22,812,447 22,024,260 3.6

Subordinated liabilities 2,039,698 2,093,687 (2.6)

Liabilities under insurance contracts 182,186 161,763 12.6

Total on-balance sheet deposits and issued securities 64,165,053 63,478,952 1.1


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Total deposits and assets under management were €82,247.1million at the end of the year, up from €80,414.9 million a yearearlier. This was driven partly by a €788.2 million increase in debt securities and other negotiable instruments, but also byinsurance-related items, which grew by €1,314.7 million (30.9%)during the year.

Group equity at 31 December 2009 was as follows:

€'000

2009 2008 % 09/08

Managed collective investment schemes (CIS's) 8,238,857 8,547,755 (3.6)Equity funds 425,626 278,837 52.6 Balanced funds 416,681 494,153 (15.7)Fixed-income funds 3,010,221 2,883,755 4.4 Guaranteed funds 2,013,589 2,333,811 (13.7)Real estate funds 1,034,221 1,022,411 1.2 Open-ended investment companies (OEICs) 1,338,519 1,534,788 (12.8)

Mutual funds and OEICs distributed by the group 911,808 888,287 2.6

Collective investment schemes 9,150,665 9,436,042 (3.0)

Individual 1,559,463 1,298,616 20.1 Company 1,196,328 1,110,759 7.7 Group 32,178 31,158 3.3

Pension funds 2,787,969 2,440,533 14.2

Total CIS's and pension funds 11,938,634 11,876,575 0.5

€'000

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Creditors - general government 1,287,692 1,040,859 23.7 Creditors - resident sector 34,175,608 34,349,394 (0.5)Creditors - non-resident sector 3,391,727 3,501,059 (3.1)Accrued expenses and deferred income 194,632 250,455 (22.3)Adjustments due to hedging derivatives 81,063 57,475 41.0 Debt securities and other negotiable instruments 22,812,447 22,024,260 3.6 Subordinated liabilities 2,039,698 2,093,687 (2.6)Collective investment schemes 9,150,665 9,436,042 (3.0)Pension funds 2,787,969 2,440,533 14.2 Insurance policies sold and liabilities under insurance contracts 5,562,584 4,247,914 30.9 Wealth management 763,010 973,222 (21.6)

Total customer deposits and assets under management 82,247,095 80,414,900 2.3

€'000

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Capital 150,000 150,000 0.0 Reserves 4,360,047 4,019,967 8.5 Other equity instruments (*) 500,000 0 -- Less: Treasury shares (138,203) (22,665) -- Net attributable profit 522,489 673,835 (22.5)Less: Dividends and similar payments (168,000) (193,921) (13.4)

Own funds 5,226,333 4,627,216 12.9

Valuation adjustments 43,656 (193,214) --

Minority interests 27,381 14,063 94.7

Total equity 5,297,370 4,448,065 19.1

(*) This item consists of subordinated bonds mandatorily convertible to shares.


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Liquidity management and funding

In a context of global financial distress the group continued topursue the strategy it has followed in recent years of funding itsbusiness operations from deposits and other inflows receivedthrough its branch network and moderating its use of the capitalmarkets as a source of finance.

In its capital-raising activities on the wholesale markets theBank continued to enjoy high short and long-term credit ratings and was able to make use of the opportunities that arose to accessthe capital markets.

The Bank presents a reasonable level of diversification in termsof products and investors and has a range of long-term and short-term funding programmes in place. Its short-term fundingarrangements include a commercial paper issuance programmewith an upper limit of €6,500 million and a Euro Commercial Paper(ECP) programme for institutional investors, with a maximumnominal value of €2,500 million, under which notes may be issuedin different currencies: euros, US dollars and sterling. The values of the commercial papers and ECPs in issue at 31 December 2009were €2,770.0 million and €2,167.9 million respectively.

As part of its long-term funding, Banco Sabadell filed aNonparticipating Securities Issuance Programme 2009 withSpain's stock market regulator, the CNMV, for up to €10,000million. Issues carried out under the programme have included fiveissues of covered mortgage bonds for a total of €988.5 million anda further four issues of straight bonds for a total of €1,775 million;of these, two were public offerings despite exceptionally difficultconditions in the credit markets, and were for terms of 3 and 2.25years with values of €750 million and €800 million respectively.

In addition to these sources of funds, the Bank holds a reserveof liquid assets — cash and assets realizable in the short term —which would enable it to face any potential liquidity contingency.During the year Banco Sabadell continued to strengthen its eligiblecapital resources by setting up two further securitization funds for atotal of €1,520 million. At the close of the year its liquid asset baseamounted to more than €7,000 million.

In late 2008 the Spanish government set up a package ofmechanisms to boost the supply of funding to financial institutions.Availing itself of these measures, Banco Sabadell applied for andobtained government guarantees for issues of ordinary bonds andnotes totalling €3,262 million on 30 December 2008, and a further€2,051 million on 30 September 2009. The time for using theguarantee expires on 1 July 2010. Banco Sabadell has not madeuse of these guarantees for any of its issues; consequently, it hasthe potential to issue government-backed securities up to a totalvalue of €5,313 million.

—Ratings awarded to Banco Sabadell debt securities

Rating Long-term Short-term Rating Other

agency debt debt outlook ratings

Fitch A+ F1 Negative Support 3Moody’s A2 Prime 1 Negative Financial strength C-Standard & Poor’s A A1 Stable —


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Liquidity management at Banco Sabadell seeks to ensure thatlending operations can be financed at a reasonable cost and withina reasonable time so that liquidity risk is kept to a minimum. Itsnormal liquidity management procedures are as follows:

—A funding plan is currently being drawn up based on a consideration of the funding needs identified for eachbusiness unit and the amount to be raised on the capitalmarkets through a diversified range of funding programmes,both long-term and short-term.

—Regular checks are made to see that the funding plan is being adhered to and any deviations from the plan areidentified for each business unit and the funding planupdated accordingly.

—The Bank's short-term commitments, treasury position andfuture projections are reviewed periodically to ensure that ithas sufficient liquidity to meet its financing needs in the longand short term.

—Finally, Banco Sabadell regularly updates its liquiditycontingency plan to ensure that it has sufficient liquid assetsavailable to respond effectively to any liquidity stress scenariothat it might face.

Profit performance in 2009

In a business climate affected by adverse trading conditions,success in ensuring that average levels of lending and depositsremained steady, plus the ability to effectively manage pricing,deepen customer relationships and keep recurring costs firmlyunder control were critical to the attainment by Banco Sabadell of a consolidated profit and loss account for 2009 that continuedto show positive margin growth across the group's corebusinesses.

In a year characterized by rates of interest at historic lows and fierce competition for funds to finance new lending, the interestmargin for 2009 rose to €1,600.6 million, an increase of 10.2% on the previous year.

The contribution of equity-accounted undertakings to groupprofits for the year increased by 13.0% to €71.9 million, withsignificant contributions from Dexia Sabadell and the group'sBancassurance associates.

Net fee and commission income was €511.2 million. This was a reduction of 8.4% compared with the previous year and reflectedprevailing economic and financial conditions during the period,although there was a slight improvement in the latter months of the year.

Net income from trading totalled €248.2 million and included a profit of €96.8 million on the buyback of preference shares andnet gains of €112.7 million on disposals of financial assetsavailable for sale.

Gross income amounted to €2,505.0 million and was up 12.5%on the previous year.

Operating expenses for 2009 were €1,036.8 million andincluded €86.6 million in employee severance payments. Recurringexpenses in operating costs for 2009 were down by 1.0% overallfrom the 2008 figure thanks to cost control initiatives and actions


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carried out as part of the group's programme to improve operatingefficiency. The cost:income ratio, if non-recurring costs and the€96.8 million profit on the preference share buy-back are ignored,was 39.46%, a significant improvement on the 43.12% achieved in 2008.

All this brought the consolidated operating profit for the year(before impairment and other provisions) to €1,325.5 million,a rise of 18.9% on the year before.

Net loan loss provisions amounted to €192.1 million; thisincluded an extraordinary provision of €391.5 million which was,however, more than offset by released generic provisions of €756.6million. The year 2009 also saw write-downs of financial and realestate assets totalling €645.6 million, major items of which wereimpairment provisions in respect of real estate assets and equityholdings in Millenium BCP and Metrovacesa.

The net profit for the year was €522.5 million, down from the previous year's €673.8 million, which had been bolstered by a profit of €418.4 million from the sale of 50% of the group’sinsurance business to Zurich. The group’s Tier 1 capital ratio was9.10% and core capital was 7.66%.

€'000

% % %

ATM: actius totals mitjans 2009 S/ ATM 2008 S/ ATM 09/08

Interest and similar income 3,166,233 3.87 4,404,539 5.51 (28.1)Interest expense and similar charges (1,565,586) (1.92) (2,951,695) (3.69) (47.0)

Interest margin 1,600,647 1.96 1,452,844 1,82 10,2

Returns on equity instruments 14,598 0.02 7,163 0.01 103.8 Net income from equity-accounted

undertakings 71,913 0.09 63,623 0.08 13.0 Net fees and commissions 511,164 0.63 557,741 0.70 (8.4)Income from trading (net) 248,150 0.30 67,873 0.08 265.6 Foreign exchange differences (net) 49,224 0.06 51,242 0.06 (3.9)Other operating income and expense 9,334 0.01 26,360 0.03 (64.6)

Gross income 2,505,030 3.07 2,226,846 2.79 12.5

Personnel expenses (715,323) (0.88) (651,140) (0.81) 9.9 Other administrative expenses (321,500) (0.39) (328,030) (0.41) (2.0)Depreciation and amortization (142,730) (0.17) (133,062) (0.17) 7.3

Profit before impairment and other provisions 1,325,477 1.62 1,114,614 1.39 18.9

Loan loss and other provisions (837,706) (1.03) (879,734) (1.10) (4.8)Profit on disposal of assets 83,575 0.10 24,933 0.03 235.2 Profit from discontinued operations (net of tax) 0 0.00 428,366 0.54 (100.0)Income tax (45,037) (0.06) (12,323) (0.02) 265.5

Consolidated profit for the year 526,309 0.64 675,856 0.85 (22.1)

Minority interests 3,820 2,021 89.0

Net attributable profit 522,489 673,835 (22.5)


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2009 Income/ 2008 Income/

Amount Rate expense Amount Rate expense

Cash, central banks and other credit institutions 2,624,264 1.10 28,848 4,171,872 3.98 166,194

Loans and advances to customers 62,218,650 4.62 2,873,832 63,558,164 6.14 3,903,895 Fixed-income investments 7,743,558 2.81 217,542 4,868,806 4.70 228,841 Equity investments 1,840,786 -- 0 1,261,379 -- 0 Tangible and intangible assets 1,730,373 -- 0 1,787,207 -- 0 Other assets 5,557,069 0.83 46,011 4,274,081 2.47 105,609

Total capital employed 81,714,700 3.87 3,166,233 79,921,509 5.51 4,404,539

Credit institutions 5,389,169 (2.13) (114,748) 4,450,797 (4.35) (193,544)Customer deposits 36,362,903 (2.05) (744,441) 33,687,257 (3.33) (1,122,868)Capital market 25,524,037 (2.37) (605,648) 28,331,404 (4.92) (1,392,793)Repurchase agreements 4,359,917 (1.09) (47,617) 3,137,935 (3.93) (123,454)Other liabilities 5,309,683 (1.00) (53,132) 5,767,965 (2.06) (119,036)Shareholders' equity 4,768,991 -- 0 4,546,151 -- 0

Total funds 81,714,700 (1.92) (1,565,586) 79,921,509 (3.69) (2,951,695)

Interest margin 1.96 1,600,647 1.82 1,452,844

Interest margin

The interest margin was up 10.2% on the previous year. Thisincrease was due to an improvement in net interest income as apercentage of average total assets caused mainly by a substantialreduction in capital market rates owing to the sharp fall in 3-monthEuribor. With regard to average business volumes, loans andadvances to customers were down 2.1%, while customer depositsincreased by 7.9%. This reduced the requirement for capital marketfunding, causing average volumes to fall by €2,807 million.

The dominant theme all through the year was a continuousdecline in interest rates which brought the yearly average for the 3-month Euribor rate down from 4.63% to 1.23%. The effect of thiswas to reduce both the return on assets and the cost of funds. Thelargest decrease was in the cost of capital market funds which fellfrom 4.92% in 2008 to 2.37% in 2009. Meanwhile, the return on capital employed decreased by 1.52% and the cost of funds fell by 1.28%.

The average rate paid on customer deposits fell by less than theaverage rate charged for loans; this was due to intensified effortsto attract deposits and other customer funds. These efforts did,however, achieve a better structure of balance sheet funding byincreasing the share of funding from customer deposits, which rosefrom 42.1% in 2008 to 44.5% in 2009. This was consistent withthe reduction in average volumes of funding raised on the capitalmarkets, as noted above.

The result was that the average interest spread over the cost offunds divided by average total assets for 2009 rose to 1.96%, animprovement of 14 basis points compared with the average spreadin the previous year.


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Fees and commissions

Net fee and commission income reached a year-end total of€511.2 million, down 8.4% on the figure for 2008. This reflectedthe adverse conditions caused by the cyclical downturn that beganin the second half of 2007 and had significant negative impacts onfee income related to mutual funds (down 27.9%) and on fees andcommissions charged on loans and guarantees and a range ofservices, which were down by 7.2% and 1.0% respectively on thecorresponding figures for 2008.

There was, however, a slight improvement in all these categoriesof fee and commission income in the last few months of the year.

Sale commissions on pension funds and insurance grew by7.3%, mainly as a result of higher commissions chargeable on theMultinversión insurance product.

General administrative expenses

General administrative expenses for 2009 totalled €1,036.8million, including employee severance payments of €86.6 million.

With regard to recurring costs, personnel expenses fell by 0.5%— 0.9% on a like-for-like basis — thanks to measures put in handas part of the group's programme to improve operating efficiency.Other administrative expenses were down by 2.0% — 2.9% on a like-for-like basis — as a result of the various actions taken tocontrol costs.

€'000

2009 2008 % 09/08

Lending-related fees 98,970 112,917 (12.4) Avals and other guarantees 74,213 73,121 1.5 Paid to other banks (3,075) (2,668) 15.3

Fees and commissions on loans and guarantees 170,108 183,370 (7.2)

Payment cards 57,817 60,607 (4.6)Money transfers 36,468 40,630 (10.2) Securities 32,826 37,462 (12.4)Current account charges 34,418 40,303 (14.6) Other 55,909 40,562 37.8

Fees and commissions for services 217,438 219,564 (1.0)

Mutual funds 87,175 120,828 (27.9)Commissions on sales of pension funds and insurance 36,443 33,979 7.3

Fees related to mutual funds, pension funds

and insurance 123,618 154,807 (20.1)

Total net fees and commissions 511,164 557,741 (8.4)


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2009 2008 % 09/08

Wages and salaries (473,298) (479,521) (1.3) Social welfare costs (99,461) (100,844) (1.4) Other staff-related costs (142,564) (70,775) 101.4

Personal expenses (715,323) (651,140) 9.9

IT and systems (57,630) (60,197) (4.3)Communications (21,728) (22,868) (5.0)Advertising (21,068) (32,066) (34.3) Premises, fittings and equipment (71,491) (68,090) 5.0 Printed material and office supplies (9,000) (8,857) 1.6Taxes (49,298) (53,021) (7.0) Other expenses (91,285) (82,931) 10.1

Other administrative expenses (321,500) (328,030) (2.0)

Total general administrative expenses (1,036,823) (979,170) 5.9

Loan loss and other impairment provisions

Provisions for loan and other impairment losses amounted to €837.7 million in 2009, similar to the figure for 2008 (€879.7 million).

Provisions for bad and doubtful debts for 2009 were €192.1million overall. This included a specific provision of €955.3 millionwhich related mainly to timing effects (€532.5 million), exceptional items (€391.5 million) and new loan defaults (€45.8 million). On the other hand, a release of generic provisions resulted in a reduction of €756.6 million in the total.

Impairment provisions and write-downs of financial assetstotalled €416.2 million. This consisted mainly of provisions for loss in value of equity holdings in BCP (€210.0 million, based on the end-period share price) and Metrovacesa (€184.3 million,based on the most recent net asset value).

Impairments related to other assets (€229.4 million) weremade up largely of provisions for impairment of real estate assets(€181.6 million) and goodwill (€39.2 million).

€'000

2009 2008 % 09/08

Generic provisions 756,635 (1,835) -- Specific provisions (955,291) (587,102) 62.7 Other provisions 6,543 (14,952) --

Loan loss provisions (net) (192,113) (603,889) (68.2)

Impairment provisions and write-downs of financial assets (net) (416,217) (140,601) 196.0 Losses due to impairment of other assets (net) (229,376) (135,244) 69.6

Total (837,706) (879,734) (4.8)


—Groupbusinesses———————

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Banco Sabadell is at the head of Spain's fourth largest bankinggroup. The group offers a full range of banking and financial servicesthrough its different banks, brands, subsidiaries and associates.The group's business is strongly focused on profitable growth and the creation of shareholder value through a strategy based onbusiness diversification, quality of service, efficiency and profitabilitytogether with a conservative risk profile, while maintaining highstandards of ethics and professional conduct and consideration for the interests of stakeholders.

The Bank has a business model that fosters long-termcustomer relationships through continual efforts to promotecustomer loyalty and an initiative-based, proactive approach. The Bank offers a comprehensive range of products and services,competent, highly qualified personnel, an IT platform with amplecapacity to support future growth and a total focus on quality.

The group has four main areas of business: CommercialBanking; Corporate Banking and Global Businesses; Markets andPrivate Banking; and BS América. It has seven regional divisionswith full responsibility for their areas, and several business-focusedsupport teams.

Commercial Banking

Commercial Banking, the largest of the group’s business lines,focuses on providing financial products and services to large andmedium-sized businesses; SMEs, retailers and sole proprietors;individuals and occupational groupings. Its high degree of marketspecialization ensures that customers receive a personalizedservice to suit their needs, whether from expert staff assigned tobranches operating under the group’s different brands, or via otherchannels provided to support the customer relationship and giveaccess to remote banking services.

Commercial Banking’s business model is realized through amulti-brand strategy — SabadellAtlántico, Solbank, Banco Herreroand ActivoBank — and retains its 100% focus on customer groupand market segmentation.

SabadellAtlántico is the group's major brand serving businessand individual customers in the whole of Spain except the Asturiasand León region, which is served by the locally-focused BancoHerrero brand. Solbank caters for the needs of people from otherEuropean countries residing in Spain and also to the cluster of smallfirms and retail outlets that has grown up around this expatriatemarket. ActivoBank is targeted on customers who do their bankingexclusively by telephone or online.

Corporate Banking and Global Businesses

Corporate Banking and Global Businesses offers a range ofproducts and services to large corporates and financial institutionsin Spain and abroad. Within the scope of its activities it embracescorporate banking, structured finance, corporate finance,development capital, international trade and consumer finance.

The Bank’s major clients are served by a team of expertmanagers working from offices in Madrid, Barcelona, London,Paris and Miami. Its business model is based on a comprehensive


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offering of specialized financing services and solutions, ranging fromtransaction banking to more sophisticated, tailor-made solutions insuch areas as financing, treasury services and corporate finance.

In the area of structured financing Banco Sabadell has a teamoperating from offices in Madrid, Barcelona and Miami with morethan 14 years' experience in origination and structuring of long-termfinancing packages, mainly by participating in loan syndicationsalong with other banks. Financing transactions may be in the areasof project finance, based on the predictability of financial modelling(energy and infrastructure development), corporate finance (capitalinvestment, restructuring, acquisitions), or export finance and thefinancing of projects outside Spain, where loans are backed bygovernment guarantees or covered by private insurers.

Sabadell Corporate Finance is the group subsidiary thatspecializes in providing for merger and acquisition and capitalmarket advisory services. It advises corporate operations such as company sales and acquisitions, mergers, MBOs, assistscompanies in finding new or replacing existing partners and providesindependent value appraisals. Its capital markets business includesgiving advice on company flotations and fixed-income issues.

In development capital Banco Sabadell concentrates on twomain areas of activity: taking temporary shareholdings in non-financial companies and participating in energy projects, especiallyin the field of renewable energy.

In its international operations the Bank focuses on markets of special interest to companies actively engaging in foreign trade. It does this through a network of foreign branches, subsidiaries andassociates to facilitate customers' business operations in othercountries and through working arrangements with more than 2,800correspondent banks that ensures a genuinely global coverage.

BanSabadell Fincom is the group subsidiary specializing inconsumer finance. Its principal business is providing point-of-salefinance to purchasers of cars, computer hardware, domesticappliances, health accessories and other products. It also has a line in personal loans which it sells by direct marketing.

Markets and Private Banking

Halfway through the year Banco Sabadell carried out areorganization and reorientation of the area of its businessconcerned with investment products and services and generally the service it provides to customers who rely on the Bank to managetheir savings and investments. The aim was to adapt its business to the prevailing market conditions and ensure that it was optimallypositioned to operate competitively in the future. The divisioncomprises Banco Urquijo; BS Banca Privada; Investment, Productsand Research; Treasury and Capital Markets; and Securities andCustodian Services.

It sets out to deliver good returns for customers with a well-structured product range based on careful research and soundmanagement together with optimized management processes that make use of information synergies and cooperative interactionby teams of first class professionals.

Banco Urquijo is one of the most highly regarded and well-established names in the Spanish banking market. It is nowconsolidating its position as Spain’s best private banking


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organization thanks to an ability to adapt constantly to a changingfinancial environment, an ability that it has shown throughout its 130-year history.

BS Banca Privada offers a team of specialist private bankers to service the needs of its branch banking private customers. It manages the accounts of prominent individuals in the arts,sporting, financial and ecclesiastical worlds, businesses withpension schemes and other clients.

The Investment, Product and Research team is a group of highlyskilled people who perform the roles of directing and managinginvestments for customers, selecting saving and investmentsolutions, researching, preparing and publishing investmentrecommendations and generally operating the business of managing collective investment schemes.

The Treasury and Capital Markets business has three mainareas of activity: distribution to customers, market trading andcapital markets.

Securities and Custodian Services serves both institutional and individual clients, offering them access to virtually any market in the world.

BS América

Banco Sabadell's presence in the Americas comprises one full-service branch and a number of representative offices, subsidiariesand associates which together handle all the group's corporatebanking, private banking and commercial banking operations in the American continent. BS América is managed from Miami, wherethe main branch has been located since 1993.

Banco Sabadell has owned 100% of TransAtlantic Bank since2007. The acquisition of this Florida-based retail bank was thestarting point for Banco Sabadell's growing US commercial bankingoperation. In April 2008 Banco Sabadell acquired BBVA's Miami-based private banking business.

In July 2009 Banco Sabadell reached an agreement for theacquisition of Mellon United National Bank (MUNB). This was animportant step in the strengthening of its operating platform inFlorida and is part of a policy of growing the Bank's internationalpresence at a time when attractive opportunities are opening up in the US market.

Banco Sabadell holds equity investments in highly regardedbanks in strategic markets such as Mexico, where it has since 1998held a 20% shareholding in Banco del Bajío, and the DominicanRepublic, where it has owned a 20% stake in Centro Financiero BHDsince 1999. It also has representative offices in Mexico andVenezuela.


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—

—Commercial Banking in 2009

—

—

The Bank's successes in different market segments enabled it to point to significant advances in consolidating its market sharein terms of customer numbers, lending activity and on-balance sheetfunding.

In 2009 the interest margin attributable to Commercial Bankingtotalled €1,340.2 million, an annual rise of 6.3%, with the pre-taxprofit rising to €373.2 million. The ROE was 11.0% and thecost:income ratio was 45.7%, an improvement of 0.8 percentagepoints compared with the previous year. Loans and advancestotalled €50,384 million and customer funds stood at €41.328million.

€'000

2009 2008 %09/08

Interest margin 1,340,226 1,260,343 6.3

Fees and commissions (net) 428,089 462,447 (7.4)Other income 45,551 64,470 (29.3)

Gross income 1,813,866 1,787,260 1.5

Operating expenses (861,022) (862,596) (0.2)

Operating profit 952,844 924,664 3.0

Impairment losses (579,638) (462,501) 25.3

Profit before tax 373,206 462,163 (19.2)

Ratios (%):

ROE 11.0% 12.6% Cost:income ratio 45.7% 46.5% Loan loss ratio 4.2% 2.4% Loan loss coverage ratio 69.2% 104.4%

Business volumes (€Mn)

Loans and advances 50,384 51,996 (3.1)Customer funds 41,328 39,452 4.8 Securities 6,886 7,505 (8.2)

Other information:

Employees 6,505 7,454 (12.7)Branches in Spain 1,172 1,208 (3.0)

——Boosting customer confidence and supporting businesses—Strengthening relationships with individual customers—Growing customer deposits for a stronger balance sheet——


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Market segments

Businesses, retailers, sole proprietors and general government

Promotional campaigns during the year helped to increase theBank's market share in the financing of businesses' working capitalrequirements. Specialized working capital finance, including bothfactoring and the type of without-recourse invoice discounting knownas "confirming", increased to €13,000 million with average lendingrising to more than €2,400 million, resulting in an operating profit of €36 million.

In the area of long and medium-term finance, the Bank enteredinto numerous arrangements with official bodies at regional andnational level to provide financing for capital investment andmedium-term working capital for business customers. Chief amongthese were schemes sponsored by Spain's Official Credit Institute(Spanish abbreviation: ICO) in which the Bank channelled €973million in finance and took a 6.3% of the overall total, including19.7% of funding under the ICO’s Business Internationalizationscheme, 10.5% under its Business Growth scheme and 7.0% underits small and midsize company scheme.

On the international trade side the Bank maintained its market-leading position with its specialized, expert advisory service. Marketshares were impressive for its size, especially in documentarycredits for exporters where it took a 21.2% share and documentarycredits for importers, where its share was 11.8%.

The principal product innovations in investment were:“Farmarenting”, a package for the leasing of advanced equipment to pharmacies with insurance and maintenance included; marineleasing packages to provide finance to boat owners along withadvice and practical help with registration and other formalities; a programme to encourage the leasing of eco-friendly cars and other vehicles; and a variety of leasing packages to encourage the adoption of environmentally beneficial solutions for eco-projects.

A new distribution outlet was opened by BanSabadell Renting,a group subsidiary which specialises in contract vehicle leasing andequipment hire. This offers two continuous online markets for usedvehicles. The company also won a number of contracts with localauthorities and regional and central government agencies, thusstrengthening its position as an approved supplier of a variety ofdifferent types of equipment. Whereas the vehicle and equipment

(€'000)

2009 2008 % 09/08

Interest margin 1,007,705 917,052 9.9

Fees and commissions (net) 243,443 277,281 (12.2)Other income/expenses 45,840 63,348 (27.6)Gross income 1,296,988 1,257,681 3.1

Business volumes (€Mn.)

Loans and advances 38,930 40,485 (3.8)Customer funds 19,310 18,291 5.6Securities 3,250 3,650 (11.0)



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leasing/hire industry fell by 45%, the company's turnover grew bymore than 32% over the year.

The Bank continued to offer hedging products to customers and executed more than 580 such transactions during the year, witha nominal value of €1,900 million. It also responded to prevailingmarket conditions by actively inviting customers to restructurehedging arrangements made in earlier years, with the result that1,800 such restructurings were arranged with a total value of €780 million.

Another product that did well was business protection insurancepolicies of all types. The number of policies increased by 15%.

With regard to customer numbers, Banco Sabadell ended theyear with 25,000 new business customers, with a very positiveimpact on the Bank's business volumes and margins.

Banco Sabadell has a number of multi-product pack offersspecially for retailers and sole proprietors, offering a variety ofsolutions and products, financial and non-financial. One producttargeted on the business sole proprietor market was the “BSAutónomos” package with 15,500 accounts open at the end of the year. For the retailer market Banco Sabadell offers two specialproducts: BS Comercios and BS Franquicias, for which 24,000businesses had enrolled by the end of 2009.

To develop its business with government and local authoritiesthe Bank implemented an action plan to attract new customers and grow its business with existing customers. The result was asignificant increase in the Bank’s business with this marketsegment. A working agreement was renewed with the Catalanassociation of municipal authorities (Associació Catalana deMunicipis i Comarques, ACM), and a framework cooperationagreement was concluded with the local authority federation in theBalearic Islands. At the same time it embarked on a drive to contactother associations of local authorities all over Spain with a view toforging agreements that would lead to active lines of business beingdeveloped in particular areas of the country. The Catalan LocalAuthority pension scheme, which is managed by the Bank andsponsored by ACM jointly with the CCOO and UGT labour unions,completed its second year of operation in a very satisfactory waywith some 3,500 scheme members.

Individual customers

A key theme of the group's personal customer-focused businesswas the priority given to increasing on-balance sheet funding. At the end of the year the Bank had attracted a total of €8,598million in new funds. Products that did particularly well were the"Fondo Inmobiliario" real estate fund and "Multinversión Personal",a savings/life insurance product, which together accounted for aninflow of funds approaching €1,200 million. One of the year's newproducts was Bolsa 10 for customers trading actively on the stockmarket. The product offers some very competitive terms and thebest analysis and stock picking tools anywhere.

In the Retail Banking market, sales efforts were directed mainlyat entering into firm and lasting relationships with new customers.A vital part in this was played by the new “BS Nómina” account(which requires that the customer's salary be paid directly into thebank); at year-end over 70,000 direct payment arrangements had


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been made, leading to major improvements in cross-sell ratios andper-customer returns. At the end of the year a total of 150,000 newcustomers had been recruited.

In protection-only insurance (life, home and motor policies) someoutstanding results were achieved considering the sharp contractionsuffered by the mortgage market during the year.

In mortgage finance the focus was on encouraging the transfer("subrogation") of mortgages from developer to home buyer. A keyelement of this was Plan Adapta, which increases the likelihood thatmortgages will be subrogated and makes it possible to offerproperties in developments financed by the Bank on excellent termsas to both price and borrowing costs.

One initiative in the area of consumer loans was the launch ofBS Crédito Auto as a complement to the Spanish government'sstimulus plan for the auto industry. Banco Sabadell supported theplan by giving a year's supply of petrol free to customers taking out aloan to buy a car. Thanks to BS Crédito Auto the number of carpurchase loans went up by 400% compared with the previous year.

Margins in the group's credit card business increased by 17.7%year-on-year, with the number of cards at over 1.4 million and thenumber of active cards up by 3.2%. A notable innovation was theintroduction of the "Tarjeta SIN" card, which lets cardholders paytheir card bills over three months free of interest with a one-off feebeing charged for each card payment.

During the year an important agreement was concluded with theRoyal Automobile Club of Catalonia (RACC) as a result of whichBanco Sabadell became the provider of financial services to 1.1million RACC members. The beginning of this partnership resulted inmore than 40,000 RACC MasterCards being activated.

For Solbank, with its 85 branches located in coastal parts of themainland regions of Valencia, Murcia and Andalucía as well as theBalearic Islands and the Canary Islands, 2009 was a time ofcontinuous innovation. New foreign currency-denominated productswere introduced, excellent sales were achieved in life, motor andhome insurance, and a new business line was launched targeting"international clients", that is, non-resident professional peopleliving in urban areas where Banco Sabadell has a presence.

In the "Equos" quality prizes for best financial institution(awarded by Stiga, an independent company specializing inconsumer satisfaction surveys) at the end of 2009, Solbank wasnamed "best bank of the decade" in recognition of the excellence ofits branch banking service.

(€'000)

2009 2008 % 09/08

Interest margin 332,521 343,290 (3.1)

Fees and commissions (net) 184,646 185,166 (0.3)Other income/expenses (289) 1,123 –Gross income 516,878 529,579 (2.4)

Business volumes (€Mn.)

Loans and advances 11,454 11,512 (0.5)Customer funds 22,018 21,161 4.1Securities 3,636 3,855 (5.7)



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At ActivoBank, the business focus this year was on strengtheninglinks with its customers. Year-on-year increases of 250% wereachieved in ActivoBank card purchases, 220% in the number of billspaid by direct debit and 400% in the number of customers havingtheir salaries paid directly into their accounts. It also saw the totalnumber of customers grow by 9% to a total of 30,400.

Banco Herrero

In a year of falling economic activity, Banco Herrero was able toreport high trading volumes, albeit with strict criteria being applied tothe selection of risks. This kept the loan loss ratio for 2009 to just1.16%, one of the lowest of any bank operating in Spain and farbelow the average for the Spanish financial services industry.

One aspect of this strong performance was Banco Herrero's keyrole in channelling funds to businesses under Official Credit Instituteschemes, taking a 29.2% share of the total advanced under theSME scheme in Asturias and 53.2% the total provided under the ICOLiquidity scheme. Banco Herrero arranged more financings underthese schemes than all the other banks operating in Asturiascombined.

This strong preference for Banco Herrero shown by localbusinesses is a reflection of the close working relationship betweenthe bank and leading business organizations and associations.Further examples of cooperation of this kind include agreementsforged by the bank with the Avilés and Gijón Chambers of Commerceand the Asturias metal industry federation (FEMETAL). Theseagreements underscore the bank's commitment to Asturianbusiness by making special credit facilities available onadvantageous terms. Agreements with similar purposes were madewith the León and Astorga Chambers of Commerce and with theLeón employers' federation (FELE).

At the close of the year Banco Herrero had agreements inoperation with all the chambers of commerce in Asturias and Leónand the main employers' associations in the region for the benefit oftheir members.

Further cooperation agreements were designed to mitigate theeffects of the downturn on two of the worst affected industries,house building and autos. To help the house building industry,Banco Herrero signed an accord with the Asturian builders'confederation and the association of real estate developers andbuilders to lend home buyers up to 100% of the value of theirproperties in developments for which the original finance had beenprovided by Banco Herrero. At the same time it made agreementswith the Asturias automobile association (ASPA) and the Leónassociation of auto repair shops and official dealers (TAREVEL) tofacilitate the provision of car purchase loans to families.

In the area of funding, Banco Herrero customer funds increasedby 8.7% during the year. Some of these new savings were used tofinance products which, helped by the attractive rewards they offeredto customers, brought in new funds and added further strengthBanco Sabadell's capital base.

Banco Herrero ended the year with a total of 149 branches andfree-standing cash machines in Asturias, making it the bank with thelargest network in the principality, and 32 in León, where it ranks asone of the top lenders by number of branches.


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This commitment by the bank to its key markets is underscoredeach year by a very active programme of sponsorship and supportfor cultural, sporting and community-based activities which itundertakes directly or through the Banco Herrero Foundation.

The Fundación Banco Herrero prize, which in 2009 went to ayoung economist, Pol Antrás; the Sala Banco Herrero programme ofevents organized in concert with the Government of the Principalityof Asturias; the support provided to the Prince of AsturiasFoundation, and a high-profile presence at the Asturias InternationalTrade Fair; these are just some of the ways in which the bankcontributes to the cultural and social life of the Asturias region.

The Banco Herrero Consultative Council, a group of prominentmembers of the business community with Asturian connections,held three meetings this year. For the first time, one of thesemeetings took place at the Banco Herrero stand at the InternationalTrade Fair in Gijón.

Channels

Branch network

At the end of the year Banco Sabadell had a network comprising1,214 branches and offices. Of these, 908 were operating underthe SabadellAtlántico brand; 181 were part of the Banco Herreronetwork in Asturias and León; 14 were operating as branches ofBanco Urquijo; 85 were Solbank branches and two were ActivoBankcustomer service centres. The international network comprised afurther 24 branches and offices.

Agent partners and occupational groups

Initiatives targeted on occupational groupings and the use of agentpartners and associates played a vital role in helping to increasebusiness volumes and attract personal, retailer and sole proprietorcustomers. At the end of the year a total of 994 agreements were inoperation under the stewardship of Professional BS or BancoSabadell directly.

Professional BS, a wholly-owned subsidiary set up in July 2009,is the new brand name under which Banco Sabadell is handling itsbusiness with professional institutes and associations. Since itsinception it has brought a new spirit of change and improvement inthe special treatment and consideration given to customers in theprofessions.

Financial services geared to professional and occupationalgroups generated business volumes amounting to more than€8,400 million, up 19% on the figure for 2008.

2009 was another year of strong growth in the number ofcustomers recruited from among employees of Banco Sabadell’sbusiness customers, with an increase of 185%. A number of newagreements were concluded with business customers to enable theBank to contact their employees with offers of products andservices on preferential terms.

Banco Sabadell's network of agent partners — numbering3,165 at the end of the year — also achieved significant results,both in the number of new customers and, significantly, in the


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volume of deposits. The enhanced role of the agent network givesgood reason for optimism as it continues to offer enormouspotential for business development in several areas.

International network

At 31 December 2009 Banco Sabadell's presence in foreignmarkets was as follows:

ATM network

At the end of 2009 the group had a total of 1,452 self-service cashmachines. In the course of the year 19.5 million transactions werecarried out on the ATM network, with cash withdrawals totallingalmost €2,000 million.

In 2009 an ATM replacement programme was put in hand. Thenew ergonomic cash machines have been improved in several ways,with large-format touch screens connected to earphones andgreater speed of operation. A total of 720 cash machines will bereplaced by the end of the programme and 120 had been renewedat the close of 2009.

The year saw the start of a move towards a self-service modelincorporating non-transactional options such as pre-arrangedoverdraft facilities; in addition, the daily withdrawal limit wasincreased to €600, considerably improving the round-the-clockservice offered by the ATM network.

Country Branch Representative Associate Subsidiary

Office

Europe

Andorra 1France 1Portugal 1United Kingdom 1Turkey 1

Americas

Brazil 1Chile 1Dominican Republic 1Mexico 1 1USA 1 1Venezuela 1

Asia

China 2Hong Kong 1India 1Singapore 1United Arab Emirates 1

Africa

Algeria 1Morocco 1

Total 4 11 4 2


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—Spanish branch network

Region Province Sabadell Sabadell Banco Banco Solbank Banco ActivoBank Sabadell Overall

Atlántico Atlántico Herrero Herrero Urquijo Atlántico Total

Business Business Corporate

Banking

Andalucía Almería 3 2 5Cádiz 11 1 2 14Córdoba 3 1 4Granada 5 1 2 8Huelva 2 1 3Jaén 3 3Málaga 29 1 27 1 58Seville 20 1 1 22

Total Andalucía 76 5 34 2 117

Aragón Huesca 6 6Teruel 1 1Zaragoza 15 1 1 17

Total Aragón 22 1 1 24

Asturias Asturias 146 3 149

Total Asturias 146 3 149

Balearic Islands Balearic Is. 23 1 14 1 39

Total Balearic Islands 23 1 14 1 39

Basque Country Álava 3 1 4Guipúzcoa 5 1 1 7Vizcaya 11 1 1 13

Total Basque Country 19 3 2 24

Canary Islands Las Palmas 8 1 6 15Tenerife 4 7 11

Total Canary Islands 12 1 13 26

Cantabria Cantabria 4 1 5

Total Cantabria 4 1 5

Castile-La Mancha Albacete 5 5Ciudad Real 2 2Cuenca 2 2Guadalajara 2 2Toledo 5 5

Total Castile-La Mancha 16 16

Castile-León Ávila 1 1Burgos 2 1 3León 31 1 32Palencia 2 2Salamanca 2 1 3Segovia 1 1Soria 1 1Valladolid 7 1 1 9Zamora 4 4

Total Castile-León 20 3 31 1 1 56


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Region Province Sabadell Sabadell Banco Banco Solbank Banco ActivoBank Sabadell Overall

Atlántico Atlántico Herrero Herrero Urquijo Atlántico Total

Business Business Corporate

Banking

Catalonia Barcelona 285 12 1 1 1 300Girona 49 1 50Lleida 21 1 22Tarragona 25 1 26

Total Catalonia 380 15 1 1 1 398

Community of Alicante 19 2 21 42Valencia Castellón 15 1 1 17

Valencia 49 2 1 1 53

Total Community of Valencia 83 5 22 2 112

Extremadura Badajoz 2 2Cáceres 1 1

Total Extremadura 3 3

Galicia A Coruña 7 2 1 10Lugo 6 6Ourense 3 3Pontevedra 8 1 9

Total Galicia 24 3 1 28

La Rioja La Rioja 4 1 5

Total La Rioja 4 1 5

Madrid Madrid 142 11 2 1 1 157

Total Madrid 142 11 2 1 1 157

Murcia Murcia 16 1 2 19

Total Murcia 16 1 2 19

Navarra Navarra 10 1 1 12

Total Navarra 10 1 1 12

Total Spanish branches 854 52 177 4 85 14 2 2 1.190


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Remote access channels

Internet (BS Online) Increased usage of the Bank's online services means that 72% of all transactions are now being done online. There has beencontinual improvement to the group's online banking facilities,including such enhancements as:

—more user-friendly login and welcome procedures—second level, more detailed menus—better help and advice tools such as the Virtual Assistant and

a new search function allowing customers to find informationwith just one click. This self-service model means fewer faultsand less frequent calls to the bank's contact centre

—new facilities such as "Instant Credit" which gives customersaccess to loans online, up to a pre-arranged limit, 24 hours a day.

The Bank expanded its range of special services for businesseswith a new offering, unique in the banking industry, that includesvirtual payment cards for suppliers, independently certified onlinedeposits, integration of the BS Factura electronic invoicemanagement service into the standard product range to make itavailable to small businesses, and much more.

The continuous upgrading of the Bank's online facilities wasaccompanied by uninterrupted growth in the number of customersand transactions and a three-position move up the AQmetrix qualityrating scale for online banking services, with Banco Sabadell nowranking in sixth position.

More than 227 million online transactions were made in 2009,a 5% increase on the previous year; more than 832,000 customersare now using the “BS Online Particulares” service for individualcustomers and more than 189,000 businesses have signed up for the “BS Online Empresa” service.

Mobile banking (BS Móvil) The mobile phone channel underwent a spectacular transformationwith the arrival of Portal Móvil, developed in the course of 2009 andwith capabilities way above what is currently on offer from otherfinancial institutions.

Customers can now use their mobile phones to do all their usualbanking business via screens designed to today's standards andusable on any make or model of phone now on the market: accountbalance and payment enquiries, transfers from and betweenaccounts, activating or blocking credit cards and managing cardaccounts, card payment terms and conditions and payment periods,dealing in securities, and more.

In addition to the usual banking transactions, new functionalityhas been added to let customers call their account manager, theirbranch or the Bank's contact centre with a single keypress; accessInstant Broker; download interactive maps or streetplans to find thenearest branch or cash machine; get a weather bulletin, or use RSSfeeds to get news updates or view video clips.

Usage of the BS Móvil advices and alerts service grew by 37%and at the end of the year 292,000 customers had activated theservice and more than 4.9 million SMS messages had beenreceived.


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Contact Center The addition of new user help and support tools on the Bank's websites and a single phone number for telephone enquiries hasresulted in a change to a more business-oriented role for call centrepersonnel. These innovations are part of a programme to leveragethe contact centre's sales capabilities and the part it plays insupporting the group's business operations.

This programme is structured into a number of separateinitiatives and is based on the telephone platform of the RoyalAutomobile Club of Catalonia. It is the prototype of what is set to become the Virtual Office, a 24 hour support service to bring a faster, more comprehensive and more efficient service to thecustomer.

A total of 727,000 phone calls were received by the ContactCentre in 2009, a slight drop compared with the year before whichreflects the addition of the Virtual Assistant on the group's websites and its success in solving queries which could previously only be solved by telephone.

—

—Corporate Banking and Global Businesses in 2009

—

—

Corporate Banking

Given the prevailing global economic climate, 2009 was a complexyear for Corporate Banking. Priorities this year were keeping a closewatch on all loan and guarantee risks, tighter criteria in both theacceptance and pricing of new risks, and maintaining the highvolumes of funding that were achieved in 2008.

As in 2008, there was an observable reduction in activity bysome financial institutions which had previously been active playersin the corporate banking market. Banco Sabadell, however,continued to serve this market and took over positions previouslyoccupied by banks that had reduced their market presence, thusstrengthening its position and raising its profile in the largecorporates market.

The year's performance highlights included a 13.4% increase in loans and advances and a 12.4% rise in gross income thanks to very rigorous pricing management. In lending, growth was evenlybalanced among different product types: working capital (+32%),structured financings (+19%) and bilateral loans (+30%).

Business activity remained at a high level during the year, withgrowth in both working capital products and long and medium-terminvestment products. Fee and commission income was anotherpriority area in 2009 (up 17.2%), the aim being to maximize returnson credit exposures from the point of view of their associated capital cost.


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Structured Finance

Banco Sabadell maintained its leading position in this market andwas one of Spain's top financial institutions in the area of structuredfinance. Profits were up by 17% on the previous year and the loanportfolio amounted to almost €9,000 million.

During the year the Bank continued to operate not only in its traditional market but brought its experience to bear in newmarkets: this included the consolidation of Plan America, where atotal of 11 deals have already been closed, or the start of PlanEuropa, which will result in some major deals in 2010. Alsonoteworthy was the exploitation of new business lines such as the taking of secondary market shareholdings and the developmentof a middle market franchise.

SendeCO2, a company in which Banco Sabadell has a 10%interest, enlarged its customer base and its operations, increasingrevenues many times over and consolidating its position as aleading Spanish market intermediary in the trading of CO2 emissionrights. It also increased its operations in other countries, thusmaking itself a top-line player in Mediterranean Europe.

€'000

2009 2008 %09/08

Interest margin 140,322 124,569 12.6

Fees and commissions (net) 40,835 34,850 17.2 Other income 8,245 9,040 (8.8)

Gross income 189,402 168,459 12.4



Impairment losses (91,642) (64,447) 42.2 Other profits/losses 0 (16) (100.0)


Ratios (%):



Loans and advances 10,712 9,450 13.4 Customer funds 4,175 4,306 (3.0)Securities 1,363 2,657 (48.7)

Other information:

Employees 95 110 (13.6)Branches in Spain 2 2 0.0 Branches abroad 2 2 0.0


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Corporate Finance

In a year that was marked by a fall of almost 40% in merger andacquisition activity and by financial market dislocation, SabadellCorporate Finance successfully closed a number of deals that wassufficient to give it a place in the top ten M&A advisors fortransactions up to USD 200 million and improve its competitiveposition compared with the previous year (source: Thomson Nov 09 ranking by number of deals).

Development capital

Aurica XXI, SCR, S.A.

Aurica XXI (a company subject to the “simplified regime” for shareissues by venture capital companies) contributes to the growth ofnon-financial companies with sound managements and strongmarket positions by injecting capital into the business and activelysupporting them for a temporary period.

The year saw the company's investment portfolio beingconsolidated and the completion of the process of divestingshareholdings in companies, such as Telstar, that it had acquired in the preceding investment cycle. Of particular interest was BancoSabadell's active participation in the merger of Comsa and Emte,as a result of which Aurica's 20% holding in Emte became a 6%stake in the newly merged Comsa-Emte. At the end of the yearAurica’s investment portfolio included shareholdings in Garnova,Intermas Nets, J. Feliu de la Penya and Comsa-Emte.

Sinia Renovables, SCR, S.A.

Through its subsidiary Sinia Renovables, Banco Sabadell takestemporary shareholdings in companies in the renewable energysector. Banco Sabadell is well known for its commitment torenewable energy and particularly wind farm developments, where itis considering greater geographical diversification. The Bank is alsolooking to invest in other renewable sources of electricity generationsuch as thermosolar, photovoltaic, cogeneration and biomassenergy systems.

In 2009 the company successfully brought to completion anenergy-related investment cycle that had begun in 2007 and entereda phase of sell-offs, some of which will be concluded in the course

——Banco Sabadell consolidates its position as a key playerin the Spanish market—Top of the league in financing renewable energy projects —A new presence in Casablanca and Dubai extends thegroup's international reach——


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of 2010. A highlight for Sinia Renovables in 2009 was the taking of a 49% shareholding in Erbisinia Renovables. Sinia's portfolio ofkey shareholdings at 31 December included Adelanta Corporación,Establecimientos Industriales y Servicios, P.E. La Peñuca, P.E.Veciana-Cabaro, P.E. Magaz, Biodiesel Aragón, AlcoholesBiocarburantes de Extremadura, Eolia and Fersa.

International trade

The year saw a high level of contact with key correspondent banksacross five continents, with a total of 260 visits being made.Business development initiatives resulted in new business worth€1,400 million, including the negotiation of documentary creditsfrom correspondent banks representing 15% of all payments for imports and 21.3% of all payment for exports as measured by SWIFT traffic data.

The group’s international branch network continued to focus on developing and adapting its operations in markets of specialinterest to Spanish companies actively engaging in foreign trade,whether in the import/export field or as part of their foreigninvestment activities. In 2009 the Bank opened a new branch inCasablanca and a regional representative office in the United ArabEmirates (UAE).

The new branch in Casablanca is of particular significance, beingthe first branch of a Spanish bank in Morocco. It is ideally positionedto assist Moroccan businesses in acquiring a share owning interestor trading links in Spain, or to provide them with transaction bankingand financial solutions of the first order. The new representativeoffice in the UAE was the first such office to be established in thatcountry by a Spanish bank. It will support and bring viability tocustomers' commercial interests throughout the Gulf and otherMiddle Eastern states.

Banco Sabadell has long been a leader in building a presence in key markets such as China (where it has two offices, in Beijingand Shanghai), India, Singapore, Turkey and Algeria. Itsrepresentative offices have made themselves into key referencepoints for Spanish businessmen in these countries.

Consumer Finance - BanSabadell Fincom

Business activity continued to look healthy, fully validating the strictapproach to credit approval and review procedures. At the close ofthe year the company had a customer portfolio of 150,000 —thanks to referrals from some 3,000 introducers — and a loanportfolio of €569 million, with its market shares remaining largelyunchanged.

The process of replacing the company's business systems and integrating them with the rest of the group was completedduring the year, and new tools and resources were added to thecompany's collection and recovery systems.


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€'000

2009 2008 % 09/08

Interest margin 26,146 31,810 (17.8)


Gross income 50,589 58,273 (13.2)


Operating profit 14,229 19,904 (28.5)

Provisioning expense (net) 923 (167) --Impairment losses (1,664) (7,209) (76.9)Other profits/losses (148) (294) (49.7)

Profit before tax 13,340 12,234 9.0

Ratios (%):



Loans and advances 1,078 1,247 (13.6)Customer funds 3,818 4,064 (6.1)Securities 3,303 4,003 (17.5)

Other information:

Employees 240 275 (12.7)Branches in Spain 14 15 (6.7)

—

—Markets and Private Banking in 2009

—

—

Banco Urquijo

For the second year in succession, Banco Urquijo was selected by the authoritative business publication Euromoney for its BestSpanish Private Bank award and given top ranking in ten categoriesof the award. The magazine also included Banco Urquijo in itsranking of 25 top-rated specialist private banks. The accolade is a confirmation of Banco Urquijo's leadership and commitment toexcellence in service delivery, professionalism, value creation andinnovation. Along with the Euromoney award, Banco Urquijo earned

——A reorganization of the team and a stronger customerfocus makes service quality even better—Excellence in mutual fund management——


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recognition from other sources such as the business dailyExpansión, which awarded Banco Urquijo its prize for best managerof conservatively managed funds for 2009.

These differentiating factors were recognized in a research study of the private banking market by consultantsPricewaterhouseCoopers, which identified the strength of itscustomer relationships as being well above the industry average and one of Banco Urquijo’s outstanding features.

Banco Urquijo currently has a network of 14 branches located in all the country's main financial centres and a team of 240 highlyqualified people who are committed to working with the customer,rather than just for the customer.

Despite tough economic and financial conditions in Spain andabroad, Banco Urquijo was able to report top-line revenue of €8,199million, with funds under management and customer depositstotalling €7,121 million and loans and advances to customers of€1,078 million, helped by a major exercise in cost reduction andloan arrears management.

Pre-tax profits were €13.3 million, up 9% on the previous year.Profits after tax rose to €11.2 million, up 72% on the previous year.

In its asset management operations, Banco Urquijo was offeringa total of 157 OEICs managed by Urquijo Gestión, S.G.I.I.C., withassets of €1,146 million under management, making it Spain’s thirdlargest asset manager in terms of OEIC assets. In 2009 BancoUrquijo was one of the most successful banks in terms of assetinflows, attracting a total of €130 million of investment in new OEICsand increased shareholdings in existing ones.

Through its policy of combining profitability with socialresponsibility, Banco Urquijo confirmed its continuing aim of showingits commitment to the environment and to the community. For thisreason, it entered into partnerships with the Fundación Empresa ySociedad (Foundation for Business and Society) and the FundaciónLealtad (Loyalty Foundation), giving it access to advice on all mattersrelated to ethical and socially responsible investment as well as oncommunity-based activities to complement those already beingcarried out by Banco Sabadell.

Banco Urquijo was the first bank to launch a socially responsibleOEIC on the Spanish market and currently holds a leading positionamong financial institutions offering socially responsible products. Ithas two ethical and socially aware Collective Investment Schemes:Urquijo Cooperación SICAV and Urquijo Inversión Solidaria FI.

These corporate social responsibility programmes are managedby an Ethics Committee, which in 2009 started the first of the highlysuccessful volunteer programmes among the bank's employees inpartnership with two charitable organizations, Junior AchievementEspaña and the Theodora Foundation.

BS Banca Privada

The group's private banking clients are served by a team of morethan 110 account managers who, in 2009, attended to the needs of 6,450 clients, managed a total of €8,848 million in funds andsecurities and generated an annualized operating profit of €68million. More than 26,000 visits to clients were arranged andbusiness priorities were conditioned by the need to meet investors'


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€'000

2009 2008 %09/08

Gross income 34,779 41,192 (15.6)

Operating expenses (18,130) (17,509) 3.5


Other profits/losses 0 1,401 --


Ratios (%):

ROE 30.5% 45.9% Cost:income ratio 52.2% 42.5%


Assets under management in CIS's 8,239 8,548 (3.6)Total assets in CIS's including schemes sold but not managed 9,151 9,436 (3.0)

Other information:

Employees 144 148 (2.7)Branches in Spain -- -- --

requirements and respond to developments in the securitiesmarkets.

The private banking team is organized around the differentmarket segments on which it focuses. Key segments include "BSSports & Entertainment", with an offering of products and servicesspecially designed for eminent figures in the worlds of culture, sportand entertainment; the "Institutions" segment, which servesfinancial and ecclesiastical institutions; the “Business WelfareProvision”, segment, which offers a range of solutions to companieswishing to set up pension schemes as part of their employeecompensation; the “Key Clients” segment, which serves clientsrequiring an especially high level of complexity or sophistication intheir financial arrangements; and an "Agents" section which workswith the Bank's agent network to meet the needs of private bankingclients.

Investment, Products and Research

Banco Sabadell has a team of people specializing in financialmarket research and analysis and in drawing up asset allocationstrategies to guide investment decisions, investment productdevelopment planning and mandates to analyse the assets that customers have available to invest.

The group’s Asset Management business, which is carried on by the functions responsible for managing collective investmentschemes (CIS's), combines asset management with the selling andoperation of CIS's; it also manages investments for other BancoSabadell businesses that hold portfolios of assets.

At the close of 2009 total assets under management by theSpanish-domiciled mutual fund industry, including real estateinvestment funds, amounted to €169,031.7 million after theindustry had seen a cumulative net outflow of €11,640.1 million.

The Banco Sabadell group, with mutual fund assets undermanagement of €6,633.6 million at the close of the year, did slightly


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better than the industry as a whole, exceeding its performance by0.1%. A €184.9 million overall increase in the value of its fundsoffset the 45.3% of their value lost through net redemptions.Guaranteed return funds suffered the highest net outflows duringthe year, with redemptions amounting to €392.6 million.

The group’s offering of guaranteed return funds was maintainedduring the year and return guarantees were issued in respect of five guaranteed funds totalling €439 million at 31 December 2009.Assets in guaranteed-return funds were €2,005.5 million at the endof the year.

Sabadell BS Inmobiliario, FII, launched in early 2004, with a totalof 12,991 fundholders and assets of €1,024.1 million in 2009, hadfirmly established its position as the Spanish market’s leading realestate investment vehicle.

The year saw Banco Sabadell mutual funds once again beingawarded accolades and distinctions. Sabadell BS Fondtesoro LargoPlazo, F.I. was selected by independent investment analystsMorningstar and business daily La Gaceta de los Negocios for the Best Fund prize in the three-year euro short-term fixed-incomecategory. Fidefondo F.I. was chosen by Interactive Data, a worldleader in the provision of financial information, and the businessdaily Expansión as the best mutual fund in the euro short-term fixed-income category. Urquijo Patrimonio Privado 2, F.I. received an awardfrom Lipper, a leading provider of mutual fund research, analyticaltools and comment, as Best Fund in the euro three-year globalbalanced fund category. Sabadell BS Renta Fija Mixta España, F.I.,a balanced fixed-income fund, and Sabadell BS Renta Variable MixtaEspaña, F.I. a balanced Spanish equity fund, were awarded AAratings indicating management of very high quality, by rating agencyand mutual fund analyst Standard & Poor’s. The agency alsoreviewed and confirmed its “very high” and “high” quality ratings for11 mutual funds which had already been quality rated. BanSabadellInversión once again took the lead as the fund manager with thehighest number of quality rated funds and achieved 52% of thequality ratings awarded by Standard & Poor’s to Spanish-domiciledmutual funds overall.

The year 2009 saw the completion of 20 mergers in which atotal of 22 funds and three investment companies (OEICs) weremerged into other funds or OEICs with the same investmentobjectives, in the best interests of investors; in addition, three new mutual funds were launched. At the close of the year thegroup's Spanish-domiciled collective investment schemes hadreached a total of 256, with management split betweenBanSabadell Inversión, S.A., S.G.I.I.C. (97) and Urquijo Gestión, S.A.S.G.I.I.C. (159).

Treasury and Capital Markets

The Treasury and Capital Markets business has three main areas of activity: distribution to customers, market trading and capitalmarkets.

The distribution model saw further development in two keyareas: First, all distribution functions were transferred to anintegrated team, resulting in a 90% increase in face-to-face businessmeetings with customers. Second, the policy of diversifying therange of products and associated value-added services was


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maintained. This year saw customer operations being subjected tohigh levels of monitoring and supervision, with customers beingproactively offered suitable hedging and investment options torespond to changing market conditions.

The trading desk was involved all year in managing spreadmovements and in taking proactive steps to manage the Bank'scash position, subject always to the applicable risk limits.

For Capital Markets 2009 was an especially busy time: it wasmandated as co-lead manager of 18 issues by financial institutions(totalling more than €15,000 million overall); Banco Sabadell wasalso appointed to lead manage the placing of a EuropeanCommercial Paper issue programme.

Securities and Custodian Services

Banco Sabadell acts as a provider of equity trading services for itsinstitutional and individual customers where its goal is to attain thedominant position that its market position warrants. With this inview, it has equipped itself with the latest trading technology,enabling it to access practically any market in the world on its BSIbersecurities platform.

In the Custodian business Banco Sabadell has made a resolutebid to become a major player by building up its existing structure andputting in place a specialized business development team.

—

—BS América in 2009

—

—

In a new phase of its strategy to establish a solid base in theAmericas, on 23 July 2009 Banco Sabadell reached an agreementwith the Bank of New York Mellon to purchase 100% of the ordinaryshares of Mellon United National Bank (MUNB), headquartered inMiami. After being given regulatory approval, the deal was closed on15 January 2010.

With the new acquisition concluded, Banco Sabadell became thesixth largest local bank in Florida by value of deposits, moving 10places up the league table of local banks. It is one of the largestnon-US banks with a presence in southern Florida.

Banco Sabadell's business turnover in the USA rose to morethan USD 6,400 million overall, with customer accounts totallingUSD 4,300 million and a loan book of USD 2,100 million.

——The acquisition of Mellon United National Bankreinforces Banco Sabadell's operating base in Florida as part of an international diversification policy——


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Banco Sabadell - Miami branch

Banco Sabadell's operating branch in Miami saw customer fundsunder its management grow by 18% and customers' investmentsunder management by 30%.

Loans and advances totalled USD 796 million. The mainborrowers were foreign-based companies looking to access sourcesof working capital and medium- and long-term finance. The “I-95Express” was the first syndicated financing arranged by the Bank,which acted as lead arranger outside Spain and financed 40% of the USD 61 million loan for improvements to Miami’s highwaysystem.

TransAtlantic Bank

Serving the retail banking market, TransAtlantic Bank has beenoperating under licence from the state bank in Florida since 1984.From its seven branches in Miami-Dade county, it offers financialservices to a customer base some 10,000 strong.

At the close of the year total assets stood at USD 538 millionand customer accounts totalled USD 449 million.

Banco del Bajío

Mexico's eighth largest commercial bank, Banco del Bajío has a total of 197 branches in 24 of the country's states and a customerbase of over 205,000. It is reckoned to be the 25th largest bank in Latin America and one of the 40 most highly valued brands in Mexico.

After achieving a series of good results from its business-focused activities, which ensured that it retained its leading positionin Mexico's farming and livestock sector, it has continued its growthstrategy of targeting small and midsize firms. Banco del Bajío wasawarded the 2009 National Prize for its strong performance in thismarket. A major boost was given to the Bancassurance side of thebusiness in 2009 following its mid-2008 launch. Financiera Bajío,a subsidiary, took the second largest share of the country'sfactoring market.

At the end of the year shareholders’ equity stood at 9,070 million Mexican pesos; total assets were 77,812 millionMexican pesos, customer funds under management were 42,356million Mexican pesos and net profits were 1,024 million Mexican pesos.

Centro Financiero

Banco BHD, part of the Centro Financiero BHD group, reportedperiod-end shareholders' equity of 7,778 million Dominican pesosand total assets of 80,273 million Dominican pesos. It had a totalof 72,496 million Dominican pesos in customer funds undermanagement. The net profit for the year was 2,204 millionDominican pesos. Banco BHD was top of the league in growth, loanbook quality and profitability, gaining a position as the mostprofitable bank in the Dominican banking industry.


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It has a network of 89 branches covering the whole country towhich it has added robust online and telephone banking. It serves a customer base of more than 350,000.

Centro Financiero BHD reported a net profit for 2009 of USD 74 million.

—

—Bancassurance in 2009

—

—

In 2008 the Bank entered into an alliance with the Zurich Group, aworld leader in insurance, to drive forward the group’s Bancassurancebusiness in Spain with a view to market leadership. 2009 was thefirst full year of operation since the alliance was formed.

At the end of the year the total volume of savings managed bythe Bancassurance business totalled €8,338.6 million. The growththat has been achieved clearly shows the multiplier effect that thealliance with the Zurich group has had, as forecast, on sales ofinsurance and other savings/retirement products.

The net profit of the Bancassurance business was €49.7 million,a 69.8% increase on the figure for 2008. The profit before salecommissions, exceptional items and taxes was €130.5 million.

The Banco Sabadell group continued to enjoy a prominentposition in the Bancassurance market. This was reflected inelevated positions in peer rankings for life insurance (2nd place),individual pension plans (10th place), and company pension plans(6th place) according to recently published data.

BanSabadell Vida

At the end of the year the volume of savings under managementstood at €5,550.6 million, a year-on-year rise of 30.9%, including a36.2% increase in sales to individual policyholders.

In the savings/life insurance category, the "Multinversión" policyproved even more popular with customers than the year before. Thevolumes of savings under management resulting from sales of thesepolicies amounted to €1,755.9 million.

Premium income in protection-only life insurance totalled €67.8million. BanSabadell Vida keeps its life policies under constantreview to ensure that its product offering is aligned with marketdemand at all times.

Total premium income was €3,107.7 million, up 21.6% on theprevious year, giving BanSabadell Vida a number two ranking in theleague table of Spanish life offices according to recent published

20062007

2008

8,339

6,6826,6356,275

2009

—Total funds under management

(€Mn.)

——A successful first year for the Banco Sabadell – Zurichalliance ——


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data. The net profit totalled €45.7 million, an increase of 101.8% on the previous year. The profit before sales commissions,exceptional items and tax was €106.6 million.

BanSabadell Pensiones

BanSabadell Pensiones had a total of €2,735.4 million in fundsunder management at the close of the year, up 14.2% on the figurefor 2008. €1,539.1 million of these funds related to individual andgroup pension plans and €1,196.3 million to company schemes.BanSabadell Pensiones is ranked tenth by volume in the pensionsindustry as a whole, occupying tenth place for individual pensionplans and sixth place for company schemes according to dataprovided by the Spanish fund managers’ association Inverco.

The company’s net profit for the year 2009 was €2.7 million. The profit before sales commissions and tax was €13.7 million.

BanSabadell Seguros Generales

2009 was the first full year in which company was underwriting and selling its own insurance, consisting of home and paymentprotection policies. These underwriting operations were commencedin 2008.

The company’s net profit for the year was €1.2 million. Premiumincome for the year totalled €78.2 million, of which €28.4 millionconsisted of business underwritten by the company.

BanSabadell Previsión, EPSV

BanSabadell Previsión, a voluntary social insurance society,reported a total of €52.6 million in savings under its management at the close of the year. The society is highly regarded by branchpersonnel and by customers in the regional market that it serves,the Basque Country.


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—Other businesses in 2009

—

—

Solvia

Solvia is the umbrella name chosen by Banco Sabadell for itssubsidiaries engaging in the business of managing real estateassets that are not connected with the banking business and beingheld for sale. These assets consist of development land beingprepared for building, individual plots prepared for building, realestate developments and rental properties.

Overall, companies in the Solvia group ended the year with net investments totalling €1,498 million.

Of these assets, 52% was development land managed by the group. Plots prepared for development made up 33% and theremaining 15% of the portfolio was split between rental property andreal estate developments for sale. Seventy-five per cent of theassets were residential properties. Half the assets were located in Catalonia, mainly in the city and metropolitan area of Barcelona,and another 25% were in the Community of Madrid. The remainingproperties were spread over various locations in other parts of Spain.

Solvia's priority aim is to sell its real estate assets and with thisaim in view is looking at every possible avenue for disposing of theassets having regard to the type, location, and permitted use of theasset and the maturity of the location or development.

One element of its strategy for disposing of real estate assetswas the launch of a web site, www.solvia.es. This is a key part of any disposal strategy given that the Internet is now a vital saleschannel. The site has a wide and varied offering of assets of everytype (residential, commercial, office and industrial) at highlycompetitive prices and with the added possibility of securing loanfinance on attractive terms.

Originally intended for use as a property sales tool for Solvia,a few months ago the company made its site (www.solvia.es)available to developers to help them revitalize demand and reducetheir inventory of properties.

BancSabadell d'Andorra

BancSabadell d’Andorra was set up in the Principality of Andorra inthe year 2000. Banco Sabadell holds a 50.97% interest, with theremaining shares divided among more than 800 Andorran privateinvestors. It is currently the only bank in Andorra with a non-Andorranpartner and this, combined with the sizeable number of privateAndorran shareholders, gives this bank a clear edge over its

——Applying innovation and expertise to make our realestate assets profitable——


competitors. The bank’s target customers are medium- and high-income individuals and larger companies operating in Andorra. It has six branches.

Deposits and customer funds under management were inexcess of €1,235 million at the end of the year, with loans andadvances to customers totalling more than €390 million.

The year-end profit was slightly over €5.2 million. The ROE at theend of the year was 12% and the liquidity ratio, according to criteriaset by the Principality's supervisory body, the Andorran NationalFinance Institute (INAF), was in excess of 75% (the INAF legalminimum is 40%). The loan loss ratio was 0.37%. Regulatory capitalas of 31 December stood at €46million.

Dexia Sabadell

Dexia Sabadell was set up in 2001 in partnership with the Franco-Belgian financial services group Dexia. The organization specializesin providing finance to regional and local government and for largeinfrastructure projects and local services and amenities to improvethe quality of life for local people. Banco Sabadell holds a 40%interest in the undertaking, with the remaining 60% and managerialcontrol being in the hands of Dexia, Europe’s leading provider ofpublic sector finance.

The company operates throughout the Iberian peninsula and hasbranches in Madrid, Barcelona, Valencia and Lisbon.

During the year the organization continued to strengthen itsposition as a major player in Spanish regional and local authorityfinance and as a provider or arranger of finance for major publicinvestments in infrastructure and public amenities.

In 2009 financing deals were struck with the Government ofCatalonia, the Catalan government-owned rail operator Ferrocarrilsde la Generalitat, the water utility Agència Catalana de l’Aigua, theCatalan Finance Institute and the governments of the autonomousregions of Castile-León, Navarra and Andalucía.

20072008

2009

9,877

16,403

14,977

—Financing commitments(€Mn.)

—Gross income(€Mn.)

—Net profit (€Mn.)

20072008

2009

85.0

118.7

40.3

20072008

2009

15.5

63.0

36.3

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Key project finance mandates executed during the year were thestructuring and financing of two projects linked to Barcelona'smunicipal refuse collection service, and structuring and participatingin the financing of three key thermosolar projects.

As the year ended the company's financing commitmentstotalled €16,403 million, 4.3% more than at the end of the previousyear. Gross income increased to €118.7 million, up 39.7% on thefigure for 2008. Extreme care in managing overhead costs (down9.1%) and a record low cost:income ratio of 6.9% helped grossoperating income for the year to increase by 45.4% to more than€110 million. The net profit for the year was €63 million, anincrease of 73.6% on 2008.

Millennium BCP

Banco Sabadell has held a partnership agreement and an equityshareholding in Banco Millennium BCP, Portugal’s largest listedfinancial services group, since 2001. At the close of the year BancoSabadell’s shareholding was 4.43%.


—Excellence————————

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—Operations

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This year the Bank focused on bringing to completion two majorreorganization programmes launched in 2008 as part of the "Plan Optima" operating efficiency drive. These were, first, a radicalchange in the branch banking model that will see branchesbecoming points of contact with customers and delivering a qualityexperience based on personalized service; and second,a transformation in the operating capacity of branches from the technological, organizational and operational standpoints.

In the area of branch operating capacity, part of the OperatingEfficiency dimension of the Optima plan, the Bank produced aconsolidated map of its operating centres and increased andoptimized the volume of tasks transferred from branches to its threeRegional Administrative Centres (Madrid, Oviedo and Barcelona).It also set up a Group Services Centre to take over administrativetasks not performed at the regional level. The cross-border businesswas also concentrated in fewer locations, with 25 Superdex sitestaking over from the previous 63. These changes, together withoptimized workflows, led to a reduction in the number of full timeequivalent administrative staff in each branch, releasing staff forbusiness development tasks. These changes led to a significantincrease in the Bank's new business development capability andfirmly established an operational model for bank branches that isthe most advanced in the Spanish banking industry.

To ensure that the increased sales capacity at branches is fullyutilized Banco Sabadell has implemented the Activa programme,a system of branch incentives linked to the attainment of salestargets. The success of the programme is confirmed by a 43%increase in the number of sales contacts.

The Bank has also introduced sales support tools such as theInformation Portal, which means that all branches have access tothe same information through the group Intranet. The InformationPortal receives some 33,000 enquiries per week on average, andhouses all management information required to keep track of andanalyse business operations across the whole group. Anotheradvantage is that information is presented in a unified andsimplified way, helping to further reduce search times.

Once again the Bank is at the cutting edge in its use oftechnology to serve business objectives and in making optimum useof internal resources as a way of increasing efficiency. Anotherexample of technology in action was the server virtualization projectwithin a distributed computing environment. Launched under theumbrella of the "Tecnoagenda 09" programme, it achieved areduction in the number of physical servers from 250 to 30, areduction of 90% in energy consumption and a reduction in

——Excellence in cost control - Plan Optima bears fruit —Improved operating efficiency and business productivity——

2.00

2.25

1.95

—Average number of administrative staff (FTE)

per branch

1.67

2004

2.15

2005 2006 2008

1.37

20092007


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hardware delivery times from 45 days to 5 days. A pilot officevirtualization programme was also successfully launched. Thiswould replace office computers with "thin client" terminals and thusfacilitate workstation mobility. The project will be extended to allbranches in the course of 2010.

One of the two machines forming the bank's central computer,which processes almost 9 million transactions a day on average,was replaced. With the replacement machine installed, the power of the two machines combined increased the processing capacity ofthe Proteo system by 56% and improved processing speed by 20%.The new machine consumes 93% less power and has 83% lessimpact on the environment.

In undertaking all these initiatives the Bank's prime concernwas, as always, data security. In the area of business continuity,mechanisms to trigger automatic simultaneous masscommunications in the event of a major incident were set up. Toenhance the service quality aspect of business continuity, a no lessrigorous system for responding to minor or micro-contingencies wasincorporated into the business continuity processes. To upgrade thegroup's previous continuity plan for pandemics, a detailed plan wasdrawn up for contingencies caused by swine flu or similar outbreaksthat could impact on critical business processes.

Key developments in the data security field included action to enhance the security of electronic and online banking by adding a complete system of real-time network behaviour analysis andanomaly response processes. The system for identifying the group'selectronic banking pages was also improved by the introduction of a new generation of ssl-EV (extended validation) digital certificates,which provide greater security and ease of recognition for users.

As part of the branch capacity project referred to above, theopportunity afforded by the prevailing economic climate was takento change the branch cost management system by designing androlling out a programme to bring greater rigour into way operatingcosts are managed. This programme resulted in a saving of €25 million.

100

99 90

129

139

—Processing power and cost

—Transaction volume—IT costs

2009

82

20062007

2008

142

Base 2006 = 100


—

—Human Resources

—

—

Composition of group employees

At the end of the year Banco Sabadell and rest of the group wereemploying 9,466 employees, a reduction of 463. The average age of employees was 42.5 years and the average length of service was18.0 years. The gender split was 53.9% men and 46.1% women.

Training

More than 98.7% of group employees took part in one or more of the training opportunities offered by the group. Training coursescomprised a total of 247,700 study hours with employeeparticipation averaging seven courses per employee.

The Bank continued to favour attendance-based training overdistance learning, which ensures that skills are transferred directlyand effectively to trainees.

The Bank has an agreement with the University of Barcelonaunder which the university awards qualifications for in-servicetraining undergone by employees, an indication of the excellenceand appropriateness of our training programmes.

Human resources development

Following a recent review of the group's Human Resources policy,personnel management was modernized and flexible compensationsystems were introduced and can be taken up by 17.4% of groupemployees. In addition, new compensation schemes for seniormanagers were developed in accordance with recommendations of the Bank of Spain and the Financial Stability Board (FSB).

Human Resources technology platform

During the year Banco Sabadell replaced its personnel managementinformation system with SAP HCM human capital managementsoftware, an integrated solution that brings greater consistency to human resource administration and management processes.Another major benefit of the new system is that it makes theseprocesses much more accessible to employees. The projectinvolved an investment of 65,000 technology hours.

——Leading the way in career development for groupemployees——

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1

2

—Employees - Gender split

—1 Women 46.1%—2 Men 53.9%

2

3

1

—Employees – qualifications

—1 University educated 65%—2 Non-university educated 26%—3 Other 9%


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—

—Quality management

—

—

In any business, performance can only be sustainable over time if itis based on excellence in management practices. This statement,which sums up a key element of the Banco Sabadell businessculture, takes on particular significance in an economic climate likethe present one, where the ability to adapt to circumstances as theyarise becomes not so much a virtue as a necessity.

This applies to leadership, policies and strategies for managingpeople, resources and processes that form the backbone of abusiness undertaking – all the elements, in fact, that bring cohesionto the business and give it the vitality it needs to take prompt andeffective decisions and coordinate the work of its people in aseamless and coordinated way.

To give itself benchmarks against which to measure and assessits management practices, the Bank uses the excellence modeldeveloped by the European Foundation for Quality Management(EFQM), together with regular quality assessments by externalconsultants. Banco Sabadell was the first IBEX 35 financialinstitution to receive the EFQM Seal of Excellence (500+ points).

Banco Sabadell continues to be Spain’s only financial institutionto have achieved global certification to ISO 9001, and not only for

31-35

36-40

41-45

>45

26-30

21-25

16-20

11-15

15%

6-10

0-5 9,92

4,49

3,96

8,18

5,69

6,90

9,56

5,15

0,33

13,37

6,49

5,54

9,12

4,02

1,98

3,74

1,50

0,04

0,000,01

—Employees - length of service

—Men —Women

10% 5% 0 5% 10% 15%

45-49

50-54

55-59

>60 0,43

5,75

0,31 0,63

5,59

9,51

9,38

9,75

4,60

4,61

1,65

0,09

3,43

6,27

6,48

8,55

8,03

14,96

40-44

35-39

30-34

25-29

15%

<25

—Employees - age distribution

—Men—Women

10% 5% 0 5% 10% 15%

——Leading the way in delivering a quality service to thecustomer —Banco Sabadell has the lowest ratio of complaints toturnover for the seventh year in succession——


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the parent company but for all the financial services companies in the group.

In a further development, in 2009 Banco Sabadell was licensedto use the "Madrid Excelente" guarantee mark.

The way the Bank is managed and how it performed in 2009 arediscussed in detail elsewhere in this report. This section is limitedto an update on what we are doing and what we have achieved in the specific area of quality and improving our performance.

Quality in customer service

A focus on the customer, the desire to serve and professionalismare three of our traditional values at Banco Sabadell. To make surethat we adhere to those values and apply them in our day-to-daypractices we use indicators that enable us to monitor the quality of our work. The main quality indicators are:

—Objective quality audits. These measure the quality of servi-ce and advice given to customers. All the Bank’s branchesare surveyed and the mystery shopper technique is used.

—Industry-wide quality surveys. This is used for benchmar-king, i.e. comparing the quality of our branches to those ofother financial services companies. The surveys are carriedout by an independent consultancy using its own teams of mystery shoppers.

—Perceived quality customer surveys. These are carried outon a continuous basis and provide detailed information forindividual branches. They provide a basis not only for impro-vement actions across the whole network, but also morespecific actions for particular circumstances.

—Customer claims and complaints. These are key indicatorsof end user perceptions of the quality delivered to customersand users of financial services. The data shown in the tablebelow refer to complaints made to the Bank’s own CustomerService Department and Customer and StakeholderOmbudsman, whose mission is to uphold the rights of consu-mers of our services. The most recent annual report publis-hed by the Bank of Spain’s Complaints Department showedBanco Sabadell as having the lowest ratio of complaints toturnover in the banking industry — a position it has heldsince 2002.

Indicator 2007 2008 2009 Scale

Objective quality audits 6.09 6.15 6.08 1 to 7Industry benchmarking

Banco Sabadell 7.82 7.66 7.71 0 to 10Banking industry 7.24 7.08 6.94

Customer surveys of perceived quality - 6.00 5.96 5.87 1 to 7Overall satisfaction with branch

Customer claims and complaints 1,809 2,116 3,006(total number examined)


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Qualis Prizes for Excellence

Established by the Bank in 2002, the Qualis Prizes for Excellenceare awarded to people and groups of people who have beenparticularly noted for the excellence of their work during the year.

In 2009 prizes were awarded and presented to the winners for2008. Of particular significance this year were the prizes for thebest bank branches as examples of successful teamwork, and theQualis Prize - Gold Category which is given in recognition of aperson’s past career.

The branches selected for the best branch award were ElCrucero in León, Ferreras in Las Palmas, Les Borges Blanques andthe business services branch in Oviedo. The Qualis Gold Prize wentto Ignacio Camí Casellas, assistant general manager.

Employee participation for improvement and innovation

In 2009 — the 28th year for which the Bank's employeeparticipation scheme has been running — staff members onceagain put their daily experience and creativity to use in offering theirideas for improvements to the Bank's procedures and services. To encourage more participation of this kind a new site known as BSIdea, based on the social networking concept, was added to thecorporate intranet. BS Idea lets users view, contribute to and openlycomment on suggestions by other employees, thus fosteringcreativity and the collective expression of views on the value ofemployees’ contributions.


—Risk management ———————

071-081-Gestion de Riesgo ANG 12/3/10 12:33 Página 71

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1

2

3

—Allocation of economic capital

(by type of risk)

—1 Credit risk 80.9%—2 Structural risk 9.0%—3 Operational risk 5.3%—4 Market risk 0.2%—5 Other risks 4.6%

5

4

The chief categories of risk inherent in the business of BancoSabadell and its group are credit risk, market risk and operationalrisk.

The accurate and efficient management and control of risk iscritical to realizing the aim of maximizing shareholder value whileensuring an appropriate degree of financial strength. Themanagement and control of risk comprises a broad framework of principles, policies, procedures and advanced evaluationmethodologies, integrated within an efficient decision-makingstructure. All this is fully and clearly set out in the Annual Accounts,the Report of the Directors, the Report on Corporate Governanceand the Basel II Pillar 3 Disclosure document, all of which can befound on the group's web site.

Banco Sabadell complies with guidelines drawn up under theBasel Capital Accord, a fundamental principle of which is that abank’s regulatory capital requirements should be more closelyrelated to risks actually incurred, based on internal riskmeasurement models which have been independently validated.

Banco Sabadell has received supervisory authorization to use its own internal models for companies, real estate developers,specialized financing, mortgage loans and consumer loans inestimating its regulatory capital requirements

Based on the risk metrics provided by these new methodologies,Banco Sabadell has a consolidated risk measurement model with a common internal unit of measurement, economic capital, thepurpose of which is to determine the capital requirement on thebasis of internal parameters to ensure a specified level of solvency.

The assessment of risk in terms of an assigned capitalrequirement means that risk can be related to return, from individualcustomer up to business unit level. The group has an analytical“risk-adjusted return on capital” (RaRoC) system in place whichprovides this assessment and includes it as part of the transactionpricing process.

——Careful risk management prevents a forecast rise in loan losses —The Bank has moved to tighten up its recovery processes——


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—

—Credit risk

—

—

Credit risk is the possibility that losses may be incurred as a resultof borrowers failing to meet their obligations or through losses invalue due simply to deterioration in borrower quality.

Approval, monitoring and recovery

To maximize the business opportunities provided by each customerand to guarantee an appropriate degree of security, responsibility for acceptance and monitoring of risk is shared between theaccount manager and the risk analyst. The interaction betweenthem is based on effective communication and ensures thataccount managers have a comprehensive view of each customer’sindividual circumstances. This is facilitated by tools such aselectronic processing of loan applications, which speeds updecision-taking and significantly reduces response times.

The Board of Directors delegates powers and discretions to theRisk Control Committee, which then sub-delegates authority at eachlevel. The implementation of authority thresholds on credit approvalmanagement systems ensures that the powers delegated at eachlevel are linked to the expected loss calculated for each transactionof every business customer on the system.

By analysing indicators and early warning alerts, and byconducting regular credit rating reviews, the quality of a risk can be constantly monitored in an integrated way.

The establishment of effective processes for managing existingrisk exposures also benefits the process of managing past dueaccounts. The early identification of probable default cases ensures

1 Large corporates 19.50%2 Medium-sized businesses 19.63%3 Small businesses 21.61%4 Retailers & sole proprietors 2.32%5 Mortgage loans 15.99%6 Consumer loans 0.70%7 Banks 6.85%8 Sovereign debt 7.17%9 Other 6.24%

—Risk exposure

—Credit risk profile by borrower category

1

2

34

5

6 7

8

9


—Expected loss


—Economic capital

1

2

3

9

1

2

3

4 95

65

68

7

87

4


that proactive measures can be taken and risks transferred torecovery specialists who are best equipped to determine the mostsuitable type of recovery procedure in each case.

Credit rating

For some years now, credit risk exposures to corporate customers,special financing projects, retailers and sole proprietors, financialinstitutions and countries have been assessed according to asystem of credit ratings based on internal estimates of theprobability of default. The system is based on factors that predictthe probability of default within one year and is designed for differentcustomer segments. The rating model is reviewed each year on the basis of an analysis of actual default data.

Each internal rating score is assigned an anticipated default ratewhich allows consistent comparisons to be made across segmentsand with the ratings of independent rating agencies, according to amaster scale.

Credit scoring

Credit risk exposures to individual customers are classified bymeans of scoring systems which make use of quantitative modellingbased on historical data to identify key predictive factors. Two typesof scoring are used:

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383.07%

20042005

2006

325.03%

—Loan loss and loan loss coverage ratios

—Loan loss ratio—Loan loss coverage ratio

2007

394.29%

106.93 %

466.56%

20092008

SMEs

Corporates

Real estate deve

lopers

Retailers & sa

le proprietors

—Loan loss ratio by customer segment

Home loans

Other personal lo

ansOther

0.61%1.95% 4.49%3.07%2.85%9.33%3.93%5.43%

0.49% 3.73%2.35%0.47%0.39%

69.03%


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—Behavioural scoring: a system in which all customers areclassified using data on their transaction history with eachproduct. This classification provides a basis for establishingmonitoring procedures and evaluating credit applications, andalso for granting provisional approval.

—Application scoring: this is used to evaluate applications forpersonal loans, mortgage loans and credit cards. When fulldetails of the application have been entered, the systemgenerates a result based on the estimated borrowing capacityand financial position of the applicant and the quality of anysecurity or collateral.

25%

20%

15%

10%

5%

9 8 7 6 5 4 3 2 1 00%

—Business loan portfolio – credit rating profile

—Credit quality from 9 (high) to 0 (low)—Exposure (%)

25%

30%

35%

40%

20%

15%

10%

5%

9 8 7 6 5 4 3 2 10%

—Individual customer loan portfolio – credit rating profile

—Credit quality from 9 (high) to 0 (low)—Exposure (%)

0


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1 Spain 89.48%2 Other European Union 7.45%3 USA and Canada 1.39%4 Latin America 0.50%5 Rest of world 0.92%6 Other OECD 0.26%

—Credit risk –

distribution by geography

1

1 AAA/Aaa 32.82%2 AA+/Aa1 0.54%3 AA/Aa2 11.50% 4 AA- /Aa3 26.83%5 A+/A1 13.64%6 A /A2 1.34%7 A- /A3 0.86%8 BBB+/Baa1 1.00%9 Other 11.47%

1 Euro area 90.21%2 Other European 6.82%3 Other UA and Canada 2.95%4 US Investment banks 0.00%5 Rest of world 0.02%6 Japan 0.00%

—Counterparty risk –

distribution by credit rating

1

2

5

69

73

1

2

—Counterparty risk –

distribution by geography

4

3

82

3 6

4

5

Country risk

This is the risk associated with the debts of a country analysed as aclass on the basis of factors other than credit risk. It manifests itselfwhen a borrower is unable to meet his foreign currency liabilities toexternal creditors because the country will not allow access to, ortransfers to be made in, that currency, or where a recovery actionagainst the borrower would fail for reasons of sovereignty.

An overall exposure limit is set for each country, which appliesacross the whole group. These limits are approved by the RiskControl Committee and are constantly monitored to ensure that anydeterioration in the political, economic or social situation in acountry can be detected and acted upon in good time. The rating for each country provides an additional guide, both when settinglimits and in monitoring them once they have been set.


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Credit risk due to market trading

Credit risk due to market operations, or counterparty risk,is exposure to other financial institutions arising from tradingoperations. These may be cash transactions, where the amount at risk is comparable to the nominal value of the transaction,or transactions in derivative instruments not traded on organizedmarkets, where in the great majority of cases the transactionamount is below the notional value.

Banco Sabadell has a system in place for the assessment andmanagement of counterparty risk, by which observance of approvedlimits can be monitored and controlled in real time.

In addition, to mitigate exposure to counterparty risk BancoSabadell maintains a solid base of collateral agreements — CreditSupport Annexes (CSAs) or Global Master Repurchase Agreements(GMRAs) — negotiated with counterparties involving higherexposures. The collateral provisions of these agreements mean that exposure to these counterparties is significantly reduced.

—

—Market risk

—

—

Discretionary market risk

Discretionary market risk arises from the possibility of loss in thevalue of positions in financial assets due to variations in any of thefactors affecting market risk (stock prices, interest rate or exchangerate movements, implied volatilities, correlations, etc.). It arisesprimarily from treasury and capital market operations which, as theyexpire or mature at specified times, have risks which are known andcan be managed or limited by using financial hedging products.

Discretionary market risk is measured by the VaR (Value at Risk)method, which allows the risks on different types of financial markettransaction to be aggregated. VaR provides an estimate of theanticipated potential maximum loss on a position that would resultfrom an adverse, but normal, movement in any of the market risk-generating factors mentioned above. This estimate is expressed inmonetary terms and is calculated at a specified date, to a specifiedconfidence level and over a specified time horizon. The estimatetakes account of different levels of market risk factors.

Market risk is monitored on a daily basis and reports on currentrisk levels and on compliance with the limits assigned to each unitare sent to the risk control functions. This makes it possible to trackchanges in exposure levels resulting from changes in the marketprices and volatilities of financial instruments.

The reliability of the VaR methodology is validated by backtesting techniques which are used to verify that the VaR estimatesare within a specified confidence level.

The graph shows the movement of the 1-day VaR for the group's market trading operations in the year 2009 at a 99%confidence level.


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Equity securities strees test results 2009 (€ Mn.)

Portfolio Interest Interest Interest

value rates stable rates fall rates rise

January 79.18 22.24 (22.77) 52.79February 77.08 34.32 (22.39) 67.68March 57.04 13.97 (17.59) 19.60April 79.00 11.23 (29.41) 19.63May 83.54 6.25 (36.42) 14.81June 62.38 0.00 (32.44) 11.05July 84.30 3.24 (5.68) 11.13August 81.17 (0.82) (10.39) 6.46September 87.43 (2.73) (5.29) 11.23October 98.57 9.95 (29.80) (11.70)Novembre 92.34 10.23 (22.09) (9.23)December 103.42 11.38 (24.82) (10.34)

Techniques of this kind are supplemented by special simulationexercises and extreme market scenarios ("stress testing"), thepurpose of which is to analyse different macroeconomic scenariosand their possible impact on the trading portfolio. The followingtable shows a stress analysis of this kind for the most significantportfolio (equity securities).

Structural interest rate and liquidity risk

Structural risk arises from ongoing customer-based commercial andcorporate banking operations and is divided into interest rate riskand liquidity risk. Management of structural risk seeks to ensurestability at the margin by maintaining appropriate levels of liquidityand capital strength.

Interest rate risk

Interest rate risk is caused by changes, as reflected in the positionor the slope of the yield curve, in the interest rates to which asset,

January 09

April 09

June 09

August 09

February 09

July 09

October 09

November 09

March 09

May 09

September 09

December 09

—Market risk (€Mn.)

—Total VaR—Exchange rate VaR—Interest rate VaR—Equity VaR

2,00

1,00

0,00


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liability and off-balance sheet positions are linked. Gaps ormismatches arise between these items because of differences inrepricing and maturity dates so that rate changes affect them atdifferent times; this in turn affects the robustness and stability ofresults.

The management of interest rate risk focuses on overallfinancial exposure for the group as a whole and involves proposingalternative business or hedging strategies that will meet businessobjectives and are appropriate to market conditions and within theexposure limits that apply across the group.

A number of methodologies are used to measure interest raterisk. These include measuring the sensitivity of net interest incometo changes in interest rates over a one-year horizon. This is done bymeans of static (gap analysis) or dynamic (simulation) tests based,in the latter case, on different assumptions of balance sheet growthand changes in the slope of the yield curve.

Another technique used is to measure the sensitivity ofshareholders' equity to changes in interest rates by duration gapanalysis. This measures the effect of interest rate changes over alonger time horizon.

The sensitivity of net interest income and shareholders' equity toa 100 basis point change in interest rates for the years 2008 and2009 is illustrated in the diagram.

Liquidity risk

This can be defined as the possibility of the Bank’s being unable tomeet payment commitments, even if only temporarily, due to a lackof liquid assets, or of its being unable to access the markets torefinance debts at a reasonable cost.

Liquidity risk may be caused by external factors such as afinancial market downturn, a systemic crisis or reputational issues,or internally, by an excessive concentration of maturing liabilities.

Banco Sabadell keeps a close watch on day-to-day changes in itsliquid asset position and holds a diversified portfolio of such assets.It also carries out projections to anticipate future needs.

In addition, liquidity gap analysis is used to manage foreseeablemismatches between cash inflows and outflows over a medium-term horizon. Systematic checks are made to verify that the group’sability to raise funds on the capital markets is sufficient to satisfy itsrequirements in the long and medium term.

The group has a number of programmes in place to raise financeon the long- and medium-term capital markets. Short-termcommercial paper issuance programmes further diversify itssources of funds. It is also an issuer of covered bonds and is activein developing new sources of finance such as asset-backedsecurities, which provide a further instrument for the managementof liquidity risk.

The Bank carries out regular liquidity stress testing to enable itto assess inflows and outflows of funds and the impact of theseflows on its cash position under different scenarios. Based on thisanalytical framework, the Bank has a contingency plan in place todeal with unexpected scenarios that could cause an immediatefunding requirement.

The contingency plan is constantly being updated and identifiesthe Bank's assets that are most readily convertible to cash in the

2008

—Structural interest rate risk

(interest rate sensitivity)

—Sensitivity of net interest income (€ Mn.)—% Sensitivity of shareholders’equity

2009

1.14

23.1415.47

3.05


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short term; it also sets out action plans should it become necessaryto raise additional cash.

—

—Operational risk

—

—

Operational risk is the risk of loss resulting from inadequate orfailed internal processes, people and systems or from unforeseenexternal events. Banco Sabadell pays particular attention tooperational risk and has implemented a management,measurement and oversight framework that fulfils the conditionsnecessary to opt for the use of an advanced model for calculatingregulatory capital charges for operational risk.

Management of operational risk is decentralized and devolved tomanagers responsible for processes throughout the organization.The full range of group processes is identified on a corporateprocess map, thus facilitating the compiling of information in a waythat reflects the structure of the organization. The group has aspecialized central unit to manage operational risk, whose mainfunctions are to coordinate, supervise and drive forward theidentification, as well as the assessment and management, of risksby process managers in line with Banco Sabadell's process-basedapproach.

Senior managers and the Board of Directors play a direct, hands-on role in managing operational risk by approving the managementframework and its implementation as proposed by an OperationalRisk Committee made up of senior managers from differentfunctional areas of the company; they also ensure that regularaudits are carried out on the management strategy being applied,the reliability of the information being reported, and the internalvalidation tests required by the operational risk model. Managementof operational risk is divided into two action areas:

—The first action area is based on an analysis in which allprocesses and any associated risks that involve potentiallosses are identified, leading to a qualitative evaluation of therisks and their associated control mechanisms. This is done byprocess managers in conjunction with the central operationalrisk unit. The result is an assessment that allows futureexposures to be recognized, tendencies to be anticipated andmitigating action to be taken in an informed way.

This is supplemented by a system for identifying, monitoringand managing risk through the use of key risk indicators.These can be used to trigger alerts in response to increases inexposure, identify the causes of that exposure and measurethe effectiveness of the controls in place and anyimprovements that are made.

Care is taken to ensure that all processes identified ascritical are protected by specific business continuity plans in the event of a service failure.

The operational risks identified are also assessed from the point of view of their reputational implications, should an incident occur.


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—The second action area is based on experience, and consistsof maintaining a database of all losses that occur in theorganization. This provides a store of information of actualoperational risk events for each business line and the causesof those events, so that risks can be acted upon andminimized.

The database contains historical records of actual lossesresulting from operational risk. It is continually updated asinformation is received on losses and also on recoveries,whether resulting from the Bank's own efforts or frominsurance provision. Since early 2002 a total of 6,009 eventsinvolving a total net loss of €43.6 million have been logged onthe database.

The distribution of loss events held on the database isshown in the diagrams below. These show that the maincauses of loss due to operational risk, both in number and inamount, arise in such areas as process execution, deliveryand management as well as losses due to external fraud.

1 Customers, products and business practices 2.10%

2 Property damage 10.57%3 Process execution, delivery

and management 36.36%4 External fraud 42.92% 5 Internal fraud 1.38%6 Business disruption/systems

failure 2.03%7 Staff relations and workplace

safety issues 4.64%

—Distribution of loss events due to

operational risk (by number)

1 Customers, products and business practices 8.96%

2 Property damage 6.17% 3 Process execution, delivery

and management 32.86%4 External fraud 31.11%5 Internal fraud 14.67% 6 Business disruption/systems

failure 2.74%7 Staff relations and workplace

safety issues 3.49%

2

1

5

6

7

3

4

—Distribution of loss events due to

operational risk (by amount)

2

1

56

7

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082-085-Equipo Directivo ANG 12/3/10 12:38 Página 82

—Board ofDirectors andSeniorManagementTeam————


—José Permanyer Cunillera——José Oliu Creus——Jaime Guardiola Romojaro——José Luis Negro Rodríguez—(from left to right)


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Board

of D

irecto

rs a

nd

Senio

r Managem

ent T

eam

—

—Board of Directors

—

—

—ChairmanJosé Oliu Creus

—Deputy ChairmanJoan Llonch Andreu

—Managing DirectorJaime Guardiola Romojaro

—DirectorsIsak Andic ErmayMiguel Bósser RoviraFrancesc Casas SelvasHéctor María Colonques MorenoSol Daurella ComadránJoaquín Folch-Rusiñol CorachánMaria Teresa Garcia-Milà LloverasJosé Manuel Lara BoschJosé Permanyer CunilleraCarlos Jorge Ramalho

Dos Santos Ferreira

—Secretary to the BoardMiquel Roca i Junyent

—Deputy Secretary to the BoardJosé Luis Negro Rodríguez

—Honorary DirectorsJuan Corominas Vila 1

Domingo Fatjó SanmiquelAntonio Ferrer Sabater

1 Honorary Chairman

—

—Executive Committee

—

—

—ChairmanJosé Oliu Creus

—Managing DirectorJaime Guardiola Romojaro

—Non-executive Director José Permanyer Cunillera

—Secretary to the CommitteeJosé Luis Negro Rodríguez

—Management Committee

—ChairmanJosé Oliu Creus—Managing DirectorJaime Guardiola Romojaro—Comptroller GeneralJosé Luis Negro Rodríguez—General SecretaryMaría José García Beato—BS AmèricaFernando Pérez-HickmanDeputy General Manager

—Chief Financial OfficerTomás Varela i MuiñaDeputy General Manager

—Commercial BankingJaume Puig BalsellsDeputy General Manager

—Operations and Corporate DevelopmentMiquel Montes GüellDeputy General Manager

—Corporate Banking and Global BusinessesEnric Rovira MasachsAssistant General Manager

—Human ResourcesJavier Vela HernándezAssistant General Manager

—Markets and Private BankingRamón de la Riva ReinaAssistant General Manager

—RiskRafael José García NauffalAssistant General Manager

—Regional Divisions

—BarcelonaLuis Buil VallAssistant General Manager

—CataloniaJosé Canalias PuigAssistant General Manager

—Madrid, Castile and GaliciaBlanca Montero CorominasAssistant General Manager

—Northern RegionPedro E. Sánchez Sologaistua—Southern Region and Canary IslandsJuan Krauel Alonso—Valencia, Murcia and Balearic IslandsJaime Matas VallverdúAssistant General Manager

—Banco HerreroPablo Junceda Moreno

—Central Services Divisions

—Business BankingCarlos Ventura SantamansAssistant General Manager

—Corporate OperationsJoan M. Grumé SierraAssistant General Manager

—Real Estate ManagementSalvador Grané TerradasAssistant General Manager

—Communication and Institutional RelationsRamon Rovira Pol —Compliance, CSRand Corporate GovernanceGonzalo Barettino Coloma—Internal AuditNuria Lázaro i Rubio

—Banking and other subsidiaries

—Banco UrquijoManuel San Salvador Caballero—BancSabadell d’AndorraMiquel Alabern Comas—BanSabadell FincomMiguel Costa Sampere—BanSabadell InversióCirus Andreu Cabot—BS CapitalRaúl Rodríguez Sabater


—Report ofthe Audit andControlCommittee—————

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—Introduction

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This report on the activities of the Audit and Control Committee for2009 is addressed to shareholders of Banco de Sabadell S.A. andwas signed off by the Committee at its meeting of 25 January 2010and approved by the Board of Directors of Banco de Sabadell S.A. at a meeting held on 28 January 2010.

The Audit and Control Committee is regulated by Article 59 bis ofthe Articles of Association and Article 13 of the rules of procedure of the Board of Directors of Banco de Sabadell S.A.; it also has itsown rules of organization and procedure which are published on thegroup website.

This regulatory structure ensures that the Audit and ControlCommittee complies with the reporting requirements laid down byLaw 44/2002 of 22 November on Measures to Reform the FinancialSystem, and incorporates the main recommendations on theworking of Audit Committees contained in the Unified Code onCorporate Governance approved by the CNMV in 2006.

As required by Bank's articles and other regulations, theCommittee consists of three Directors appointed by the Board,one of whom is appointed by the Board to chair the Committee. The Chairman may continue to perform that office for a maximum offour years and cannot be reappointed for at least one year after theend of his four-year term. Additional Directors may be appointed toattend meetings without the right to vote in order to fill a vacancy on the Committee or replace a member who is indisposed.

The Board also appoints a Secretary to the Committee, whomust not be a Director. The Secretary takes minutes of everymeeting and these are approved at the end of the meeting itself or at the next following meeting. A report of each meeting of theCommittee is read out at the immediately following meeting of theBoard of Directors.

As of 31 December 2009 the Banco de Sabadell Audit and ControlCommittee comprised the following members:

ChairM. Teresa Garcia-Milà Lloveras

Committee membersJoan Llonch Andreu

Francesc Casas Selvas

Alternate memberSol Daurella Comadrán

SecretaryMiquel Roca i Junyent


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The main change in the composition of the Audit and ControlCommittee during the year 2009 was the appointment by the Board,at its meeting of 27 May 2009, following a recommendation by theNomination and Remuneration Committee, of Sol DaurellaComadrán as an Alternate Member of the Committee.

The Audit and Control Committee meets as often as necessaryand in any event not less than every three months. The Committeemay request the attendance at its meetings of such executives,including executive Directors, as it sees fit. It may also seekassistance from independent advisors in carrying out its duties.

This report summarizes the range of activities carried out by theAudit and Control Committee in the course of the five meetings thatit held during the year 2009, from which it can be seen that theCommittee discharged the duties assigned to it in its rules ofprocedure by the Board of Directors of Banco de Sabadell, S.A.within its main areas of responsibility.

Together with the publication of an annual report on CorporateGovernance and the information available on the Group website, thedistribution of this report at the Annual General Meeting underlinesonce again Banco de Sabadell's commitment to providingshareholders and investors with the tools and resources they needto keep themselves fully informed of the Company's performanceand to ensure that it is transparent in everything that it does.

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—Terms of reference

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The Audit and Control Committee is responsible for:

—1. Reporting to the General Meeting on all issues raised by shareholders that are within its remit.

—2. Making recommendations to the Board of Directors,for submission to the General Meeting, regarding theappointment of external auditors and their terms ofengagement, the scope of their professional mandate and,if appropriate, the termination or non-renewal of theirengagement; reviewing performance of the auditing agreementand ensuring that the opinion on the annual accounts and themain findings of the auditors’ report are expressed in a clearand precise way.

—3. Reporting on the annual accounts and the quarterly and half-yearly financial statements and any prospectuses required tobe filed with the regulatory or supervisory authorities;monitoring regulatory compliance and ensuring thataccounting principles and standards have been correctlyapplied.

—4. Supervising the work of the Internal Audit function andreviewing appointments and replacements of key Internal Auditpersonnel.

—5. Keeping up to date with the company’s financial reportingprocess and internal control systems.

—6. Meeting with the External Auditors to receive reports on anyissues that could compromise their independence or other


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matters related to the process of auditing accounts, and anyother reports required by the legislation, rules or professionalstandards applicable to External Audit.

—7. Reporting on any issues referred to the Committee by theBoard of Directors that are within its terms of reference.

—8. Any other matters for which the Committee is responsible by law or under the Articles of Association or any introducedthereby, under any generally applicable rules on corporategovernance.

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—Regulatory structure

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As required by the Law on Measures to Reform the FinancialSystem, on 9 July 2003 the rules of procedure of the Board ofDirectors were amended by deed and new rules on the compositionand working of the Audit Committee were added. These changeswere made having regard to amendments to certain articles of theBank’s Articles of Association that had been adopted by a resolutionof the Ordinary General Meeting on 24 April 2003.

By another deed executed on 9 July 2003 the Audit and ControlCommittee was set up to replace the existing Audit and BudgetControl Committees, whose respective remits had been mergedfollowing amendments to the Bank's Articles of Association and to the rules of procedure of the Board of Directors.

On 20 October 2003 the Committee agreed new rules settingout the principles that would govern the work of the Audit andControl Committee of Banco de Sabadell S.A. and basic rules on organization and procedure, within the framework of the Articlesof Association and the rules of procedure of the Board of Directors.The rules were approved and confirmed by the Board of Directors at a meeting on 30 October 2003 and were filed with the publicregistry following the execution of a deed on 18 November 2003before a notary in Sabadell, Javier Micó Giner.

On 28 April 2009 the Committee reviewed and reportedfavourably on a proposed amendment to article 13.1 of the rules of procedure of the Board of Directors to provide for theappointment of alternate committee members. It also resolved toamend article 7.1 of the rules of procedure of the Audit and ControlCommittee accordingly. The amendments to article 13.1 of the rulesof procedure of the Board of Directors and article 7.1 of the rules ofprocedure of the Audit and Control Committee were approved andconfirmed by the Board of Directors at a meeting on 27 May 2009and filed with the public registry following the execution of a deed on 11 June 2009 before the notary in Sabadell, Javier Micó Giner.


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—Activities

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Five meetings were held by the Audit and Control Committee in 2009in accordance with the regulatory structure described above. Four ofthese meetings were ordinary or routine in character, while the fifthwas an ad hoc meeting to discuss matters of special interest.Meetings were regularly attended by the Comptroller General and thehead of Internal Audit. Meetings were also attended by the ChiefFinancial Officer when the business on the agenda included pre-publication reviews of quarterly and half-yearly trading and financialreports, and by other group senior executives when the nature of thebusiness on the agenda made their attendance desirable.

The Committee also maintained regular contacts with theExternal Auditors to keep itself informed of progress in the auditingof accounts.

These contacts and attendances ensured that the Committeewas able to obtain all the information it required to perform thetasks delegated to it by the Board of Directors within its main areasof responsibility, as follows:

Functions related to financial reporting and internal control

The Committee carried out a review to verify that banking oraccounting best practice was being applied at all levels of theorganization. On the basis of External Audit or Internal Audit reportsand reports from the Comptroller General, the Committee satisfieditself that suitable steps were being taken at General Manager leveland by other senior executive functions to ensure that the group'smain risks were being appropriately identified, measured andcontrolled.

Supervision of internal controls on the group’s offshore operations

The Committee paid particular attention to overseeing the system of internal controls over the group's offshore operations. This was in response to the Bank of Spain's "Banking SupervisionMemorandum" for 2003 which contained recommendationsconcerning the policies of banks and other lenders on the use ofoffshore locations to expand their overseas operations. In carryingout this responsibility the Committee reviewed the findings of auditscarried out by official regulators, audit reports prepared by GroupInternal Audit, the results of audits carried out by units with localinternal audit functions and auditors' reports prepared during theyear 2008 on the accounts of subsidiaries with offshore operations.

As a result of its review the Committee was able to conclude thatgroup operations conducted through offshore establishments werebeing reduced and that adequate systems were in place to ensurethat offshore establishments were subject to internal control by theparent company as required by the group's policy on discontinuingany operations likely to give rise to legal or reputational risks. A report on this area of the Committee's supervisory duties wassubmitted to the Board of Directors on 28 April 2009.


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Basel II

As the process continued of adopting the new Basel II accord acrossthe group, the Committee scrutinized the results of performanceaudits, carried out at the request of the Bank of Spain’s Directorate-General of Banking Supervision, on the group’s risk managementmodels in which an internal ratings-based (IRB) approach was usedto estimate minimum capital requirements to cover credit riskexposures. These audits enabled the Committee to keep itselfinformed of the action that had been taken to comply withinstructions given by the Bank of Spain when giving notice of itsapproval of Basel II risk models.

During the year the Committee also received the results of auditreports requested by the Bank of Spain as part of the ongoingprocess of validating the group's Advanced Operational RiskManagement and Measurement Model.

In fulfilment of the group's market disclosure obligations and asrequired by the Bank of Spain's Circular 3/2008 (the "SolvencyCircular"), at a meeting on 28 April 2009 the Committee reviewedthe contents of the document entitled "Basel II - Pillar 3Disclosures" dated 31 December 2008, based on an internal auditreport provided for the purpose. At that meeting it also examinedinformation concerning the group's qualifying capital resources andits capital adequacy and considered the degree to which theyconformed to the requirements of the Solvency Circular and theobjectives set out in the group's risk management policies. Finally,it carried out a detailed review of figures providing a view of thegroup's conservative risk profile in the different categories of risk forwhich disclosure is required, namely: credit and dilution risk, marketrisk in the trading book, operational risk, specific data on equityinterests in unconsolidated companies and equity instruments notincluded in the trading book, and interest rate risk on non-tradingpositions.

Functions related to auditing

The Committee's functions in relation to the auditing of accountsinclude making recommendations to the Board regarding theappointment of auditors and reviewing their terms of engagement.At its meeting of 26 January 2009 the Committee reviewed grouppolicy on the engagement of auditors and, on the basis of thisreview, recommended to the Board that the firm ofPricewaterhouseCoopers Auditores, S.L. be re-appointed as auditorsof the Bank's individual and consolidated accounts for the year. TheBoard of Directors resolved to submit the Committee'srecommendation to the Annual General Meeting of 19 March 2009and it was duly approved by the General Meeting.

With regard to auditor remuneration, the Committee reviewedand approved the auditor's fees for 2009. Details of fees paid toauditors can be found in the annual accounts for the year.

In its role of overseeing compliance with auditor independencerequirements, the Committee carried out a review of the main non-auditing services provided by PricewaterhouseCoopers in the courseof 2009. These services were concerned mainly with due diligencereviews, tax advisory services and reviews of other financial reports.All these tasks were undertaken pursuant to the independence


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requirements of Law 44/2002 on Measures to Reform the FinancialSystem and do not include any activities that would be incompatiblewith the auditor's role.

To verify the group's compliance with regulatory limits onconcentrations of auditing business, the Committee reviewed theproportional share of the fees paid to PricewaterhouseCoopers bythe group in the firm's total annual revenue. The share was lessthan 0.01% of the total for the PricewaterhouseCoopers worldwideorganization, and less than 0.35% of the total for its Spanishorganization. The Committee also examined information supplied to it by the auditors on the tools and procedures being used by theauditors to ensure compliance with the auditor independencerequirements. As a result of its examination the Committee wasable to satisfy itself that the work for which the auditor wasemployed was in compliance with the independence requirementsof Law 19/1988 of 12 July on the Auditing of Accounts and with Law 44/2002 of 22 November on Measures to reform the FinancialSystem, as amended.

The Committee held a number of meetings with the auditor at different times during the year to be informed by him of anysignificant accounting or financial reporting issues arising in the course of his work.

In the area of external supervision and regulation, on 15December 2009 the external auditors reported to the Committee on the new regulations on internal controls on financial reporting.The regulations give new responsibilities to audit committees inmonitoring the effectiveness of internal control and riskmanagement systems, and new requirements on the provision of information on a company’s internal control systems in relation to the financial reporting process, as provided for by Directive2006/43/EC, transposed into Spanish law by the Law on theAuditing of Accounts [Ley de Auditoría de Cuentas] and Directive2006/46/EC transposed by the Sustainable Economy Law [Ley deEconomía Sostenible] respectively (both have still to become law andwill amend the Stock Market Law).

In discharge of its responsibility for monitoring the auditors'performance of their terms of engagement, at its meeting of 21 July2009 the Committee received a presentation by the auditors of theirauditor's report of the summary consolidated accounts for the firsthalf-year of 2009, giving the group a clean bill of health. The Auditoralso presented his report on the individual and consolidated annualaccounts for the year 2009. As in previous years, the opinionexpressed by the auditor on the accounts was that they presented a true and fair view, in all material respects, of the consolidatedfinancial position of the Bank and the group and of the results oftheir operations and the changes in equity and cash flows for theyear, and that they contained all financial information necessary for their interpretation and comprehension.

Functions related to trading and financial reports

In the course of the year the Committee paid particular attention toreviewing the Company's accounts and its quarterly and half-yearlytrading and financial reports as well as other information disclosedto the market, including its Share Prospectus, before they werereleased for publication.


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At its meetings of 28 April, 21 July and 20 October 2009 and 25January 2010, the Committee reported favourably on the quarterlyfinancial statements for the period ending on 31 March, 30 June, 30September and 31 December 2009, respectively, prior to the theirbeing approved by the Board of Directors and being released to themarkets.

At its 21 July meeting the Audit and Control Committee reportedfavourably on the group's summary consolidated half-year financialstatements for the first half year for filing with the National StockMarket Commission (CNMV), finding them to have been preparedand presented in accordance with the IAS 34 standard on InterimFinancial Reporting as incorporated into IFRS-EU, with the itemizedpresentation requirements specified by the CNMV in its Circular1/2008 of 30 January, and with article 12 of Royal Decree1362/2007.

Also at the 21 July meeting, the Committee reviewed andreported favourably on the company's Share Prospectus for filingwith the National Stock Market Commission (CNMV) in accordancewith Commission Regulation (EC) No 809/2004 of 29 April 2004implementing Directive 2003/71/EC as regards informationcontained in prospectuses as well as the format, incorporation byreference and publication of such prospectuses and disseminationof advertisements.

In undertaking this work the Committee obtained supportingdocuments and held meetings with the Comptroller General, theChief Financial Officer and the Auditor to satisfy itself that allapplicable accounting principles had been properly applied.

Functions related to the work of Internal Audit

One of the Committee's tasks is to approve the plans andmethodologies of the Internal Audit department and assess theextent to which the department's plans are being followed and itsrecommendations are being implemented. This responsibility wasmet largely through the approval and oversight of the Internal AuditYear Plan.

The work of Internal Audit this year concentrated on reviewingthe group's internal control systems to mitigate any financial risk,credit risk, operational risk, accounting or regulatory risk to which itsoperations are exposed. The implementation of the Internal AuditYear Plan resulted in the production of over 400 audit reports andthe main findings of these reports, along with replies from seniormanagement to the recommendations contained in the reports,were evaluated by the Committee.

In keeping with the recommendations of the Basel Committeeon Banking Supervision and the new International ProfessionalPractice Framework (IPPF) published by the Institute of InternalAuditors in January 2009, at its meeting on 21 July 2009 theCommittee revised the Basic Rules for Group Internal Audit whichhave been adapted and updated to bring them into line with theIPPF. This enabled the Committee to satisfy itself that Group Internal Audit has incorporated international best practices into its procedures to ensure that it properly discharges its function of supervising, evaluating and improving the efficiency andeffectiveness of all risk, control and governance-related processes.


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All meetings held by the Committee in 2009 were attended bythe Comptroller General and the head of Internal Audit. The followingreports were presented:

—A report on the main Internal Audit results for the fourthquarter of 2008, at the meeting of 26 January 2009.

—A report on the Internal Audit memorandum of activities for2008 and the proposed plan of activities for 2009, at themeeting of 26 January 2009.

—A report on the main Internal Audit results for the first quarterof 2009, at the meeting of 28 April 2009.

—A report on the main Internal Audit results for the secondquarter of 2009, at the meeting of 21 July 2009.

—A report on the main Internal Audit results for the third quarterof 2009, at the meeting of 20 October 2009.

The Committee kept itself fully informed of progress inimplementing the recommendations of previous audit reports andeach meeting included the presentation of a special report on theAudit Department's monitoring of an “instrument panel” of keyquality indicators.

Functions related to compliance with legal and regulatory

requirements on Corporate Governance.

One aspect of the Committee's work in the area of corporategovernance was to review reports prepared by the ComptrollerGeneral and Internal Audit on compliance with applicable laws,internal company rules and regulatory requirements.

To comply with the requirements of Royal Decree 217/2008 forregular verification reviews of compliance with the EU Directive onMarkets in Financial Instruments (MiFID) by Investment servicescompanies, the Audit and Control Committee received informationspecifically on the implementation and monitoring of the MIFID rulesby the Banco Sabadell group, based on an internal audit reportprepared for the purpose. On the basis of this information theCommittee was able to review both the initial implementationprocess and the modifications, improvements and controls that are being introduced.

Corporate Governance

At its meeting of 26 January 2009 the Committee decided torecommended that the Board of Directors give its approval to areport on the structure and practice of Corporate Governance atBanco Sabadell that had been submitted by the ExecutiveCommittee in 2008.

The Committee also examined half-yearly reports from thegroup's Corporate Ethics Committee on action taken to ensurecompliance with the Banco Sabadell Group Code of Conduct onstock market trading, the group's General Code of Conduct, andactions undertaken in the area of Corporate Social Responsibilityand other key areas.


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Self-evaluation

In fulfilment of Corporate Governance guidelines, the members ofthe Audit and Control Committee carried out a self-evaluation andsubmitted a report with an assessment of the Committee'sperformance to the Board of Directors for consideration at itsmeeting of 15 December. The report found that the Committee hadfully and properly discharged the responsibilities entrusted to it in itsrules of procedure by the Board of Directors of the Bank.

Rules of Procedure of the Board of Directors

At its 28 April meeting the Committee reviewed and reportedfavourably on an amendment to article 13.1 of the rules ofprocedure of the Board of Directors to provide for the appointmentof alternate members of the Committee. The amendment reads asfollows:

“Art. 13. Audit and Control Committee1. The Audit and Control Committee shall be composed of three Directors appointed by the Board. The Board shallappoint a Chairman of the Committee by a two-thirds majority of the members of the Board. Additional Directors may beappointed to attend meetings without the right to vote in orderto fill a vacancy on the Committee or replace a member who isunable to attend. The Chairman of the Audit and ControlCommittee shall hold office for a period not exceeding fouryears and shall not be reappointed for one year after ceasing to hold office. The Board of Directors shall also appoint aSecretary to the Committee, who must not be a Director.

In accordance with the amended article 13.1 of the rules ofprocedure of the Board of Directors, the Committee unanimouslyresolved to amend article 7.1 of the rules of procedure of the Auditand Control Committee to provide for the appointment of alternatemembers of the Committee, as follows:

“Art 7. Composició1. The Committee shall be composed of three Directorsappointed by the Board of Directors. Additional Directors maybe appointed to attend meetings without the right to vote inorder to fill a vacancy on the Committee or replace a memberwho is unable to attend.

Reports from supervisory authorities

During the year the Committee was briefed on the main points of reports put out by supervisory authorities in Spain and othercountries in which the group operates. From the informationprovided the Committee was able to satisfy itself that therecommendations of the supervisory authorities were beingimplemented.


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—Conclusion

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The activities described in this report ensured that the Audit andControl Committee was able fully to discharge the duties assignedto it in its rules of procedure by the Board of Directors of Banco deSabadell, S.A. within its area of responsibility.

As a result of its activities the Committee was able to give anassurance that the Annual Accounts to be signed off by the Board of Directors provide a true and fair view of the asset and financialposition of Banco Sabadell and the results of its operations,and contain all information necessary for their comprehension.

The Committee has, in addition, verified that all business,financial and legal risks to which Banco de Sabadell S.A. and itssubsidiary undertakings may be exposed are clearly andstraightforwardly explained in the Annual Accounts and the Report of the Directors. Finally, it has reviewed the contents of the auditor'sreport to ensure that the opinion on the Annual Accounts and themain findings of the auditor's report are expressed in a clear andprecise way.

This report on the activities of the Audit and Control Committee inthe year 2009 was signed by the members of the Committee on 25January 2010 for submission to the General Meeting.


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—A report by the Board of Directors of Banco de Sabadell, S.A.

on Directors’ remuneration following a recommendation from the

Nomination and Remuneration Committee

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Introduction

This report on policy relating to the remuneration of members of theBoard of Directors was drawn up pursuant to Article 14.3.c) of therules of procedure of the Board, which charges the Nomination andRemuneration Committee with reporting to the Board on policy forremuneration of Board members.

The policy on the remuneration of members of the Board ofDirectors of Banco Sabadell has been developed in line with theArticles of Association and the rules of procedure of the Board ofDirectors.

The policy also complies with the recommendations of theUnified Code on Corporate Governance for Listed Companiesapproved by the Council of the National Stock Market Commissionon 22 May 2006, specifically recommendations 8 and 35 to 39 of the Code.

Article 130 of the SA Companies Act [Ley de SociedadesAnónimas] provides basic rules for the remuneration of directorsand states specifically that remuneration should be fixed by theArticles of Association.

Article 81 of the Articles of Association of Banco Sabadellrequires that Directors' remuneration should consist of a share ofnot more than 3% in the Bank’s net profits, and that within that limitthe Directors have discretion to fix their annual remuneration and todistribute it among the members of the Board as they see fit. Underthe same article Directors carrying out executive functions mayadditionally, with the authority of the General Meeting, participate in approved incentive schemes for senior executives of the Bank,consisting of compensation in the form of shares, options overshares or compensation linked to the value of shares.

In line with the foregoing provisions, Article 22 of the rules of procedure of the Board of Directors provides that Directors are entitled to remuneration as fixed by the Board of Directors in accordance with the Articles of Association and with anyrecommendations of the Nomination and Remuneration Committee.

Policy on remuneration of members of the Board of Directors of

Banco de Sabadell S.A.

—In general, Banco Sabadell sees compensation as a value-creating factor which can help to attract and retain the bestqualified people and should include a compensation package that is competitively structured and may in certain cases have a variable element linked to the attainment of specified targetsthat are quantifiable and aligned with shareholders' interests.

—The remuneration of the Directors has been fixed having regard to their time commitment, experience and responsibilities and to


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provide a suitable incentive, but so that the amount of suchremuneration does not in any way compromise theirindependence of action.

—Remuneration criteria have been validated by the Nomination andRemuneration Committee with guidance,where necessary, frominternal sources within the group and taking account ofcircumstances in the compensation market that could be regardedas comparable. Details of the members of the Nomination andRemuneration Committee and the Committee's duties andresponsibilities can be found in the Annual Report on CorporateGovernance.

—The remuneration of each Director was fixed by the Board ofDirectors on the basis of recommendations from the Nominationand Remuneration Committee in accordance with the rules andwithin the limits specified in Article 81 of the Articles ofAssociation.

—No expense allowances are paid to Directors for attendingmeetings.

—For Directors carrying out executive functions within the Company,some further considerations are applicable:

—Additional fixed and variable compensation is payable to themfor the specific post they occupy.

—The performance and achievement metrics used to determinefixed and variable compensation are the same as for seniorexecutives of the Company and are designed to produce anoverall package that is competitive with packages for similarpositions in comparable companies, and of which the variableelement is a significant part. Additional achievement-basedincentives may apply in exceptional cases.

—Variable compensation has been set on the basis of a numberof factors including, in particular, the performance of theexecutives concerned, rather than simply being determined on the basis of general market trends, movements in theCompany’s markets or similar variables.

—Executive Directors’ contracts have been drawn up havingregard to all standards and principles normally applicable torelations of this kind and their terms and conditions are in linewith generally accepted market practice.

—Compensation packages are supplemented by the BancoSabadell executive incentive scheme, detailed terms andconditions of which were approved by the Annual GeneralMeeting on 29 March 2007.

—Details of remuneration paid to individual Directors for theirservices under the Articles of Association, and also to ExecutiveDirectors, are set out in the relevant sections of the Notes to theAnnual Accounts for the year and the Report on CorporateGovernance. For the year 2009 the Board of Directors has agreedto take a reduction of 10% in the fees payable to them asmembers of the Board.

—Details of provisions to cover pension commitments to personsserving as Directors are given in the relevant sections of the Notesto the Annual Accounts and the Report on Corporate Governance.These provisions are in the form of insurance policies.

—Banco Sabadell undertook a self-evaluation exercise to satisfyitself that its general compensation policy was compliant with the principles and standards enunciated by the Financial Stability


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Board (FSB) and additional guidance from the Committee of European Banking Supervisors (CEBS). Some key issuesexamined in the self-evaluation were: (i) the procedure fordetermining the company's compensation policy; (ii) the degree towhich the compensation governance system is effectively andappropriately aligned with Banco Sabadell's goals and (iii) thefeatures of the compensation system including the criteria usedto measure performance and adjust risk, the link between rewardand performance, compensation deferral policy and consolidationcriteria.

The self-evaluation exercise was discussed by the Board ofDirectors which noted that it had been properly conducted atBanco Sabadell and urged the Bank's executive functions toimplement the improvements identified by the self-evaluation.

The compensation policy for 2010 will, in any event, becompliant with any regulation that is enacted as a result oflegislative proposals currently being considered in line with theprinciples referred to above.

This report on Directors' remuneration was signed by the members of the Nomination and Remuneration Committee on 18 February 2010.


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—Summary of the Annual Report on Corporate

Social Responsibility 2009

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CSR management at Banco Sabadell

Banco Sabadell has voluntarily integrated socially responsibleprinciples into its business strategy with the aim of generating valuesustainably in the economic, social and environmental domains. It has adopted a code of conduct, internal rules on stock markettrading and stakeholder policies setting out principles that define theway it manages its social responsibility. All of these codes of conductand other rules were approved by the Board of Directors in 2003 andare published on the group website.

To coordinate its actions and drive forward its policies in the areaof Corporate Social Responsibility, the Bank has set up aCompliance, CSR and Corporate Governance Department which co-ordinates social responsibility actions across the group. In addition,a separate CSR Committee has been set up by Banco Urquijo to takeresponsibility for CSR initiatives within that group subsidiary.

The Bank has channels of communication for each of itsstakeholder groups to help it understand their different perceptions,expectations and needs: customer and supplier satisfaction surveys,working atmosphere surveys, shareholder relations services, aninvestor relations department and even the answers given inresponse rating agency questionnaires.

Each year the Bank publishes a report on Corporate SocialResponsibility setting out the main highlights of the year and thedegree to which commitments have been met, and setting targets for the following year. This report follows the G3 guidelines of theGlobal Reporting Initiative and is verified by external auditors; onceagain, it was given the highest A+ rating. The Bank also publishes an annual progress report giving details of its achievements inrelation to each of the ten principles of the Global Compact, of whichit is a member.

Some of the year’s main events and achievements aresummarized below. Further details can be found in the full report on Corporate Social Responsibility which has been provided on a CD together with this Annual Report and is also available on thegroup website.

Shareholders

Banco Sabadell aims to repay the trust deposited in it by itsshareholders by giving them a competitive return on theirinvestment, a strong capital base and a balanced and transparentsystem of governance.

To facilitate access to information the Bank has a ShareholderRelations Desk and an Investor Relations Department and variousother channels of communication for sharing company informationwith its shareholders. The Bank provides shareholders with annualand quarterly reports, executive summaries, comparative data andquarterly presentations of trading results. All this information islikewise published on the group website.


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Furthermore, the Bank publishes an annual report on CorporateGovernance in line with the recommendations of the Unified Codeon Good Governance. In 2009 Banco Sabadell obtained a top ratingfrom the Fifth Observatory on Corporate Governance and ReportingTransparency in Companies Traded on the Spanish ElectronicMarket.

Responsible finance

Social Responsibility means respect for and strict compliance with legal and regulatory requirements in the carrying on of businessand in all commitments entered into on a voluntary basis. BancoSabadell takes the view that social responsibility should findexpression, first and foremost, in the business activity itself and thatthis requires it to identify, monitor and mitigate all risks arising fromits activities as well as the social and environmental impacts of theprojects it finances.

For this reason, the Bank has a Compliance Department which is responsible for encouraging and aiming for the highest levels of commitment to legal requirements and professional ethicsthroughout the group. Measures to prevent money laundering or to prevent and block the financing of terrorism and market abuse,internal codes of conduct and investor protection, for example, areof especial significance in this regard.

The Bank has robust and well-established control and detectionsystems for preventing money laundering and blocking the financingof terrorism. In the course of 2009 it tightened up its procedures formonitoring the systems designed to give the best possibleprotection to investors in the financial markets and successfullyintroduced new anti-market abuse procedures.

As part of its anti-corruption vigilance, in addition to its customeracceptance policies and anti-money laundering procedures, theBank has a code of conduct setting out action guidelines to preventcorrupt practices among employees, customers, suppliers andpartner organisations.

Responsible products

There was an increase in the number of agreements entered intowith central, regional and local government agencies to help findsolutions to the financing needs of individuals, sole proprietors,shopkeepers and companies.

The group offers a number of socially responsible investmentproducts: Urquijo Inversión Ética y Solidaria FI, an ethically investedmutual fund, Urquijo Cooperación SICAV, S.A., an ethical OEIC, Plande Pensiones Ético y Solidario, a socially responsible pension planand BS Ahorro Futuro, a savings life policy to save for a child’sfuture. In 2009, Urquijo Gestión reduced its management fees from 1.70% to 1.20% and held the proportion of its fees donated to socially beneficial projects at 0.60%. This initiative resulted in an increase in fund assets of almost 3 million euros.

The proportion of the mutual fund and OEIC management feesdonated in the year 2008 was paid in 2009 and resulted in acollection of €95,000. The money was allocated among ninesocially responsible projects run by the following organizations: Hijas de la Caridad de San Vicente Paul, Congregación Sagrados


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Corazones, Franciscanas de la Purísima Concepción, FundaciónPrivada Amics d’Emilie de Villeneuve, Nuevos Caminos, FundaciónPadre Garralda, Ayuda en Acción, Acción contra el Hambre and theFundación Codespa.

Customers

Banco Sabadell aims to build long-term relationships with itscustomers. To do this, it makes constant efforts to learn about and understand their needs and to ensure that all businessrelationships are for the mutual benefit of both parties.

Since 2005 the Banco Sabadell group has been certified to theISO 9001:2000 standard for 100% of its processes and for allactivities of the financial companies in the group within Spain, thusbecoming Spain’s first financial services company to obtain overallcertification. The certification was renewed in 2008; in 2009 it wasupgraded to ISO 9001:2008.

In 2009 Banco Sabadell developed the BS Móvil website whichlets customers perform all their most frequent banking transactionsfrom their mobile phones. It also launched a project to renovate itscash machines. In the course of developing these new channels thegroup has incorporated a number of security procedures such as, forexample, mobile phone alerts, a second access code entered on amobile phone, or the use of electronic signatures in e-mailmessages to customers.

The Bank guarantees the transparency and truthfulness of theinformation it gives its customers and has a code of ethics in itsAdvertising and Communication Style Guide which defines theethical principles to be used in all communication with customers. It also guarantees to comply with the rules governing the provisionof information on new products and how they are sold, as well as thenature and features of those products, and has drawn up a protocolon the approval of new products for this purpose.

Employees

The Banco Sabadell group seeks to attract,motivate and retain acompetent team of persons with a professional outlook and offerthem, through enlightened human resources policies, a compensationpackage that is appropriate and based on fair and competitiverewards, truthful and transparent communication, respect for thedignity of the person, and long-term cooperation. These principles areset out in the Bank’s Human Resources and Human Rights and Ethicspolicies.

In 2009 an ambitious project was set in train to update all policiesrelated to the management of human capital within the organization.This process was undertaken jointly with staff representatives from alllevels of the organization with a view to modernizing, harmonizing andprogressing a number of aspects in relation to personnelmanagement within the group.

A number of actions were also put in hand in response to the opportunities for improvement identified in the 2008 workingatmosphere survey.

In particular, a higher profile was given to function-based training,which enables employees to develop the skills they need for aparticular post, including new concept-based courses. In addition,a partnership agreement was also made with the University of


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Barcelona under which branch personnel are given the opportunity toattain academic qualifications on the completion of their in-servicetraining.

As a development of the group’s employee performance andpotential management system, the Bank established a globalperformance index which provides for a joint assessment betweengoal attainment levels and skill levels.

Finally, Banco Sabadell and its subsidiary Banco Urquijo startedtheir first volunteer programmes. Banco Urquijo, in partnership withJunior Achievement, launched a programme called “Our Community”.With the help of 27 volunteers, this programme benefited a total of235 children aged between 7 and 8 in four educational centres in theMadrid region. The aim of the programme is to give children thechance to experience some real aspects of the world of business,to help them to integrate into society and become more fully aware of the world around them.

In another development,Banco Sabadell reached a partnershipagreement with the “Ojos del Mundo” Foundation,which helps to treatsight disorders in poor countries, and after an internal selectionprocess open to all employees, a bank employee was selected toparticipate in one of the Ojos del Mundo surgical committees in the Sahara.

The Environment

In 2009 Banco Sabadell updated its environment policy. Theupdated version makes reference to the Bank’s commitment to theGlobal Compact and includes the promotion of training and raisingawareness of environmental issues among its employees as a keyaction area.

The Bank is at an advanced stage in systematizing itsenvironmental management. After an initial phase in which the ISO14001 standard was implemented in its central service buildings,the programme entered a second phase focused on the branchnetwork. In 2009 ISO 14001 certification was extended to theSerrano Building in Madrid, so that at the time of writing four of the group’s central service buildings have been certified and a pilotproject is under way to introduce selective waste disposal at 30branches in the province of Barcelona.

At the same time, the group’s commitment to continualimprovement results each year in a series of environmentalprogrammes on eco-efficiency and waste management.

To face the challenge of climate change, Banco Sabadell has set2009 as its base year for an inventory and external verification of itscorporate CO2 emissions, with a view to drawing up a strategy foroffsetting and minimizing emissions in the future.

During the year Banco Sabadell reached an agreement withSendeCO2, a company in which the group has a 10% share. Underthe agreement Banco Sabadell will act as a central counterparty intrading emission rights, this being the second experiment of thistype anywhere in the world. With regard to developing a sustainableenergy model, Banco Sabadell consolidated its position as a leadinginvestor in and provider of finance for projects based on renewableand non-contaminating energy sources.


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Suppliers

Banco Sabadell has a group-wide procurement system with its ownprocurement website or “Purchasing Portal”, as well as a team ofexperts who are responsible for receiving orders and sourcing all theorganization’s needs and for selecting the tender or offer that bestmeet its specifications.

Banco Sabadell’s relations with its suppliers are based on twokey principles identified in its Supplier Relations Policy:

—-A transparent contracting process which guarantees equalityof opportunity for suppliers, as set out in the Supplier Policyand the Bank’s internal rules.

—-Promoting ethical and corporate socially responsibleprinciples among suppliers, in line with its own code of conduct.

The year 2009 saw the introduction of a Supplier Code of Conduct which embraces all the main International LabourOrganization conventions. The new code of conduct will enable theBank to make its commitment to socially responsible practices feltmore widely outside the group.

Community-based and cultural activities

The group’s community-based and cultural programmes are carriedon through the Banco Sabadell Sponsorship Committee, the BancoSabadell Foundation, the Banco Herrero Foundation and the BancoUrquijo CSR Committee.

In the course of 2009 the Banco Sabadell Foundation enteredinto a partnership with the Association of Self-FinancedCommunities (Asociación de Comunidades Autofinanciadas). Thisnot-for-profit organization specializes in developing self-financingcommunities to help people on low incomes to access financial andnon-financial services. The Banco Sabadell Foundation once againawarded its Banco Sabadell Prize for Biomedical Research andparticipated in the “Art < 30” painting and photography competitionin Barcelona. The Banco Herrero prize was also awarded during the year.

In the sporting arena, Banco Sabadell-sponsored fundraisingevents included “solidarity aces” (a donation based on the numberof service aces) in the Banco Sabadell Open 57th Conde de Godótennis trophy, the BS Sports & Entertainment golf trophy for topplayers of other sports, and the “Golden Boot” prize for top-scoringfootballers.

Banco Urquijo chose the Theodora Foundation as the charity to receive money collected in the course of its Christmas campaignand reached a partnership agreement with the Junior AchievementFoundation to set up two in-house volunteer projects,“Our Community” and “Partners for One Day”.


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Directors’ statement of responsibility


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Auditors’ report


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Consolidated Annual Accounts of the Banco Sabadell group for the year 2009 - Contents

Note Title

Financial statements

Balance sheetIncome statementStatement of changes in equityCash flow statement

Notes to the Accounts

1 Principal business and accounting policies and practices2 Banco Sabadell group3 Proposed distribution of profits and basic earnings per share4 Loans and advances to credit institutions5 Debt securities6 Equity instruments7 Trading derivatives (assets and liabilities)8 Loans and advances to other debtors9 Financial asset transfers

10 Changes in the fair value of hedged items in portfolio hedges of interest rate risk11 Hedging derivatives (assets and liabilities)12 Non-current assets held for sale and liabilities associated with non-current assets held for sale13 Investments14 Tangible assets15 Intangible assets16 Other assets17 Deposits from credit institutions18 Deposits from other creditors19 Debt certificates including bonds20 Subordinated liabilities21 Other financial liabilities22 Liabilities under insurance contracts23 Provisions24 Fair value of financial assets and liabilities25 Foreign currency transactions26 Own funds27 Valuation adjustments28 Minority interests29 Contingent exposures30 Contingent commitments31 Off-balance sheet customer funds32 Income statement33 Taxation (income tax)34 Segmental information35 Financial risk management36 The environment37 Related party transactions38 Agents39 Customer Service Department40 Remuneration paid to directors and senior management group41 Directors' duty of loyalty42 Post-balance sheet events

Annex Banco Sabadell group undertakings

Report of the Directors


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Consolidated balance sheet of the Banco Sabadell groupAs at 31 December 2009 and 31 December 2008

€'000

Assets 2009 2008 (*)

Cash and deposits with central banks 1,820,157 2,357,573

Financial assets held for trading 1,140,441 1,296,991

Loans and advances to credit institutions 0 0 Loans and advances to other debtors 0 0 Debt securities (note 5) 91 2,894 Equity instruments (note 6) 19,917 7,640 Trading derivatives (note 7) 1,120,433 1,286,457 Memorandum item: Loaned or advanced as collateral 0 0

Other financial assets at fair value through profit or loss 182,166 161,733

Loans and advances to credit institutions 0 0 Loans and advances to other debtors 0 0 Debt securities 0 0 Equity instruments (note 6) 182,166 161,733 Memorandum item: Loaned or advanced as collateral 0 0

Available-for-sale financial assets 8,031,761 5,759,158

Debt securities (note 5) 6,934,750 5,138,548 Equity instruments (note 6) 1,097,011 620,610 Memorandum item: Loaned or advanced as collateral 4,291,570 3,382,442

Loans and receivables 65,777,852 65,629,692

Loans and advances to credit institutions (note 4) 2,544,962 2,623,491 Loans and advances to other debtors (note 8) 63,232,890 63,006,201 Debt securities 0 0 Memorandum item: Loaned or advanced as collateral 969,672 823,081

Held-to-maturity investments 0 0

Memorandum item: Loaned or advanced as collateral 0 0

Changes in the fair value of hedged items in portfolio hedges of interest rate risk (note 10) 0 0

Hedging derivatives (note 11) 668,081 500,768

Non-current assets held for sale (note 12) 71,546 21,111

Investments (note 13) 706,075 587,966

Associates 706,075 587,966 Jointly controlled entities 0 0

Insurance contracts linked to pensions (note 23) 209,484 228,019

Reinsurance assets 0 8

Tangible assets (note 14) 1,140,190 1,080,917

Property, plant and equipment 962,709 999,869 For own use 866,693 907,867 Leased out under operating leases 96,016 92,002

Investment property 177,481 81,048 Memorandum item: Acquired under finance leases 0 0

Intangible assets (note 15) 669,980 718,536

Goodwill 490,930 527,893 Other intangible assets 179,050 190,643

Tax assets 984,448 1,114,582

Current 303,859 235,527 Deferred (note 33) 680,589 879,055

Other assets (note 16) 1,420,705 921,011

Inventories 1,330,844 776,469 Other 89,861 144,542

Total assets 82,822,886 80,378,065

(*) Presented for comparative purposes only.


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€'000

Liabilities 2009 2008 (*)

Financial liabilities held for trading 1,118,743 1,242,257

Deposits from central banks 0 0 Deposits from credit institutions 0 0 Deposits from other creditors 0 0 Debt certificates including bonds 0 0 Trading derivatives (note 7) 1,118,743 1,239,651 Short positions 0 2,606 Other financial liabilities 0 0

Other financial liabilities at fair value through profit or loss 0 0

Deposits from central banks 0 0 Deposits from credit institutions 0 0 Deposits from other creditors 0 0 Debt certificates including bonds 0 0 Subordinated liabilities 0 0 Other financial liabilities 0 0

Financial liabilities at amortized cost 74,957,805 73,348,773

Deposits from central banks 1,064,909 3,926,578 Deposits from credit institutions (note 17) 8,512,365 4,795,465 Deposits from other creditors (note 18) 39,130,722 39,199,242 Debt certificates including bonds (note 19) 22,812,447 22,024,260 Subordinated liabilities (note 20) 2,039,698 2,093,687 Other financial liabilities (note 21) 1,397,664 1,309,541

Changes in the fair value of hedged items in portfolio hedges of interest rate risk (note 10) 452,290 219,952

Hedging derivatives (note 11) 108,989 230,419

Liabilities associated with non-current assets held for sale (note 12) 0 0

Liabilities under insurance contracts (note 22) 182,186 161,763

Provisions (note 23) 313,267 366,904

Provisions for pensions and similar obligations 189,583 202,972 Provisions for taxes and other regulatory contingencies 24,440 2,007 Provisions for contingent exposures and commitments 81,183 119,167 Other provisions 18,061 42,758

Tax liabilities 178,209 168,288

Current 75,423 40,766 Deferred (note 33) 102,786 127,522

Other liabilities 214,027 191,644

Total liabilities 77,525,516 75,930,000



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€'000

Equity 2009 2008 (*)

Own funds (note 26) 5,226,333 4,627,216

Capital 150,000 150,000 Authorized 150,000 150,000 Less: Uncalled capital 0 0

Share premium account 1,373,270 1,373,270 Reserves 2,986,777 2,646,697

Accumulated reserves (losses) 2,840,566 2,539,396 Reserves (losses) of entities accounted for by the equity method 146,211 107,301

Other equity instruments 500,000 0 Equity component of compound financial instruments 500,000 0 Other equity instruments 0 0

Less: Treasury shares (138,203) (22,665)Profit or loss for the year attributable to parent company 522,489 673,835 Less: Dividends and other remuneration (168,000) (193,921)

Valuation adjustments (note 27) 43,656 (193,214)

Available-for-sale financial assets 56,734 (133,451)Cash flow hedges (12,055) (32,991)Hedges of net investments in foreign operations 0 0 Exchange differences (2,154) 158 Non-current assets held for sale 0 0 Entities accounted for by the equity method 140 (26,930)Other valuation adjustments 991 0

Minority interests (note 28) 27,381 14,063

Valuation adjustments (3,781) (6,403)Other movements 31,162 20,466

Total equity 5,297,370 4,448,065

Total liabilities and equity 82,822,886 80,378,065

Memorandum item

Contingent exposures (note 29) 7,658,536 7,680,760

Contingent commitments (note 30) 17,019,738 18,880,975



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Consolidated income statement of the Banco Sabadell groupFor the years ended on 31 December 2009 and 2008

€'000

2009 2008 (*)

Interest and similar income (note 32.a) 3,166,233 4,404,539

Interest expense and similar charges (note 32.a) (1,565,586) (2,951,695)

Interest margin 1,600,647 1,452,844

Returns on equity instruments 14,598 7,163

Share of profit or loss of equity-accounted entities 71,913 63,623

Fee and commission income (note 32.b) 562,247 609,571

Fee and commission expense (note 32.b) (51,083) (51,830)

Gains or losses on financial assets and liabilities (net) (note 32.c) 248,150 67,873

Held for trading 39,241 43,142 Other financial instruments at fair value through profit or loss 0 0 Financial instruments not measured at fair value through profit or loss 199,303 32,042 Other 9,606 (7,311)

Exchange differences (net) 49,224 51,242

Other operating income (note 32.d) 124,180 314,759

Income from insurance and reinsurance contracts 59,913 228,349 Sales and income from non-financial services 17,028 25,084 Other operating income 47,239 61,326

Other operating expenses (note 32.e) (114,846) (288,399)

Expenses on insurance and reinsurance contracts (59,818) (228,242)Change in inventories (2,333) 34 Other operating expenses (52,695) (60,191)

Gross income 2,505,030 2,226,846

Administrative expenses (note 32.f) (1,036,823) (979,170)

Personnel expenses (715,323) (651,140)Other administrative expenses (321,500) (328,030)

Depreciation and amortization (142,730) (133,062)

Provisioning expense (net) 36,226 (7,682)

Impairment losses (net) (note 32.g) (644,556) (736,808)

Loans and receivables (225,521) (570,896)Other financial instruments not measured at fair value through profit or loss (note 6) (419,035) (165,912)

Operating profit or loss 717,147 370,124

(*) Presented for comparative purposes only


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Consolidated income statement of the Banco Sabadell groupFor the years ended on 31 December 2009 and 2008

€'000

2009 2008 (*)

Losses due to impairment of other assets (net) (219,698) (134,299)

Goodwill and other intangible assets (note 15) (43,641) (55,265)Other assets (note 16) (176,057) (79,034)

Gains (losses) on derecognition of assets not classified as non-current assets held for sale (note 32.h) 83,575 24,933

Negative goodwill arising in business combinations 0 0

Gains (losses) on non-current assets held for sale not classified as discontinued operations (9,678) (945)

Profit or loss before discontinued operations and taxes 571,346 259,813

Income tax (45,037) (12,323)

Profit or loss for the year before discontinued operations 526,309 247,490

Profit or loss from discontinued operations (net) (note 32.i) 0 428,366

Consolidated profit or loss for the period 526,309 675,856

Profit or loss attributable to the parent company 522,489 673,835

Profit or loss attributable to minority interests (note 28) 3,820 2,021

Basic earnings per share (€) 0.44 0.56Basic earnings per share allowing for effect of mandatorily convertible bonds (€) 0.41 0.56 Diluted earnings per share (€) 0.41 0.56



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Statement of changes in equityConsolidated statement of recognised income and expense for the Banco Sabadell GroupFor the years ended on 31 December 2009 and 2008

€'000

2009 2008 (*)


Other recognized income and expense 239,492 (280,049)

Available-for-sale financial assets: 275,444 (327,718)Revaluation gains (losses) 26,980 (425,701)Amounts transferred to income statement 248,464 90,170Other reclassifications 0 7,813

Cash flow hedges: 29,909 (41,638)Revaluation gains (losses) 29,909 (45,994)Amounts transferred to income statement 0 2,178 Amounts transferred to initial carrying amount of hedged items 0 0Other reclassifications 0 2,178

Hedges of net investments in foreign operations: 0 0Revaluation gains (losses) 0 0Amounts transferred to income statement 0 0Other reclassifications 0 0

Exchange differences: (3,310) 3,895 Revaluation gains (losses) (3,310) 3,895 Amounts transferred to income statement 0 0Other reclassifications 0 0

Non-current assets held for sale: 0 0Revaluation gains (losses) 0 0Amounts transferred to income statement 0 0Other reclassifications 0 0

Actuarial gains (losses) on pension schemes 0 0Entities accounted for by the equity method: 27,070 (24,227)

Revaluation gains (losses) 27,070 (17,232)Amounts transferred to income statement 0 0Other reclassifications 0 (6,995)

Other recognized income and expense 1,417 0Income tax (91,038) 109,639

Total recognized income and expense 765,801 395,807

Attributable to parent company 759,359 398,750

Attributable to minority interests 6,442 (2,943)

(*) Presented for comparative purposes only

The statement of changes in equity is made up of the consolidated statement of recognized income and expense together with the consolidated statement ofaggregate changes in equity for the Banco Sabadell group.


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Statement of changes in equityConsolidated statement of changes in total equity for the Banco Sabadell groupFor the years ended on 31 December 2009 and 2008

€'000

Equity attributable to parent company

Own funds

Reserves Profit or

Share Acumulated (losses) of Other Less: loss for the Less:

Capital premium reserves entities equity Treasury period Dividends Total own Valuation Minority Total

account (losses) accounted instru- shares attributable and funds adjustements Total interests equity

for by the ments to parent remuneration

equity method company

Closing balance at 31/12/2008 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065

Adjustments due to changes in accounting policy 0 0 0 0 0 0 0 0 0 0 0 0 0Adjustments to correct errors 0 0 0 0 0 0 0 0 0 0 0 0 0

Adjusted opening balance 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065

Total recognized income and expense 0 0 0 0 0 0 522,489 0 522,489 236,870 759,359 6,442 765,801

Other changes in equity 0 0 301,170 38,910 500,000 (115,538) (673,835) 25,921 76,628 0 76,628 6,876 83,504

Increases in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Reductions in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Conversion of financial liabilities to equity 0 0 0 0 0 0 0 0 0 0 0 Increases in other equity instruments equity 0 0 (6,949) 0 500,000 0 0 0 493,051 0 493,051 0 493,051 Reclassification of financial liabilities

to other equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Distribution of dividends/

other remuneration to shareholders 0 0 0 0 0 0 (337,921) 25,921 (312,000) 0 (312,000) 0 (312,000)Trading in own equity instruments (net) 0 0 11,416 0 0 (115,538) 0 0 (104,122) 0 (104,122) 0 (104,122)Transfers between equity items 0 0 297,004 38,910 0 0 (335,914) 0 0 0 0 0 0 Increases (Reductions) due to business combinations 0 0 0 0 0 0 0 0 0 0 0 0 0 Discretionary transfer to welfare projects and funds 0 0 0 0 0 0 0 0 0 0 0 0 0 Payments in equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other increases (reductions) in equity 0 0 (301) 0 0 0 0 0 (301) 0 (301) 6,876 6,575

Closing balance at 31/12/2009 150,000 1,373,270 2,840,566 146,211 500,000 (138,203) 522,489 (168,000) 5,226,333 43,656 5,269,989 27,381 5,297,370

Statement of changes in equityConsolidated statement of changes in total equity for the Banco Sabadell groupFor the years ended on 31 December 2008 and 2007

€'000

Equity attributable to parent company

Own funds

Reserves Profit or

Share Acumulated (losses) of Other Less: loss for the Less:

Capital premium reserves entities equity Treasury period Dividends Total own Valuation Minority Total

account (losses) accounted instru- shares attributable and funds adjustements Total interests equity

for by the ments to parent remuneration

equity method company

Closing balance at 31/12/2007 153,002 1,373,270 2,358,800 21,460 0 (29,320) 782,335 (158,164) 4,501,383 81,871 4,583,254 21,250 4,604,504

Adjustments due to changes in accounting policy 0 0 0 0 0 0 0 0 0 0 0 0 0Adjustments to correct errors 0 0 0 0 0 0 0 0 0 0 0 0 0

Adjusted opening balance 153,002 1,373,270 2,358,800 21,460 0 (29,320) 782,335 (158,164) 4,501,383 81,871 4,583,254 21,250 4,604,504

Total recognized income and expense 0 0 0 0 0 0 673,835 0 673,835 (275,085) 398,750 (2,943) 395,807

Other changes in equity (3,002) 0 180,596 85,841 0 6,655 (782,335) (35,757) (548,002) 0 (548,002) (4,244) (552,246)

Increases in capital 0 0 0 0 0 0 0 0 0 0 0 0 0 Reductions in capital (3,002) 0 (148,641) 0 0 151,643 0 0 0 0 0 0 0 Conversion of financial liabilities to equity 0 0 0 0 0 0 0 0 0 0 0 Increases in other equity instruments equity 0 0 0 0 0 0 0 0 0 0 0 0 0 Reclassification of financial liabilities

to other equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Distribution of dividends/

other remuneration to shareholders 0 0 0 0 0 0 (342,724) (35,757) (378,481) 0 (378,481) 0 (378,481)Trading in own equity instruments (net) 0 0 0 0 0 (144,988) 0 0 (144,988) 0 (144,988) 0 (144,988)Transfers between equity items 0 0 329,904 85,841 0 0 (439,611) 0 (23,866) 0 (23,866) 0 (23,866)Increases (Reductions) due to business combinations 0 0 0 0 0 0 0 0 0 0 0 0 0 Discretionary transfer to welfare projects and funds 0 0 0 0 0 0 0 0 0 0 0 0 0 Payments in equity instruments 0 0 0 0 0 0 0 0 0 0 0 0 0 Other increases (reductions) in equity 0 0 (667) 0 0 0 0 0 (667) 0 (667) (4,244) (4,911)

Closing balance at 31/12/2008 150,000 1,373,270 2,539,396 107,301 0 (22,665) 673,835 (193,921) 4,627,216 (193,214) 4,434,002 14,063 4,448,065

Presented for comparative purposes only.

The statement of changes in equity is made up of the consolidated statement of recognized income and expense together with the consolidated statement ofchanges in total equity for the Banco Sabadell group.


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Consolidated cash flow statement for the Banco Sabadell groupFor the years ended on 31 December 2009 and 2008

€'000

2009 2008 (*)

Cash flows from operating activities (496,267) 1,482,479


Adjustments to obtain cash flows from operating activities (57,852) (718,893)

Depreciation and amortization 142,730 133,062 Other adjustments (200,582) (851,955)

Net increase/decrease in operating assets 2,662,235 2,046,612

Financial assets held for trading (156,550) 1,026,332 Other financial assets at fair value through profit or loss 20,433 (257,653)Available-for-sale financial assets 2,082,418 338,566 Loans and receivables 148,160 (534,127)Other operating assets 567,774 1,473,494

Net increase/decrease in operating liabilities 1,689,463 3,859,149

Financial liabilities held for trading (123,514) 969,812 Other financial liabilities at fair value through profit or loss 0 0 Financial liabilities measured at amortized cost 1,663,021 6,032,695 Other operating liabilities 149,956 (3,143,358)

Paid/received in respect of income tax 8,048 (287,021)

Cash flows from investing activities (161,638) 318,913

Payments made 442,850 561,706

(-) Tangible assets 317,081 321,430 (-) Intangible assets 53,749 104,839 (-) Investments 72,020 135,437 (-) Subsidiaries and other business units 0 0 (-) Non-current assets and associated liabilities held for sale 0 0 (-) Held-to-maturity investments 0 0 (-) Other payments related to investment activities 0 0

Payments received 281,212 880,619

(+) Tangible assets 246,182 114,391 (+) Intangible assets 8,614 6,160(+) Investments 26,416 18,217 (+) Subsidiaries and other business units 0 741,851(+) Non-current assets and associated liabilities held for sale 0 0 (+) Held-to-maturity investments 0 0 (+) Other payments related to investment activities 0 0



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Consolidated cash flow statement for the Banco Sabadell groupFor the years ended on 31 December 2009 and 2008

€'000

2009 2008 (*)

Cash flows from financing activities 122,801 (673,480)

Payments made 1,201,989 1,223,090

(-) Dividends 312,000 378,481 (-) Subordinated liabilities 467,145 118,291 (-) Redemption of own equity instruments 0 0 (-) Acquisition of own equity instruments 422,844 694,598 (-) Other payments related to financing activities 0 31,720

Payments received 1,324,790 549,610

(+) Subordinated liabilities 500,000 0 (+) Issuance of own equity instruments 500,000 0 (+) Disposal of own equity instruments 307,306 549,610 (+) Other payments related to financing activities 17,484 0

Effects of changes in exchange rates (2,312) 8,898

Net increase/decrease in cash and cash equivalents (537,416) 1,136,810

Cash and cash equivalents at beginning of period 2,357,573 1,220,763

Cash and cash equivalents at end of period 1,820,157 2,357,573

Memorandum item

Components of cash and cash equivalents at end of period

(+) Cash and banks 223,687 256,215 (+) Cash equivalents at central banks 1,596,470 2,101,358 (+) Other financial assets 0 0 (-) Less: Bank overdrafts payable on demand 0 0

Total cash and cash equivalents at end of period

of which: held by consolidated entities but not available to group 0 0



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Notes to the consolidated annual accounts of the Banco Sabadell group

For the years ended on 31 December 2009 and 31 December 2008

Note 1. Principal business and accounting policies and practices

Principal business

The corporate object of Banco de Sabadell, S.A. whose registered office is at Plaza de Sant Roc, 20, Sabadell, Spain (alsoreferred to as "Banco Sabadell" or "the Bank") is to carry on business as a provider of banking services. As such, it issubject to the laws and regulations applicable to all banks operating in Spain.

The Bank is the parent company of a group of financial services undertakings (see the Annex) whose activities itcontrols directly or indirectly and which, together with the Bank, make up the Banco Sabadell group (the "group").

Basis of presentation

On 1 January 2005, under Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July, itbecame mandatory for companies to prepare their consolidated annual accounts in accordance with the InternationalFinancial Reporting Standards adopted by the European Union ("IFRS-EU") if, at their balance sheet date, their securitieswere admitted to trading on a regulated market in any Member State.

This was followed by the publication of the Bank of Spain's Circular 4/2004 – subsequently amended by Circular6/2008 – with the English title of “Credit Institutions - Public and Confidential Financial Reporting Rules and Formats”.The circular changed the accounting rules applicable to banks to bring them into line with IFRS-EU.

The consolidated annual accounts of the group for the year 2009 have been prepared in accordance with IFRS-EU togive a true and fair view of the consolidated equity and financial position of the group, the consolidated results of itsoperations, recognized income and expense, changes in consolidated equity and consolidated cash flows. Theseconsolidated annual accounts do not show any significant differences with respect to the accounts as they would havebeen if they had been prepared in accordance with Bank of Spain Circular 4/2004 of 22 December, as subsequentlyamended by Circular 6/2008 of 26 November. There is no obligatory accounting principle, standard or valuation policyhaving a material effect that has not been applied in preparing the accounts. A summary statement of the mostsignificant accounting principles, standards and valuation procedures that have been applied in these consolidatedannual accounts is provided in this note.

The information provided in these consolidated annual accounts is the responsibility of the directors of the parentcompany of the group. The consolidated annual accounts for the year 2009 were signed off by the directors of BancoSabadell at a meeting of the Board on 28 January 2010 and will be submitted to the Annual General Meeting for approval.It is expected that the Meeting will approve the accounts without significant changes.

Unless otherwise indicated, these consolidated annual accounts are expressed in thousands of euros and all figuresare rounded to the nearest thousand euros (€'000).


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Standards and interpretations issued by the International Accounting Standards Board (the "IASB") coming into

effect in 2009

The following amendments to the International Financial Reporting Standards ("IFRSs") and interpretations ("IFRICs")came into effect in the course of 2009. The adoption of these amended standards and interpretations across the grouphas had no material impact on these consolidated financial statements.

Standards and amendments to standards For mandatory adoption in 2009

Improvements to IFRSs First IFRS annual improvement project (May 2008)

IFRS 2 (revised) Share-based payments

IFRS 7 (amended) Improving disclosures about financial instruments

IFRS 8 Operating segments

IAS 1 (revised) Presentation of financial statements

IAS 23 (revised) Borrowing costs

IAS 27 and IFRS 1 (amended) Consolidated and separate financial statements; the cost of investments in subsidiaries,jointly-controlled enterprises or associates.

IAS 32 and IAS 1 (amended) Financial instruments: presentation. Presentation of financial statements: financial instruments puttable at fair value and obligations arising on liquidation

IFRIC 9 and IAS 39 (amended) Reassessment of embedded derivatives. Financial instruments: recognition and measurement

IFRIC 13 Customer loyalty programmes

IFRIC 16 Hedges of a net investment in a foreign operation.

IASB-issued standards and interpretations not yet in effect

The following standards and interpretations were published by the IASB at 31 December 2009 but were not yet in effect,either because their effective dates came after the date of the consolidated financial statements or because they had notyet been approved by the European Union.

The group carried out an assessment of the impacts this would have and decided not to exercise the option to adopt earlywhere this was feasible, in view of the non-materiality of the impacts.

Standards and amendments to standards Adoption mandatory as from

Improvements to IFRS (1) Second IFRS annual improvement project (April 2009) 2010

IFRS 1 (revised) (1) Additional exemptions for first-time adopters of IFRS 2010

IFRS 2 (amended) (1) Group cash-settled share-based payment transactions 2010

IFRS 3 (revised) Business combinations 2010

IFRS 5 (amended) Non-current assets held for sale and discontinued operations 2010

IFRS 9 (2) Financial instruments 2013

IAS 24 (revised) (1) Required disclosures about related parties 2011

IAS 27 (amended) Consolidated and separate financial statements 2010

IAS 32 (amended) Classification of rights issues 2010

IAS 39 (amended) Eligible hedged items 2010

IFRIC 12 Service Concession Arrangements: amendments to IFRS 1, IFRIC 14 and SIC 29 2010

IFRIC 17 Distribution of non-cash assets to owners 2010

IFRIC 18 Transfers of assets from customers 2010

IFRIC 14 (revised) (1) The limit on a defined benefit asset, minimum funding requirements and their interaction 2011

IFRIC 15 Agreements for the construction of real estate 2010

IFRIC 19 (1) Extinguishing financial liabilities with equity instruments 2011

(1) Standards and interpretations not adopted by the EU at 31 December 2009.

(2) Awaiting endorsement.


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Accounting principles and policies applied

The most significant principles, accounting standards and valuation policies that have been applied in preparing theseconsolidated annual accounts are as follows:

a) Consolidation principles

In the consolidation process three types of entity are distinguished: subsidiaries, jointly controlled entities andassociates.

Subsidiaries are entities over which the Bank is able to exercise control and which therefore constitute, together withthe Bank, a decision-making unit. The ability to exercise control is generally, but not exclusively, manifested through thedirect or indirect holding of an interest giving the holder more than 50% of the voting rights in the subsidiary. Controlmeans the power to determine the financial and operating policies of the subsidiary so as to profit from its activities, andmay be exercised even when a majority interest is not held.

The group therefore includes all subsidiary undertakings that constitute a decision-making unit together with the Bank.These undertakings have been consolidated by the full consolidation method. Interests held by third parties in groupshareholders' equity are shown in the balance sheet under minority interests and the share of the profit or loss for theyear attributable to these shareholders is shown in the income statement under profit or loss attributable to minorityinterests.

Profits or losses generated by entities acquired by the group during the year are consolidated solely on the basis of theprofits or losses generated in the period between the date of acquisition and the end of the year. Similarly, profits orlosses generated by entities disposed of by the group during the year are consolidated solely on the basis of the profits orlosses generated in the period between the beginning of the year and the date of disposal.

Jointly controlled entities are those which are controlled jointly by the group and one or more other entities not relatedto the group. Entities of this kind undertake operations and maintain assets in such a way that any strategic decision of afinancial or operational nature concerning the entity requires the unanimous consent of all interest holders. Jointlycontrolled entities have been consolidated by the proportional consolidation method.

Associates are entities over which the group is able to exercise a significant influence which is generally, but notexclusively, manifested through a direct or indirect interest that gives the group 20% or more of the voting rights. In theconsolidated accounts associates are accounted for by the equity method, that is, according to the fraction of the equityrepresented by the group's shareholding, after taking account of any dividends received from the associate and othereliminations.

In the consolidation process all significant balances and transactions between group undertakings have beeneliminated in such proportion as may be appropriate, depending on the consolidation method being applied.

Details of the most significant acquisitions and disposals made by the group during the year are provided in note 2.

b) Accrual principle

These annual accounts (with the exception of certain items of the consolidated cash flow statements) have beenprepared on the basis of actual movements of goods and services, regardless of the date on which payment was made orreceived.

c) Use of judgements and estimates in preparing the financial statements

The preparation of the consolidated annual accounts requires that certain estimates be made. It also requires theexercise of judgement by senior managers in applying the group's accounting policies. Such estimates may affect thecarrying value of assets and liabilities and the classification of contingent assets and liabilities at the date of the annualaccounts, as well as income and expenditure items in the period covered by the accounts. Key estimates relate to thefollowing:

- Impairment losses on certain financial assets (notes 1(e), 4, 5, 6, 8 and 12).- Assumptions used in actuarial estimates of liabilities and commitments in respect of post-employment benefits, and in

estimates of liabilities under insurance contracts (notes 1(q), 1(s), 22 and 23).- The useful lives of tangible and intangible assets (notes 1(j), 1(m), 14 and 15).- The valuation of goodwill on consolidation (notes 1(m) and 15).- The fair values of financial assets for which market prices are not available (notes 1(d), 5 and 6).

Although estimates are based on the best information available to senior managers on present and foreseeablecircumstances, final results may be at variance with these estimates.


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d) Valuation and recording of financial instruments

As a general rule, regular way sales and purchases of financial assets are recognized in the balance sheet usingsettlement date accounting.

Financial instruments are divided into the following categories according to the valuation method that isapplied to them:

• Held for tradingFinancial assets/liabilities are classified as held for trading if they have been acquired or issued to be sold orrepurchased in the near term, or form part of a portfolio of financial instruments that are managed together and in whichthere has been recent action for short-term profit taking, or are instruments that do not fit the definition of a financialguarantee contract and have not been designated as hedging instruments for accounting purposes.

Financial instruments of this type are recorded at fair value. The fair value of a financial asset on a given date isdefined as the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm's lengthtransaction. The best evidence of fair value of an asset is the price being quoted for the asset on an actively tradedmarket where the market is organized, transparent and of reasonable depth.

Where there is no market price for a particular financial asset, the fair value can be estimated from the valuesestablished for similar assets in recent transactions or, failing that, by using suitably tested valuation models. Anypeculiarities specific to the financial asset being valued are also taken into account, particularly the different types of risk that may be associated with it. However, the limitations inherent in the valuation models that have beendeveloped and possible inaccuracies in the assumptions required by these models may result in the estimated fair value of a financial asset not precisely matching the price at which the asset could be bought or sold as of thevaluation date.

Changes in fair value are taken directly to profit or loss. For non-derivative instruments, the share of the gain or lossattributable to the returns accruing on the instrument is treated differently from the other gains or losses, with theformer being recorded as interest or dividends as appropriate, and the latter as gains or losses on financial assets and liabilities.

• Other financial assets and liabilities at fair value through profit or loss.This category includes financial instruments which on original recognition are designated as hybrid financial instrumentsand are measured entirely on a fair value basis. It also includes financial assets which are managed together withliabilities under insurance contracts measured at fair value or with financial derivatives which have the purpose and effectof significantly reducing exposure to changes in fair value, or which are managed in combination with financial liabilitiesand derivatives for the purpose of significantly reducing overall exposure to interest rate risk. These are valued andrecorded in the same way as for financial assets/liabilities held for trading. The category does not include equityinstruments whose fair value cannot be reliably estimated.

• Available-for-sale financial assetsThis category includes debt securities and equity instruments that are not designated as held-to-maturity investments orfinancial assets at fair value through profit or loss, loans and receivables, or financial assets/liabilities held for trading orof entities that are not subsidiaries or associates of, or jointly controlled by, the group.

Available-for-sale financial assets are measured at their fair value. Changes in value are temporarily recorded, net oftax, under valuation adjustments in consolidated equity, unless they are due to exchange differences arising onmonetary financial assets. Amounts recorded as valuation adjustments continue to be included in consolidated equityuntil the asset from which they have originated is derecognized on the balance sheet, when they are charged or creditedto profit or loss.

• Loans and receivablesLoans and receivables are financial assets not traded on an active market or required to be designated as at fair value,the cash flows on which are of a fixed or determinable amount and whose cost to the group will be recovered in full,except for reasons related to borrower solvency. This category comprises investments associated with normal banklending and includes amounts loaned to customers and not yet repaid; deposits placed with other financial institutions,regardless of the legal arrangements under which the funds were provided; unquoted debt securities; and any debtincurred by the purchasers of goods or services forming part of the group's business.

Loans and receivables are recorded at their amortized cost, where "amortized cost" means the acquisition cost of afinancial asset less any repayments of principal and the cumulative amortization (as shown in the income statementusing the effective interest rate method) of any difference between the initial cost and the repayment amount at maturity


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less any reduction in value due to impairment, whether recognized directly as a write-down of the asset or through aprovisioning account. Where loans and receivables are covered by fair value hedges, any change in their fair value isrecorded provided that the change is associated with the risk or risks covered by the hedge.

The effective interest rate is the discount rate that exactly equates the value of a financial instrument to the estimatedcash flows over the remaining life of the instrument, based on the contract terms of the instrument including any earlyrepayment option, but disregarding future losses due to credit risk. For a fixed-rate instrument the effective interest rate isthe same as the contract interest rate agreed at the time the instrument was acquired plus any fees or commissions thatqualify for treatment as interest. In the case of a variable-rate instrument the effective interest rate is the same as the rateof return in respect of interest and fees on the instrument, until the first date on which the base rate is due to be reviewed.

Interest is determined by the effective interest rate method and recorded in the income statement under interest andsimilar income.

• Financial liabilities at amortized costThis category comprises those financial liabilities that cannot be classified under any other balance sheet heading andare associated with the normal deposit-taking activity of a financial institution, regardless of the term and otherarrangements under which the deposit is set up.

Also included in this category is capital having the nature of a financial liability. This reflects the value of financialinstruments issued by the group which, although treated as capital for legal purposes, do not qualify for classification asequity. These instruments consist mainly of issued shares that do not carry voting rights and on which a dividend is paidbased on a fixed or variable rate of interest.

For financial instruments the fair value measurements disclosed in the financial statements are classified according tothe following fair value hierarchy: - Level I: Fair values are obtained from the (unadjusted) prices quoted on active markets for the same instrument.- Level II: Fair values are obtained from the prices being quoted on active markets for similar instruments, the prices of

recent transactions, expected flows or other valuation techniques for which all significant inputs are based on directlyor indirectly observable market data.

- Level III: Fair values are obtained by valuation techniques for which some significant inputs are not based onobservable market data.

e) Impairment of financial assets

In general, adjustments to the carrying value of financial assets are recognized in the income statement where there isobjective evidence that an impairment loss has occurred. In the case of debt instruments, that is, loans and debtsecurities, an impairment loss is considered to have occurred when, after initial recognition of the instrument, a singleevent or a combination of events causes a negative impact on its future cash flows. In the case of equity instruments, animpairment loss is deemed to have occurred when, after initial recognition, a single event or a combination of eventsmakes it likely that the carrying value of the instrument will not be recovered.

• Financial assets carried at amortized costPortfolios of debt instruments, contingent exposures and contingent commitments, regardless of the obligor, thecontractual arrangements or the security/collateral, are analysed to determine the credit risk to which the group isexposed and to estimate the impairment provision required. In preparing the consolidated financial statements the groupclassifies its lending transactions on the basis of credit risk, with customer insolvency risk being analysed separately fromany country risk to which transactions may be exposed.

Objective evidence of impairment is determined individually for all debt instruments that are individually significant, andindividually or collectively for groups of debt instruments that are not individually significant. When an instrument cannotbe included in any group of assets with similar credit risk features, it is analysed solely on an individual basis to determinewhether it is impaired and, if so, to estimate the impairment loss.

Instruments are classified into the following categories, on the basis of the insolvency risk attributable to the customeror to the transaction: standard, sub-standard, doubtful due to customer arrears, doubtful for reasons other than customerarrears, and write-off. For debt instruments not classified as standard risks, the required specific provisions forimpairment are estimated having regard to the age of past-due accounts, the collateral or other security provided and thefinancial situation of the customer and any guarantors. These estimates are made on the basis of default schedulesdrawn up by the Bank of Spain from its knowledge and experience of the Spanish banking industry.

For doubtful assets involving customers who have provided effective security based on real estate, suitable provisionsare made after deducting 70% of the assessed value of the property from the amount of the loan. For this purpose theonly security considered as effective is mortgages on completed residential, office or general-use commercial premisesand rural properties.


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Similar estimates are also made to determine the credit risk on these instruments that is attributable to country risk.Country risk means the risk associated with customers resident in a specific country that arises from circumstancesother than normal commercial risk.

The period of arrears on an instrument does not cease to run when the instrument is extended or renegotiated. Wherean instrument has been classified as a doubtful risk before extension or renegotiation, it will not be reclassified asstandard or sub-standard unless there is reasonable certainty that the customer can make payment on schedule, oradditional good security is provided and, in either case, unless the overdue ordinary interest, at least, is paid (apart fromany interest for late payment).

In addition to these specific provisions, the group makes provision for latent losses in debt instruments classified asstandard risks by providing for impairment loss on a collective basis. The collective provision is made from historicalimpairment experience and other circumstances known at the time of the risk assessment, and covers latent lossesincurred at the balance sheet date, calculated using statistical procedures, but not identified with specific transactions.

Since the group's own historical and statistical data are not sufficient for this purpose, when making these provisions itrelies on parameters set by the Bank of Spain. This method of determining provisions for latent loss due to impairment ofdebt instruments involves the use of percentages which vary according to how debt instruments classified as standardrisk are assessed. The sub-categories into which standard risk instruments are classified are: negligible risk, low risk,medium-low risk, medium risk, medium-high risk and high risk.

Transactions classified as sub-standard are analysed to determine the provision coverage required. This will ofnecessity be greater than the generic provision that would apply if the risk was classified as standard. Furthermore, netimpairment charges made in the period in which a transaction is classified as sub-standard will be greater than thecharges that would have been made if the transaction had continued to be classified as a standard risk.

Interest recorded at contractual rates ceases to be recognized in the income statement for all debt instruments thathave been individually classified as impaired or for which impairment losses have been collectively calculated as a resultof there being accounts more than three months in arrears.

• Available-for-sale financial assetsImpairment losses on debt securities and equity instruments classified as available-for-sale financial assets are equal tothe positive difference between their acquisition cost net of any repayment of principal, and their fair value less anyimpairment loss previously recognized in the consolidated income statement.

Where there is objective evidence that a diminution in the fair value of an asset is due to impairment, the unrealizedlosses recognized directly in equity as valuation adjustments are recorded immediately in the income statement. If all orpart of the impairment losses are subsequently recovered, the amount is recognized, in the case of debt securities, in theincome statement for the period in which the recovery occurs; in the case of equity instruments, the recovery isrecognized in equity as a valuation adjustment.

In reaching a conclusion on whether there is objective evidence of impairment in debt instruments, whether quoted orunquoted, the group considers any potential loss events that have occurred. In particular, it analyses any significantfinancial difficulty being faced by the issuer or obligor; any breaches of contract terms, such as a default or delinquency ininterest or principal payments; whether the holder of the debt instrument, for economic or legal reasons relating to theborrower's financial difficulty, grants to the borrower a concession that the holder would not otherwise consider; anyincreased probability that the borrower will enter bankruptcy or other financial reorganisation; or the disappearance of anactive market for the financial asset in question as a result of financial difficulties and a downgrading of its credit ratingthat would be indicative of impairment when considered in conjunction with other available information.

In the case of quoted instruments, the group will consider whether a prolonged or significant fall in the fair value of the investment below its cost is objective evidence of impairment. In estimating valuation adjustments in equity,the valuation is generally taken as the quoted price. When determining whether there is objective evidence that a fall

in the quoted price is due to impairment, where there are manifestly exceptional circumstances in the markets on which prices are set, the effects of wider market movements on the quoted price are analysed separately from thosemovements that reflect factors specific to the issuer of the instrument under consideration. Where there are noexceptional market circumstances and falls have been occurring in the quoted price of the instrument, an assessmentis made of whether the period for which the quoted price has remained below the carrying value of the instrument by a significant percentage should be considered as objective evidence of impairment. If there is no principle that ismore specifically applicable, the practice is to take a standard reference period and percentage (18 months and 40%).An analysis is also made, even where no exceptional market circumstances are present, of whether there are objectivereasons to consider that the quoted price of the instrument does not reflect its fair value and is therefore not a validquantity from which to assess any potential impairment. Such objective reasons may be related to a free float that is very limited, prolonged speculative activity on the share value and other circumstances, any of which may distort the price of the instrument.


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Where exceptional market circumstances are present, market factors that will be analysed separately include whetherthere have been widespread changes in risk aversion or in the valuation methods used by analysts and investors; whetherthere have been major changes in the multipliers implicit in asset prices; or whether cross-impacts are occurring betweenbond and equity markets and affecting quoted market prices. If such circumstances are present an attempt is made togauge the extent to which the instrument is responding differently with respect to its sector or to the market as a whole.To do this a discounted cash flow analysis is used based on known data of the issuer of the instrument and anassessment is made of how the issuer's future profitability will be affected by the new development. This analysis iscarried out as soon as the exceptional circumstances are detected, rather than waiting for any set standard period. If, inaddition, there is structural impairment already on the balance sheet, whether apparent or latent, a full adjustment for thisis made to the value resulting from the analysis described above.

Another method used to value this type of instrument, where there are exceptional market conditions of the kindreferred to above, is based on the use of directly observable market variables and/or data such as a published netasset value.

• Other equity instrumentsImpairment losses on equity instruments carried at acquisition cost are accounted for as the difference between thecarrying amount and the present value of the expected future cash flows discounted at the market rate of return forsimilar securities. These impairment losses are recognized in the income statement for the period in which they occur,as a direct write-down in the value of the instrument; this cannot be subsequently reversed other than through the saleof the asset.

For unquoted instruments the analysis undertaken to reach a conclusion on the need to adjust for impairment is basedon the use of comparable data and sector multiples for similar issuers operating in the market.

In the case of investments in jointly controlled entities and associates, the group estimates impairment loss bycomparing the amount recoverable with the carrying value of the investments. Impairment losses are recognized in theincome statement for the period in which they occur; subsequent reversals of previously recognized impairment lossesare recognized in the income statement for the period in which recovery takes place.

f) Transfer and derecognition of financial instruments

Financial assets are only derecognized on the balance sheet when the cash flows generated by the assets have ceasedor when substantially all of their risks and rewards have been transferred. Similarly, financial liabilities are derecognizedonly when the obligations generated by the liabilities have expired or are acquired for settlement or resale.

Details of asset transfers that were in effect at the close of the years 2009 and 2008, including those that did notresult in assets being derecognized from the balance sheet, are given in note 9.

g) Derivatives

Derivatives are instruments which, in addition to providing a gain or a loss, may under certain conditions offset all or partof the credit and/or market risk associated with balances or transactions. The underlyings used in derivatives may beinterest rates, specified indices, the prices of specified securities, cross-currency exchange rates or other similarbenchmarks. The group uses derivatives traded on organized markets or traded bilaterally with counterparties on the over-the-counter (OTC) market.

Derivatives may be used as part of the service to customers when they so require, or to manage risks associated withthe group's own exposures (hedging derivatives), or to realize gains as a result of price movements. Financial derivativesthat do not qualify for designation as hedging instruments are classified as trading derivatives. To be designated as ahedging instrument, a financial derivative must satisfy the following conditions:

- It must cover exposure to changes in the values of assets and liabilities caused by interest rate and/or exchange ratemovements (fair value hedge); exposure to changes in the estimated cash flows from financial assets and liabilitiesand from commitments and transactions forecast as highly probable (cash flow hedge); or the exposure associatedwith net investments in foreign operations (hedge of the net investment in a foreign operation).

- It must effectively eliminate a risk that is inherent in the hedged item or position over the expected term of the hedge.This means that the derivative must be effective both prospectively, at the date on which it is entered into under normalcircumstances, and retrospectively, based on reasonable evidence that the hedge will remain effective throughout thelife of the item or position to be hedged.

- Suitable documentation must be available to show that the financial derivative has been entered into specifically toprovide a hedge for certain balances or transactions and to show how effective coverage is to be achieved andassessed (such assessment necessarily being consistent with the group's management of its own exposures).


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The effectiveness of the coverage provided by derivatives designated as hedging instruments is documented byeffectiveness testing. This is used to verify that divergences due to changes in the fair value of the hedged item and thehedging instrument remain within reasonable limits over the life of the transaction and that the intended effect of thederivative contract at inception has been fulfilled. If at any time this condition is not met, all associated transactions in thehedging group are reclassified as held-for-trading and recognized accordingly in the balance sheet.

A micro-hedge is considered to be highly effective if, at inception of the hedge and during its life, it is anticipatedprospectively that any changes in the fair value or cash flows of the hedged item that are attributable to the hedged riskare almost entirely offset by changes in the fair value or cash flows of the hedging instrument. The micro-hedge is deemedretrospectively to have been highly effective if the gains or losses on the hedging instrument are within a range of 80% to125% of the gains or losses on the hedged item.

In the case of a portfolio hedge or macro-hedge, effectiveness is assessed by comparing the overall net amount ofassets and liabilities in each time period with the hedged amount designated for each one of them. The hedge will only beineffective where it is found, on examination, that the net amount of assets and liabilities is less than the hedged amount,in which case the ineffective portion must be recognized immediately in the income statement.

Hedges may be associated with individual items or balances (micro-hedges) or with portfolios of financial assets andliabilities (macro-hedges). In the latter case, all financial assets and liabilities being collectively hedged will involve thesame types of risk; this requirement is considered to be satisfied when the interest rate sensitivities of the individualhedged items are similar.

Derivatives embedded in other financial instruments or other primary contracts are recorded separately as derivativeswhere the risk and other characteristics of the derivative are not closely related to those of the primary contract and the primary contract is not classified as held for trading or as other financial assets or liabilities at fair value through profitor loss.

• ValuationThe fair value of a financial derivative quoted on an active market is determined from the daily market price.

In the case of instruments for which quoted prices cannot be determined, prices are estimated using internal modelsdeveloped by the Bank, the majority of which take data based on observable market parameters as significant inputs.Otherwise, the models make use of other inputs which rely on internal assumptions based on generally accepted practicewithin the financial services community.

The main techniques being used by the group's internal models at the end of 2009 to determine the fair values offinancial instruments are listed below:

• To measure the values of financial instruments of the swap, cross-currency interest rate swap and call money swaptypes, the discounted cash flow method is used. The expected future cash flows are discounted using the interestrate curves for the relevant currencies. Interest rate curves are observable market data.

• To measure financial instruments of the structured equity, index or exchange rate option types the Black-Scholesmodel is normally used, although the binomial tree model may also be applied in certain cases. The group makesuse of observable market inputs to access such factors as exchange rates and interest rate curves, and also non-observable inputs such as volatility and inter-asset correlation data.

• For the valuation of interest rate derivative instruments such as caps and floors, the Black-Scholes model (plainvanilla options) is used; for more highly structured instruments the Hull-White model is preferred. The main inputsused by these models are generally observable market data, including the associated interest rate curves,volatilities and exchange rates.

Valuation models do not embody significant degrees of subjectivity, given that the above methodologies can beadjusted and calibrated, where applicable, by internal fair value calculations and subsequent comparison with activelytraded prices.


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• Accounting for micro-hedgesFor financial instruments designated as hedged items or as hedging instruments, gains or losses in value are accountedfor according to the following criteria:

• For fair value hedges any gains or losses, whether in the hedging instrument or the hedged item, to the extent thatthey relate to the type of risk being hedged, are recognized directly in the income statement.

• Gains or losses in value on the ineffective portion of cash flow hedging instruments are recognized directly in theincome statement.

• In cash flow hedging, valuation differences in the effective portion of hedging instruments are temporarily recordedin equity under valuation adjustments. Gains or losses in value are not recognized in profit or loss until the gains orlosses of the hedged item have been taken to the income statement or until the hedged item reaches maturity.

• Hedges of net investments in foreign operations are accounted for as follows:1. Any gain or loss attributable to that part of the hedging instrument that qualifies as an effective hedge is

recognized directly in a valuation adjustment account in equity via the statement of changes in equity. Any otherportion of the gain or loss on the instrument is taken immediately to the income statement.

2. Gains or losses on hedging instruments recognized directly in the valuation adjustment account in equity remainin the account until the instruments are sold or otherwise removed from the balance sheet, at which time they aretaken to profit or loss.

• Accounting for macro-hedgesFair value macro-hedges of interest rate risk that are highly effective are accounted for as follows:

a) Hedging instruments: gains or losses that arise from measuring derivatives at fair value are recognised immediatelyin the income statement.

b) Hedged amount: gains or losses arising from changes in the fair value of the hedged amount that are attributable tothe hedged risk are recognised directly in the income statement with a balancing entry in “changes in the fair valueof hedged items in portfolio hedges of interest rate risk” if the hedged amount relates to financial assets orfinancial liabilities.

In the case of portfolio cash flow hedges, a change in the value of the hedging instrument is recognised temporarily in avaluation adjustment account in equity until the period in which the expected transactions occur, when it is recognized inthe income statement.

h) Non-current assets held for sale and liabilities associated with non-current assets held for sale

The "non-current assets held for sale" heading of the balance sheet comprises the carrying values of assets -- statedindividually or combined in a disposal group, or as part of a business unit that the group intends to sell (discontinuedoperations) -- which will very probably be disposed of in their current state within one year of the date of the consolidatedannual accounts. Investments in jointly controlled entities or associates that meet these criteria also qualify as non-current assets held for sale.

It can therefore be assumed that the carrying value of an asset of this kind, which may be of a financial or non-financialnature, will be recovered through the disposal of the item concerned rather than from its continued use.

Real estate or other non-current assets received by the group in full or part settlement of borrowers' paymentobligations to the group are treated as non-current assets held for sale, unless the group has decided to make use of theassets on a continuous basis.


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The "liabilities associated with non-current assets held for sale" caption includes amounts payable that are associatedwith disposal groups or discontinued operations.

Assets classified as non-current assets held for sale are generally valued at the lesser of their carrying value at thetime they are so classified and their fair value net of their estimated costs to sell. Tangible and intangible assets thatwould otherwise be subject to depreciation and amortization are not depreciated or amortized while they remain in thecategory of non-current assets held for sale.

If the carrying value of an asset exceeds the fair value net of its estimated costs to sell, the group adjusts the carryingvalue of the asset by the amount of such excess, with a corresponding adjustment being made to gains (losses) on non-current assets held for sale in the consolidated income statement. In the event of one or more subsequent increases inthe fair value of the asset any previously recorded losses will be reversed and the carrying value will be increased, subjectto its not exceeding the carrying value prior to the loss, and a corresponding adjustment made to gains (losses) on non-current assets held for sale in the consolidated income statement.

i) Discontinued operations

Gains or losses arising in the year on group operations classified as discontinued operations are recognized net of taxunder profit or loss on discontinued operations (net) in the consolidated income statement, whether the operation hasbeen derecognized or remains on the balance sheet at the end of the year.

A discontinued operation or activity is a component of the group that has been sold or otherwise disposed of or isclassified as a non-current asset held for sale and, in addition, meets any of the following conditions:

1. It represents a separate major line of business or geographical area of operations.2. It is part of a single coordinated plan to sell or otherwise dispose of a separate major line of business or

geographical area of operations.3. It is a subsidiary acquired exclusively with a view to resale.

A component of an entity is defined as operations and cash flows, such as a subsidiary, business segment orgeographical area of operations, that can be clearly distinguished, operationally and for financial reporting purposes, fromthe rest of the entity.

j) Tangible assets

Tangible assets comprise property, plant and equipment considered likely to be in continuous use by the group, the netvalues of land, buildings and other structures held to be leased out or for the realization of capital gains on disposal, andassets to be leased to customers under operating leases. These assets are valued at cost less accumulateddepreciation and less any impairment loss identified from a comparison of the net value of each item with its recoverableamount.

In the case of repossessed assets classified under tangible assets, the acquisition cost is the net value of thefinancial assets given in exchange for the repossession, having regard to any value adjustments associated with thosefinancial assets.

Tangible assets are depreciated systematically by the straight-line method over their estimated useful lives, taking thedepreciable amount as the acquisition cost of each item less its residual value. Land on which buildings and otherstructures have been erected is treated as having an unlimited life and is not depreciated. Annual depreciation chargeson tangible assets are taken to the income statement and are calculated on the basis of the following average estimateduseful lives:

Useful life in years

Land and buildings 20 - 50Fixtures and fittings 4.2 - 12.5Office furniture and equipment 3.3 - 10Vehicles 3.1 - 6.25Cash dispensers, computers and computer equipment 2.3 - 4

At the close of each accounting period the group carries out a review to determine whether there are internal orexternal indications that the net value of any asset item exceeds its recoverable amount. If the net value of an asset isfound to be in excess of its recoverable amount, the group writes down the asset to its recoverable amount, that is, thegreater of its fair value (based on valuations of independent third parties) and its value in use, and adjusts futuredepreciation charges in proportion to its restated carrying value and, if required, its adjusted estimated useful life. Wherethere are indications that the value of an asset has been recovered, the group records the reversal of the impairment loss


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recognized in previous periods and adjusts future depreciation charges accordingly. The reversal of an impairment loss onan asset will in no circumstances result in an increase in its carrying value above the value that the asset would have hadif impairment losses in previous periods had not been recognized.

No less frequently than at the end of each reporting year, the group carries out a review of the estimated useful lives ofall tangible assets for its own use to determine whether there have been any material changes in their estimated usefullives. If material changes are identified, an adjustment is made by correcting the depreciation charge for the asset in theincome statement on the basis of the adjusted estimated useful life.

Maintenance and repair costs for own-use tangible assets are recorded in the income statement for the year in whichthey are incurred.

Tangible assets classified as investment property are composed of the net values of land, buildings and otherstructures held by the group to be leased out or for the realization of capital gains on disposal as a result of futureincreases in market prices. Any impairment in the value of property is calculated on the basis of valuations byindependent professional valuers as required by Ministerial Order ECO/805/2003.

The criteria used by the group in stating the acquisition costs of assets leased out under operating leases, forpurposes of depreciation, useful life estimation and impairment loss recognition are the same as for tangible assets forthe group's own use.

k) Leases

Leasing contracts are presented on the basis of the economic substance of the lease regardless of its legal form and areclassified from inception as finance or operating leases.

• Finance leasesA lease is treated as a finance lease if substantially all of the risks and rewards of ownership of the asset are transferred.

Where the group is the lessor of an asset, the sum of the present values of payments receivable from the lessee plusthe guaranteed residual value - normally the price of the purchase option exercisable by the lessee at the end of the lease- is recorded as financing provided to a third party and is therefore included in the balance sheet under loans andreceivables according to the type of lessee.

Where the Group is the lessee of the asset, the cost of the leased asset is recorded in the balance sheet accordingto the nature of the asset and simultaneously as a liability for the same amount. This liability is the lesser of the fairvalue of the leased asset and the sum of the present values of payments to the lessor plus the exercise price of thepurchase option, if applicable. The asset is depreciated using procedures similar to those applicable to property for thegroup's own use.

Finance income and expense arising from leasing agreements are credited or charged to the income statement so thatthe return remains constant throughout the term of the lease.

• Operating leasesLeases other than finance leases are classified as operating leases.

When the group is the lessor of the asset, the acquisition cost of the leased item is recorded in tangible assets.Leased assets are depreciated by the same procedure as for own-use property of a similar type and the payments on theleases are recognized in the income statement on a straight-line basis.

Where the group is the lessee of the asset the costs of the lease, including any incentives offered by the lessor, arerecorded in the income statement on a straight-line basis.

Where an asset is subject to a sale at fair value and leaseback under an operating lease, any profit or loss is recordedat the time of the sale.

For a transaction to be treated as a sale and leaseback of assets under an operating lease the following conditionsmust be met:

- The asset must have been sold and all risks and rewards associated with the asset transferred to the purchaser.- The purchaser (lessor) cannot unilaterally transfer the leased asset to the vendor (lessee).- The lessee has no option to repurchase at below market value and the lessor is exposed to the risk of a fall in the

market price of the asset.- The lessee has no option to extend the lease on terms significantly more favourable than those available in the

marketplace.- The fair value of the assets sold and leased back is substantially greater than the current value of the lease rentals.


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- The lessor is more than a mere lender: The lessor's income and exposure to gain or loss is linked to propertymarket conditions (rental payments and asset values, for example) and not only on interest rates.

- The lease does not cover the greater part of the economic life of the asset.- The leased asset can be used by third parties without significant alteration.

l) Business combinations

A business combination is the bringing together of two or more separate entities or economic units into one single entityor group of entities, where the acquirer obtains control of the other entity or entities.

On the date of acquisition the acquirer incorporates into its financial statements the assets, liabilities and contingentliabilities of the acquiree, including any intangible assets not recognised by the acquiree.

Positive differences arising between the cost of holdings in subsidiary, jointly controlled or associated undertakingsand the net fair values of the acquired assets adjusted on the date on which they were consolidated for the first time,are accounted for as follows:

1. If the differences can be assigned to specific assets of the acquiree, they are accounted for by increasing the valueof any assets or reducing the value of any liabilities whose market values are above or below, respectively, the netfair values at which they were recorded on the acquiree's balance sheet, provided that their accounting treatmenthas been similar to the treatment that would be given to those same assets or liabilities by the group.

2. If they are assignable to specific intangible assets they are accounted for by explicit recognition in the consolidatedbalance sheet provided that their fair value at the acquisition date can be reliably determined.

3. Any remaining differences that cannot be specifically recognized are recorded as goodwill and assigned to one ormore specific cash-generating units.

Negative differences, when quantified, are recognized in the income statement.Any purchases of minority interests after the taking of control of an entity are recognized as increases in the cost of

the business combination.Where the cost of a business combination or the fair values assignable to identifiable assets, liabilities or contingent

liabilities of the acquiree cannot be determined with certainty, the initial accounting for the business combination istreated as provisional. However, the accounting process is required to be completed within one year of the acquisitiondate, and must take effect as from that date.

m) Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance. Intangible assets are deemed to beidentifiable when they are separable from other assets because they can be sold, leased or otherwise disposed ofindividually, or when they arise from a contract or other legal transaction. An intangible asset will be recognized when itmeets this criterion and the group considers it likely that economic benefits will flow from the asset and its cost can bereliably measured.

Intangible assets are initially recognized at acquisition or production cost, and are subsequently valued at cost less anyaccumulated amortization and/or impairment losses.


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• GoodwillA positive difference between the cost of a business combination and the acquired proportion of the net fair value of theassets, liabilities and contingent liabilities of the acquired entity is recognized on the balance sheet as goodwill. Goodwillrepresents a payment made by the group in anticipation of the future economic benefits from assets of an acquired entitythat are not capable of being individually or separately identified and recognized. Goodwill is recognized only if it has beenpurchased for valuable consideration through a business combination. Goodwill is not amortized, but at the end of eachaccounting period it is subjected to analysis for any possible impairment that would reduce its recoverable value to belowits stated net cost and, if found to be impaired, is written down against the consolidated income statement.

To detect possible indications of goodwill impairment value appraisals are undertaken, generally on a present value offuture distributable earnings basis, having regard to the following parameters:

- Key business assumptions. These assumptions are used as a basis for cash flow projections as part of thevaluation. For businesses of a financial nature, projections of the following variables are made: changes in lendingvolumes, default rates, customer deposits and rates of interest under a forecast economic scenario, and capitalrequirements.

- Estimates of macroeconomic variables and other financial parameters.- The period covered by projections. This is normally five years. This yields a recurring pattern in terms of both

earnings and profitability. These projections take account of the economic outlook at the time of the valuation.- The discount rate. The present value of future dividends, from which a value in use is derived, is calculated from a

discount rate taken as the capital cost of the entity (Ke) from the standpoint of a market participant. To determinethis present value the CAPM method is used as expressed by the formula: “Ke = Rf + � (Rm) + �”,where: Ke = Required return or cost of capital; Rf = Risk-free rate; � = Company's systemic risk coefficient,Rm = Expected return of the market and � = Non-systemic risk premium.

- A rate of growth to extrapolate cash flow projections beyond the end of the period covered by the latestprojections. Based on long-term estimates for the main macroeconomic numbers and key business variables, andbearing in mind the current financial market outlook at all times, an estimate of a nil rate of growth in perpetuitycan be arrived at.

No impairment loss recognized for goodwill can subsequently be reversed.

• Other intangible assetsThis item is made up largely of intangible assets identified in business combinations and includes such assets ascontractual relations with customers, deposits or trade marks and computer applications.

Other intangible assets may have useful lives that are indefinite - where, after all relevant factors have been taken intoaccount, it has been concluded that there is no foreseeable limit to the time during which they can be expected togenerate net cash flows for the group - or finite. Intangible assets that have indefinite useful lives are not amortized;however, at the end of each accounting period, the group reviews their remaining useful lives to verify that they are stillindefinite and takes appropriate action if it finds otherwise. Intangible assets whose useful lives are finite are amortizedon the basis of their useful lives according to criteria similar to those used for tangible assets.

Any loss in the stated value of an intangible asset due to impairment will, in any event, be recognized by the group anda corresponding adjustment made to the consolidated income statement. The rules for recognizing losses in value due toimpairment of intangible assets and any recoveries of impairment losses in earlier periods are similar to those that applyto tangible assets.

n) Inventories

Inventories are non-financial assets that are being held for sale or for use by the group in the normal course of business,or are in the process of production, construction or development for such sale, or are to be consumed in the productionprocess or in the rendering of services.

Inventories are valued at the lesser of their cost value, including all purchase and conversion costs and other directand indirect costs incurred in bringing the inventories to their present condition and location, and their net realizationvalue.

Net realization value means the estimated sale price net of the estimated production and marketing costs to carry outthe sale.

Any value adjustments, whether caused by impairment due to damage, obsolescence or a fall in sale prices, to reflecttheir net realizable value, or arising from other losses, are recorded as expense in the year in which the impairment orother loss occurred. Any subsequent recoveries in value are recognized in the consolidated income statement in the yearin which they occur. Any impairment in the value of inventories comprising land and buildings is calculated on the basis of


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appraisals by independent professional valuers authorized by the Bank of Spain and included in its Special Register ofAppraisal Firms. Practically all appraisals are valid as of 31 December 2009.

The basis of net realization value appraisals varies according to the nature of each property, development orconstruction site (area in square metres, location, age, intended use, etc.). The appraisal approaches employed are thecost method, the comparison method, the income capitalization method and the residual method. These are applied inaccordance with the rules for the valuation of real estate and certain rights for particular financial purposes set out in theMinisterial Order ECO/805/2003.

o) Own equity instruments

Own equity instruments are defined as equity instruments that:

- do not involve any contractual obligation to the issuer: to deliver cash or another financial asset to a third party, or toexchange financial assets or liabilities with a third party on terms potentially unfavourable to the issuer;

- will or may be settled in the issuer's own equity instruments and is: a non-derivative instrument for which the issueris or may be obliged to deliver a variable number of its own equity instruments, or a derivative instrument that will ormay be settled for a fixed amount of cash or another financial asset, for a fixed number of the issuer's own equityinstruments.

All transactions in the group's own equity instruments, whether on issue or cancellation or otherwise, are recognizeddirectly in equity.

Changes in the value of instruments classified as own equity instruments are not recognized in the financialstatements. Any consideration paid or received for such instruments is added or deducted directly in equity and theassociated transaction costs are deducted in equity.

p) Payments based on equity instruments

The delivery to employees of the group's own equity instruments in payment for their services, where the instruments aredelivered on completion of a specified period of service, is recognized as an expense for services over the period duringwhich the services are being provided. A corresponding increase in equity or a liability is recognized, according to whetherthe compensation is classified as equity instrument-based compensation, liabilities to employees based on the value ofthe group's own equity instruments, or transactions with employees paid in cash or equity instruments.

Where the liability is discharged by means of a transfer of commitments to financial institutions outside the group, thatis, through derivatives contracts that precisely mirror the terms and economic conditions on which the equity instrumentswere issued, the group charges the anticipated costs associated with the derivatives contracts to the income statementaccording to the specific period in which the services are provided, but does not recognize any increase in equity or in theassociated liability.

Transactions where, in exchange for the receipt of goods or services other than those provided by employees,settlement is in own equity instruments or by a payment based on own equity instruments, are accounted for according tothe same rules as apply to employee compensation.

q) Liabilities under insurance contracts

Liabilities under insurance contracts refer, primarily, to life policies sold by Assegurances Segur Vida, S.A., a groupsubsidiary, in which the investment risk is borne by policyholders.

To provide for commitments in respect of investments related to life insurance policies, provisions are made havingregard to the value of the assets on the basis of which policyholders' entitlements will be determined.

r) Provisions and contingent liabilities

Provisions are current obligations of the group which have arisen from past events and whose nature at the balance sheetdate is clearly specified, but which are of uncertain timing and amount; when such obligations mature or become due forsettlement, the group expects to settle them through an outflow of resources embodying economic benefits.

Provisions for restructuring will be recognized only when the group has a detailed, formal plan identifying fundamentalchanges to be made and where the group has started to implement the plan or has publicly announced its main features,or where there is objective evidence of its implementation.

Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only bythe occurrence or non-occurrence of one or more uncertain future events that lie outside the group's control. Contingentliabilities include present obligations of the group the settlement of which is not likely to result in an outflow of resources


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embodying economic benefits or whose amount, in extremely rare instances, cannot be measured with sufficientreliability.

s) Provisions for pensions

The group's pension commitments to its employees are as follows:

• Defined contribution plansThese are predetermined contributions paid into a separate entity in accordance with agreements reached with particulargroups of employees. Contributions are made subject to there being no legal or constructive obligation to make additionalcontributions to cover investment or other risks.Contributions to defined contribution plans in 2009 totalled €19,901,000 (€16,386,000 in 2008).

• Defined benefit plansDefined benefit plans provide for all current pension commitments agreed under articles 35, 36 and 37 of the 21stCollective Agreement for the banking industry.

These commitments are financed in two ways: through the pension scheme and through insurance contracts.The Banco Sabadell employee pension scheme covers benefits payable under collective agreements with members of

regulated employee organizations as described above, with the following exceptions:

1. Additional commitments on early retirement as provided for by article 36 of the Collective Agreement.2. Disability benefit in certain circumstances.3. Widows', widowers' and orphans' benefits payable on the death of retired employees recognized as having entered

the Bank's service after 8 March 1980.

The Banco Sabadell employee pension scheme is treated for all purposes as a scheme asset.Insurance policies provide general cover for specified commitments under articles 36 and 37 of the 21st banking

industry agreement, including:

1. Commitments that are expressly excluded from the Banco Sabadell employee pension scheme (1, 2 and 3 above).2. Serving employees covered by a collective agreement with the former Banco Atlántico.3. Pension commitments in respect of some serving employees, not provided for under the collective agreement.4. Commitments to employees on leave of absence who are not entitled to benefits under the Banco Sabadell

employee pension scheme.5. Commitments to early retirees. These may be partly financed out of pension rights under the Banco Sabadell

employee pension scheme.

Insurance policies have been taken out with insurers outside the group, principally for commitments to former BancoAtlántico employees, and also with BanSabadell Vida, S.A. de Seguros y Reaseguros.

The balance sheet heading "provisions for pensions and similar obligations" includes the actuarial present value ofpension commitments, calculated individually by the projected unit credit method on the basis of financial and actuarialassumptions which are set out below.

From the obligations so calculated, the scheme assets at their fair value have been deducted. These assets, includinginsurance polices, are those from which pension obligations are to be settled since they meet the following requirements:

1. They are not owned by the Bank but by a legally separate, non-related third party.2. They are available only to pay or fund employee benefits and are not available to creditors of the Bank, even in the

event of the Bank becoming insolvent.3. They cannot be returned to the Bank unless the assets remaining in the scheme are sufficient to meet all

obligations of the scheme and of the Bank relating to employee benefits, or unless the assets are returned to theBank to reimburse it for employee benefits previously paid.

4. They are not non-transferable financial instruments issued by the Bank.


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Assets to fund pension commitments as shown in the individual balance sheet of BanSabadell Vida, S.A. de Seguros yReaseguros, a group insurance subsidiary, are not scheme assets as the company is a related party of the Bank.

The group has decided to apply a corridor in recognizing in profit and loss for the year only one fifth of any actuarialgains and losses that exceed 10% of the greater of the present value of defined benefit obligations and the fair value ofscheme assets at the end of the immediately preceding year.

However, actuarial gains or losses related to commitments to early retirees until they acquire legally retired status arerecognized immediately.

The actuarial assumptions used in the valuation of pension commitments are as follows:

2009 2008

Tables PERM / F 2000 (new) PERM / F 2000 (new)Discount rate - pension scheme 4.00% per annum 4.00% per annumDiscount rate - polices taken out with related parties 4.70% per annum 5.05% per annumDiscount rate - policies taken out with non-related parties 4.70% per annum 5.05% per annumInflation 2.00% per annum 2.00% per annumRate of increase in salaries 3.00% per annum 3.00% per annumRetirement due to disability SS90-Absoluta SS90-AbsolutaStaff turnover None assumed None assumedEarly retirement Allowed for Allowed forNormal retirement age 65 65

The discount rate on insurance policies has been determined by reference to the yield on AA-rated 15-year corporatedebt (Bloomberg AA composite).

The age of early retirement for all employees is assumed to be the earliest retirement date after which pensionentitlements cannot be revoked by the employer.

The expected long-term return on pension scheme assets is 4% per annum (a target return that is compatible with alevel of risk set in accordance with the investment policy of the Banco Sabadell employee pension scheme). For fixed-rate,without profits, unmatched insurance policies, the return assumed in respect of each commitment is the average insuredinterest on each premium paid, weighted according to the mathematical reserve corresponding to each premium paid. Forfixed-rate, without profits, matched insurance policies the rate of return used is the discount rate.

t) Foreign currency transactions

The functional currency of the group is the euro. All balances and transactions denominated in currencies other than theeuro are therefore treated as denominated in a foreign currency. Euro equivalent values (in thousands of euros) for theaggregate balances of asset and liability accounts in foreign currency held by the group at 31 December 2009 and 2008are given in note 25.

On initial recognition, debit and credit balances denominated in foreign currency are translated to the functionalcurrency at the spot exchange rate - defined as the exchange rate for immediate delivery - on the recognition date.Subsequent to initial recognition, the following procedures are used to translate foreign currency balances to thefunctional currency:

- Monetary assets and liabilities are translated at the closing exchange rate, defined as the average spot exchangerate ruling at the reporting date.

- Non-monetary items measured at historical cost are translated at the exchange rate ruling on the date ofacquisition.

- Non-monetary items stated at fair value are translated at the exchange rate ruling on the date on which the fairvalue was determined.

- Income and expenses are translated at the exchange rates ruling at the transaction date.

In general, foreign exchange differences arising on the translation of debit and credit balances denominated in foreigncurrency are recorded in the income statement. However, for foreign exchange differences arising on non-monetary itemsmeasured at fair value where the fair value adjustment is made and recognized under valuation adjustments in equity, theexchange rate component is recorded separately from the revaluation of the non-monetary item.


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u) Recognition of income and expense

Interest income and expense and similar items are generally recorded in the period in which they accrue, using theeffective interest method. Dividends received from other companies are recognized as income when the entitlementvests.

Generally, fee and commission income and expense and similar items are recorded in the income statement accordingto the following criteria:

- Fees and commissions relating to financial assets and liabilities measured at fair value through profit or loss arerecognized when received.

- Fees and commissions relating to transactions or services that take place over a period of time are allocated overthe period during which the transaction or service takes place.

- Fees and commissions relating to transactions or services that are completed in a single act are recognized at thetime of the act that gives rise to the fee or commission.

Financial fees and commissions forming an integral part of the effective cost or yield of a financial transaction havebeen deferred net of associated direct costs and recognized in the income statement over the expected average life ofthe transaction.

Non-financial income and expense is accounted for on an accrual basis. Amounts paid or received that are deferredover time are recorded at the value obtained by discounting the expected cash flows at market rates of interest.

v) Income tax

Spanish corporation tax and similar tax expense applicable to foreign subsidiaries are treated as expenses and arerecorded in the income statement under income tax unless the tax has arisen on a transaction accounted for directly inequity, in which case the tax is also recognized directly in equity, or unless it relates to a business combination, in whichcase the deferred tax is recognized as an asset or liability of the business combination.

The tax expense shown under the income tax heading is the tax charge assessed on the taxable income for the year,after taking account of applicable tax deductions and allowances and any tax losses. The taxable income for the year maybe at variance with the profit for the year as shown in the income statement, as it excludes items of income orexpenditure that are taxable or deductible in other years as well as items which are non-taxable or non-deductible.

Deferred tax assets and liabilities refer to the tax that is expected to be payable or recoverable on differences betweenthe carrying values of assets and liabilities in the financial statements, on the one hand, and the tax bases of thoseassets and liabilities, on the other. These tax assets and liabilities are determined by applying to such temporarydifferences or tax credits the tax rate at which they are expected to be recovered or paid.

A deferred tax asset such as a tax prepayment, or a credit in respect of a tax deduction or allowance, tax loss or otherbenefit is always recognized provided that the group is likely to obtain sufficient future taxable profits against which the taxasset can be realized. A deferred tax liability will, in general, always be recognized.

All recognized deferred tax assets and liabilities are reviewed in each accounting period to verify that they still applyand are adjusted as necessary.

The undertakings in the Banco Sabadell group that are included in the consolidated accounts for corporation taxpurposes are shown in the Annex. Their tax charges for the year have been worked out on this basis and are payable toBanco de Sabadell, S.A. as the parent company of the consolidated group, which is responsible for paying the tax to theRevenue authorities.

w) Financial guarantees

Financial guarantees are contracts by which the group undertakes to make specified payments for a third party in theevent of the third party failing to do so. They may take a variety of legal forms such as guarantees, avals, insurancecontracts or credit derivatives.

Guarantees are recognized by the group at their fair value under the liability heading “other financial liabilities”. Onfirst recognition and in the absence of evidence to the contrary, the fair value will be the present value of the expectedcash flows. The present value of the future cash flows receivable is simultaneously recorded as an asset.


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Subsequent to initial recognition, guarantee contracts are treated as follows:

- The value of all fees, commissions or premiums receivable is discounted by recording the differences in the incomestatement as interest income.

- The value of a guarantee contract is the amount initially recognized as a liability item less the amount credited to theconsolidated income statement on a straight-line basis over the anticipated life of the contract.

Financial guarantees are classified according to the credit risk attributable to the customer or the transaction and inappropriate cases an assessment will be made as to the need to provide for the risk by following procedures similar tothose described in note 1(e) for debt instruments carried at amortized cost.

x) Assets under management

Third party assets managed by the group are not included in the consolidated balance sheet. Management fees areshown in the income statement under fee and commission income.

y) Consolidated cash flow statement

The consolidated cash flow statement includes certain items which are defined as follows:

- Cash flows: inflows and outflows of cash and cash equivalents, where "cash equivalents" are short-term, highlyliquid investments for which the risk of a change in value is minimal.

- Operating activities: the ordinary activities of the group, as well as other activities that cannot be described asinvesting or funding activities.

- Investing activities: the acquisition, sale or other disposal of long-term assets and other investments not included incash and cash equivalents.

- Funding activities: activities that result in changes in the size and composition of equity and of liabilities notincluded in operating activities.

z) Netting

Where credit and debit balances arising from transactions are permitted, whether by contract or by law, to be set offagainst each other and the group intends to settle them on a net basis or to realize the asset and settle the liabilitysimultaneously, they are reported in the balance sheet at their net values.


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The companies comprising the group as at 31 December 2009 and 2008 are listed in the Annex along with theirregistered offices, principal activities, the Bank's proportional holding in each, key financial data for each company, andwhether they are consolidated by the full consolidation, proportional consolidation or equity method.

The changes in the composition of the consolidated group are described below.

Changes in the year 2009:

Undertakings/operations included in the consolidated accounts for the first time:

€'000

Cost of combination

Amount

paid and Voting Voting

Name of Transaction other rights rights

undertaking (or operation) effective associated acquired prop. of Direct/

acquired or merged Category date costs (%) total (%) indirect Method

BanSabadell Securities Services, S.A. (a) Subsidiary 21/04/2009 2,500 100.00 100.00 Direct Full consolidation

Emte Renovables, S.L. (c) Jointly controlled 24/12/2008 5,000 62.11 62.11 Indirect Proportional consol.

J. Feliu de la Penya, S.L. (b) Associate 10/11/2008 10,501 20.00 20.00 Indirect Equity method

Jerez Solar, S.L. (c) Jointly controlled 24/12/2008 1,894 62.11 62.11 Indirect Proportional consol.

Sociedad de Inversiones y Participaciones Comsa Emte, S.L. Associate 28/07/2009 47,271 20.00 20.00 Indirect Equity method

Solvia Properties, S.L. (a) Subsidiary 13/01/2009 500 100.00 100.00 Direct Full consolidation

Solvia Hotels, S.L. (a) Subsidiary 06/02/2009 500 100.00 100.00 Direct Full consolidation

(a) Addition on formation of new company.

(b) J. Feliu de la Penya, S.L. was acquired by Aurica XXI, S.C.R. on 10 November 2008 and registered in January 2009.

(c) Emte Renovables, S.L. was set up by Sinia Renovables, S.C.R. and Emte, S.A. on 24 November 2008 and registered in February 2009. To set up the company,Emte, S.A. contributed its entire 100% holding in Jerez Solar, S.L.

Acquisition of 20% of J. Feliu de la Penya, S.L.

On 10 November 2008 the group acquired, through its subsidiary Aurica XXI, S.C.R., S.A., a 20% holding in J. Feliu de laPenya, S.L. for the sum of €10,501,000.

Acquisition of Sociedad de Inversiones y Participaciones Comsa Emte, S.L.

On 28 July 2009, Aurica XXI, S.C.R., S.A. acquired 19.99% of Sociedad de Inversiones y Participaciones Comsa Emte,S.L., for €602. On that same day, at an Extraordinary General Meeting of Sociedad de Inversiones y ParticipacionesComsa Emte, S.L. it was resolved that the capital of the company be increased by 147,996,988 new shares with anominal value of €1.00 each. The shares were issued at a premium of €14.76 per share, resulting in a total issuepremium amounting to €221,335,000.

Aurica XXI, S.C.R., S.A. subscribed for the new issue by paying a non-monetary contribution consisting of its holding of187,686 shares in Comsa Emte, S.L. (which it had previously acquired in exchange for its entire shareholding in EmteGrupo Empresarial y Corporativo, S.L.). The contribution of shares in Comsa Emte, S.L. has been valued at €42,270,000,resulting in a profit of €21,094,000.

Following the capital increase, the share capital of Sociedad de Inversiones y Participaciones Comsa Emte, S.L. is now15,000,000 shares with a nominal value of €1.00 each, of which 20% are owned by Aurica XXI, S.C.R., S.A.

Formation of Solvia Properties, S.L. and Solvia Hotels, S.L.

On 19 December 2008 and 23 January 2009 two companies, Solvia Properties, S.L. and Solvia Hotels, S.L. were set up,each with a share capital of €500,000. These companies, together with Solvia Development, S.L., Solvia Estate, S.L.,Solvia Gestión Real Estate, S.L. and Solvia Housing, S.L., spearhead the group's property management business.

Undertakings no longer included in the consolidated accounts:

€'000

Proportion of

Name of undertaking Transaction voting rights

(or operation) sold, spun off effective surrendered Profit/loss Direct/

or derecognized Category date on disposal (%) to group indirect Method

Dish, S.A. (a) Subsidiary 03/12/2008 100.00 (4) Direct Full consolidation

Emte Grupo Empresarial y Corporativo, S.L. Associate 28/07/2009 20.00 21,094 Indirect Equity method

Gestora Plan HF94, S.L. (a) Subsidiary 16/12/2009 100.00 7 Direct Full consolidation

Telstar, S.A. Associate 04/12/2009 20.00 2,509 Indirect Equity method

(a) Liquidated.


Note 2. Banco Sabadell Group

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Changes in the year 2008:

Undertakings/operations included in the consolidated accounts for the first time:

€'000

Cost of combination

Amount

paid and Voting Voting

Name of Transaction other rights rights as

undertaking (or operation) effective associated acquired prop. of Direct/

acquired or merged Category date costs (%) total (%) indirect Method

Adelanta Corporación, S.A. (1) Associate 23/04/2008 37,158 25.00 25.00 Indirect Equity method

BanSabadell Fincom, E.F.C.,S.A. (2) Subsidiary 22/04/2008 20,616 50.00 100.00 Direct Full consolidation

Compañía de Cogeneración del Caribe Dominicana, S.A. (3) Subsidiary 31/05/2008 0 97.00 97.00 Indirect Full consolidation

Establecimientos Industriales y Servicios, S.L. (4) Associate 24/07/2008 34,833 26.75 26.75 Indirect Equity method

Garnova, S.L. (5) Associate 26/02/2008 42,748 25.00 25.00 Indirect Equity method

Interstate Property Holdings, LLC Subsidiary 30/06/2008 5,075 100.00 100.00 Indirect Full consolidation

Parque Eólico Magaz, S.L. (1) Associate 24/04/2008 1,464 49.00 49.00 Indirect Equity method

Plaxic Estelar, S.L. Jointly controlled 11/04/2008 1 45.01 45.01 Indirect Proportional consol.

Sabadell Securities USA, Inc. Subsidiary 27/06/2008 127 100.00 100.00 Direct Full consolidation

Santex Pluser, S.L. (1) Subsidiary 22/04/2008 3 100.00 100.00 Indirect Full consolidation

Sinia Renovables, S.C.R. de Régimen Simplificado, S.A. Subsidiary 14/03/2008 15,000 100.00 100.00 Direct Full consolidation

Tecnocredit, S.A. (6) Subsidiary 24/07/2008 1,100 50.00 100.00 Direct Full consolidation

(1) Undertakings acquired by the group through its subsidiary Sinia Renovables, S.C.R.,S.A.(2) Now fully consolidated following the purchase of the remaining 50% of the share capital of BanSabadell Fincom, E.F.C.,S.A. from General Electric Capital Bank.(3) Acquired by the group through BanSabadell Inversió i Desenvolupament, S.A.(4) Acquired by the group through Santex Pluser, S.L.(5) Acquired by the group through Aurica XXI, S.C.R.,S.A. (6) Now fully consolidated following the purchase of the remaining 50% of the share capital of Tecnocredit, S.A. held by a number of professional associations.

Acquisition of 25% of Adelanta Corporación, S.A.

On 23 April 2008 the group acquired, through its subsidiary Sinia Renovables, S.C.R., S.A., a 25% shareholding inAdelanta Corporación, S.A. for the sum of €37,158,000.

Acquisition of 50% of BanSabadell Fincom, E.F.C., S.A.

On 22 April 2008 Banco Sabadell, S.A. acquired the 50% shareholding in BanSabadell Fincom held by General ElectricCapital Bank, E.F.C., S.A. Banco Sabadell thus obtained control of 100% of the share capital of BanSabadell Fincom,E.F.C., S.A. The total amount finally paid was €20,616,000, resulting in a goodwill of €4,923,000.

Acquisition of 26.75% of Establecimientos Industriales y Services, S.L.

On 24 July 2008 the group acquired 26.75% of Establecimientos Industriales y Servicios, S.L. through its subsidiarySantex Pluxer, S.L. for €34,833,000.

Acquisition of 25% of Garnova, S.L.

On 26 February 2008 the group acquired, through its subsidiary Aurica XXI, S.C.R., S.A., a 25% shareholding in Garnova,S.L. for €42,748,000, generating a goodwill of €27,267,000.

Acquisition of 50% of Tecnocredit, S.A.

On 24 July 2008, Banco Sabadell, S.A. acquired 50% of the shares held by a number of professional associations inTecnocredit, S.A. Banco Sabadell thus obtained control of 100% of the share capital of Tecnocredit, S.A. The total amountfinally paid was €1,100,000, resulting in a goodwill of €984,000.

Acquisition of BBVA Miami's private banking business

On 27 December 2007, Banco Sabadell entered into an agreement with Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) topurchase the international private banking business being carried on by its branch in Miami, Florida, USA. The agreementcame into effect on 11 April 2008. The amount finally paid to BBVA by Banco Sabadell for the business was€29,945,000. This amount was recognized in the balance sheet under intangible assets (see note 15).


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Undertakings no longer included in the consolidated accounts:

€'000

Proportion of Proportion of

Name of undertaking Transaction voting rights voting rights Profit/

(or operation) sold, spun off effective surrendered held after loss to Direct/

or eliminated Category date on disposal (%) disposal (%) group indirect Method

BanSabadell Pensiones , E.G.F.P., S.A. (1) Subsidiary 18/09/2008 50.00 50.00 95,711 Direct Full consolidation

BanSabadell Seguros Generales, S.A.

de Seguros y Reaseguros(1) Subsidiary 18/09/2008 50.00 50.00 93,690 Direct Full consolidation

BanSabadell Vida, S.A. de Seguros

y Reaseguros(1) Subsidiary 18/09/2008 50.00 50.00 401,001 Direct Full consolidation

Europea de Inversiones y Rentas, S.L. (2) Subsidiary 01/01/2008 100.00 0.00 0 Direct Full consolidation

Explotación Eólica la Pedrera, S.L. (3) Subsidiary 20/02/2008 80.00 0.00 14,775 Indirect Full consolidation

Homarta, S.L. (4) Joint venture 23/01/2008 50.00 0.00 (10) Indirect Proportional consol.

Multibarter Mexicana, S.A. de C.V. (4) Subsidiary 31/03/2008 100.00 0.00 (41) Direct Full consolidation

Parc Eòlic Coll de Som, S.L. (3) Subsidiary 20/02/2008 51.80 0.00 1,451 Indirect Full consolidation

Parc Eòlic l'Arram, S.L. (3) Subsidiary 20/02/2008 51.80 0.00 1,623 Indirect Full consolidation

Sabadell International Capital Ltd. (4) Subsidiary 01/04/2008 100.00 0.00 40 Direct Full consolidation

(1) Operations eliminated from the consolidated accounts following the sale of 50% of the group's holding in the company. Accounted for by the equity method in

2008.(2) Removed from the consolidated accounts after being merged into Banco Sabadell S.A.(3) Removed from the consolidated accounts following an exchange of shares in Fersa Energía Renovables, S.A.(4) Liquidated.

Sale of BanSabadell Pensiones, E.G.F.P. S.A., BanSabadell Vida, S.A. de Seguros y Reaseguros and BanSabadell

Seguros Generales, S.A. de Seguros y Reaseguros

On 10 July 2008 Banco Sabadell entered into an agreement with Zurich Vida, Compañía de Seguros y Reaseguros S.A.and Zurich Spain, Compañía de Seguros y Reaseguros S.A., for the sale of 50% of the share capital of its pensionsbusiness BanSabadell Pensiones, E.G.F.P., S.A., and two insurance operations, BanSabadell Vida S.A. de Seguros yReaseguros and BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros. The sale was effective from 18September 2008. The sale consideration of €750,000,000 has been paid in full and resulted in a profit net of tax of€418,000,000 for the Banco Sabadell group. The sale agreement made provision for a further sum of up to€150,000,000 to be paid over the next 10 years based on the future performance of the business.

Merger by absorption of Europea de Inversiones y Rentas, S.L. by Banco Sabadell, S.A.

On 4 September 2008 Europea de Inversiones y Rentas, S.L., was merged into Banco Sabadell, S.A. The merger involvedthe dissolution, but not the liquidation, of Europea de Inversiones y Rentas and the transfer of its assets en bloc to Bancode Sabadell, S.A. by universal succession, with the latter being subrogated in all rights and obligations of the mergedcompany generally and without any reservation or limitation whatsoever.

From 1 January 2008 onwards, all operations of the merged company were treated for accounting purposes asoperations of Banco de Sabadell, S.A.

Exchange of shares in three wind farm companies, Parc Eòlic L'Arram, S.L., Parc Eòlic Coll de Som, S.L. and

Explotación Eólica la Pedrera, S.L. for shares in Fersa Energías Renovables, S.A.

On 19 October 2007 the Board of Directors of Fersa Energías Renovables, S.A. agreed an exchange of shares in ParcEòlic L'Arram, S.L., Parc Eòlic Coll de Som, S.L. and Explotación Eólica la Pedrera, S.L. for shares in Fersa EnergíasRenovables, S.A. The share exchange took place on 22 February 2008 and resulted in a profit before tax of€17,849,000 for the group.

The resulting group holding in Fersa Energías Renovables, S.A. has been classified as part of its portfolio of available-for-sale financial assets at the acquisition cost of €22,649,000, an amount equal to the combined fair values of theundertakings given in exchange, based on its percentage share in the company.


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Note 3. Proposed distribution of profits and basic earnings per share

The allocation of the Bank's profit for the year 2009 which the Board will propose to the Annual General Meeting is shownin the following table. The allocation for 2008 was approved by the Annual General Meeting on 19 March 2009 and isalso shown in the table.

€'000

2009 2008

To dividends 168,000 337,921 Reserve for investment in Canary Islands 318 0 To voluntary reserves 360,788 450,465

Profit of Banco de Sabadell, S.A. for the year 528,787 788,386

Proposed allocations of profits of subsidiaries and associates are subject to approval by their respective AnnualGeneral Meetings.

The gross dividend per share for the year recommended by the Board of Directors of the Bank is €0.14 (€0.28 in2008).

The Board of Directors will recommend to the General Meeting that it approve an additional payment to shareholders of €0.08 per share, on top of the dividend for the year 2009, consisting of a distribution of shares of equal value out ofthe Bank's holding of treasury shares. The payment will be charged to the share premium account and will requireamendments to be made to the articles of association.

The Board of Directors decided to pay two interim dividends on account of profits for 2009 amounting to a total of€168,000,000 (€193,921,000 in 2008). These dividends were paid on 1 September and 15 December 2009, and willbe recommended to the Annual General Meeting for final approval.

The following table shows that sufficient profits were generated by the Bank in each annual period to enable an interimdividend to be paid.

€'000

30.11.2009 31.08.2009 30.11.2008 31.07.2008

Profit of Bank 719,689 516,177 449,149 447,077 Estimated income tax (132,676) (89,436) (70,542) (69,989)Dividends paid (84,000) 0 (97,921) 0

Net profit available for distribution 503,013 426,741 280,686 377,088

Amount proposed and distributed 84,000 84,000 96,000 97,921

Dividend payment date 15.12.2009 01.09.2009 15.12.2008 29.08.2008

Earnings per share

Basic earnings per share are obtained by dividing the net profit or loss attributable to the group by the weighted averagenumber of ordinary shares outstanding in the year, excluding any treasury shares purchased by the group. Dilutedearnings per share are calculated by adjusting profit or loss attributable to the group, and the weighted average number ofshares outstanding, for the effects of all dilutive potential ordinary shares.

Earnings per share calculations are shown in the following table:

2009 2008

Net profit attributable to the group (€'000) 522,489 673,835 Profit from discontinued operations (net) (€'000) 0 428,366 Ordinary shares outstanding (weighted average) 1,177,876,997 1,208,583,408 Assumed conversions of convertible bonds 100,341,160 0 Ordinary shares outstanding (weighted average) - adjusted 1,278,218,157 1,208,583,408

Earnings per share (€) 0.44 0.56

Basic earnings per share after adjusting for effect of required bond conversions (€) 0.41 0.56

Basic earnings per share (€) 0.41 0.56


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Note 4. Loans and advances to credit institutions

Loans and advances to credit institutions recorded in the consolidated balance sheet at 31 December 2009 and 2008are analysed in the following table:

€'000

2009 2008

Analysis by heading:


Total 2,544,962 2,623,491

Analysis by type:

Time deposits 412,072 436,247 Reverse repos 1,021,937 681,200 Other accounts 327,894 604,491 Doubtful assets 693 2,050 Other financial assets 776,802 892,327 Impairment provisions (595) (877)Other valuation adjustments 6,159 8,053

Total 2,544,962 2,623,491

Analysis by currency:

Euro denominated 2,393,288 2,373,212 Foreign currency denominated 151,674 250,279

Total 2,544,962 2,623,491

Average annual interest rates on loans and advances to credit institutions for the years 2009 and 2008 were 1.1% and3.98% respectively.

The main components of the “other accounts” item at 31 December 2009 and 2008 were buyer credit for non-residentbanks and forfaiting deals with other banks.


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Note 5. Debt securities

Debt securities shown in the consolidated balance sheet at 31 December 2009 and 2008 are analysed as follows:

€'000

2009 2008


Financial assets held for trading 91 2,894 Available-for-sale financial assets 6,934,750 5,138,548

Total 6,934,841 5,141,442

Analysis by type:

Government securities 2,668,238 2,569,085 Treasury bills 1,191,783 602,179 Other book-entry securities 1,047,968 1,903,869 General government 428,487 63,037

Securities of financial institutions and other issuers 4,276,284 2,576,537 Doubtful assets 6,438 1,817 Impairment provisions (16,119) (5,997)

Total 6,934,841 5,141,442



Total 6,934,841 5,141,442

Average annual rates of interest on debt securities in the years 2009 and 2008 were 2.81% and 5.19%respectively.

Details of debt instruments comprised within the "available-for-sale financial assets" category are as follows:

€'000

2009 2008

Level I (*) Level II (*) Level III (*) Level I (*) Level II (*) Level III (*)

Acquisition cost 6,051,634 797,683 15,003 4,904,100 168,089 15,009

Fair value 6,119,105 801,005 14,640 4,959,905 166,877 11,766

Accumulated losses recognized in equity at the end of the period (92,110) (6,255) (363) (63,722) (1,769) (3,234)

Accumulated gains recognized in equity at the end of the period 159,581 9,577 0 119,527 548 0

Losses recognized as impairment in the income statement for the period (11,880) 0 0 (7,301) 0 0

Valuation method Quoted Discounted Internal Quoted Discounted Internal price cash flow models price cash flow models

(*) The levels used in this table are explained in note 1 (d) of these annual accounts, in the section on accounting principles and policies - valuation and recording

of financial instruments.


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Note 6. Equity instruments

The "equity instruments" heading of the consolidated balance sheet at 31 December 2009 and 2008 can be analysedas follows:

€'000

2009 2008


Financial assets held for trading 19,917 7,640 Other financial assets at fair value through profit or loss 182,166 161,733 Available-for-sale financial assets 1,097,011 620,610

Total 1,299,094 789,983

Analysis by type:

Resident sector 650,412 231,998 Credit institutions 62,777 1,873 Other 587,635 230,125

Non-resident sector 507,962 291,614 Credit institutions 494,993 275,655 Other 12,969 15,959

Share in net assets of mutual funds and OEICs 656,622 419,223 Impairment provisions (515,902) (152,852)

Total 1,299,094 789,983


Euro denominated 1,292,134 783,605 Foreign currency denominated 6,960 6,378

Total 1,299,094 789,983

Financial assets at fair value through profit or loss in both years consisted entirely of investments associated with unit-linked life policies sold through Assegurances Segur Vida, S.A., a group subsidiary.

Details of equity instruments comprised with the "available-for-sale financial assets" category are as follows:

€'000

2009 2008

Level I (*) Level II (*) Level III (*) Level I (*) Level II (*) Level III (*)

Acquisition cost 324,355 717,294 53,336 561,825 259,519 48,274

Fair value 316,898 719,726 60,387 303,830 265,572 51,208

Accumulated losses recognized in equity at the end of the period (19,273) (13,635) (525) (258,255) (12,644) (462)

Accumulated gains recognized in equity at the end of the period 11,816 16,067 7,576 260 18,697 3,396

Capital losses recognized as impairmentin the income statement for the period (217,893) (184,302) 0 144,337 0 0

(*) The levels used in this table are explained in note 1 (d) of these annual accounts, in the section on accounting principles and policies - valuation and recording

of financial instruments.

At the end of 2009 an impairment was recognized in the group's holding in Banco Comercial Português, S.A. (BCP)amounting to €210,040,000 (€100,000,000 in 2008). As a result, the value of the group's holding in BCP at 31December 2009 was written down to the quoted market price of the shares. The impairment has been recorded underimpairment losses on financial assets in the consolidated income statement.

The group has a holding in Metrovacesa, S.A. as a result of an arrangement reached in 2009 between the Cresa-Sacresa group and its creditors as part of a debt restructuring agreement. The holding was initially valued, and isperiodically revalued, on the basis of the most reliable NAV (net asset value) data available, although these valuations areliable to be supplemented by yet more rigorous valuation criteria. At 31 December 2009, the NAV used in the valuationwas €31.58 per share based on a NAV per share calculated as of 30 September 2009, the most recent publishedestimate available. Subsequent revaluations in 2009 have resulted in an impairment of €184,302,000 which has beenrecorded under impairment losses on financial assets in the consolidated income statement.


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Note 7. Trading derivatives (assets and liabilities)

The breakdown by transaction types for the trading derivatives captions on the asset and liability sides of theconsolidated balance sheet at 31 December 2009 and 2008 is as follows:

€'000

2009 2008

Assets Liabilities Assets Liabilities

Securities derivatives 137,466 143,563 270,376 187,716 Interest rate derivatives 810,794 821,790 538,757 552,017 Currency derivatives 152,997 134,413 438,838 461,362 Other derivatives 19,176 18,977 38,486 38,556

Total 1,120,433 1,118,743 1,286,457 1,239,651


Euro denominated 1,060,268 1,058,654 1,191,576 1,140,869 Foreign currency denominated 60,165 60,089 94,881 98,782

Total 1,120,433 1,118,743 1,286,457 1,239,651

The fair values and valuation techniques being used for each type of trading derivative at 31 December 2009 areshown in the table below.

€'000

Fair value Valuation technique

Assets

Trading derivatives: 1,120,433

Swaps, CCIRSs, Call Money Swaps 709,408 Discounted cash flow

Exchange rate options 19,494 Montecarlo simulations on Black-Scholesmodel, Garman & Kohlhagen model

Interest rate options 169,067 Black & Black-Scholes with convexity adjustmentSimulation on Hull-White model

Index and securities options 137,062 Black-Scholes and binomial treeMontecarlo simulation on Black-Scholes model

Currency forwards 85,402 Discounted cash flow

Total assets held in trading portfolio 1,120,433

Liabilities

Trading derivatives: 1,118,743

Swaps, CCIRSs, Call Money Swaps 719,029 Discounted cash flow

Exchange rate options 20,279 Montecarlo simulations on Black-Scholesmodel, Garman & Kohlhagen model

Interest rate options 169,540 Black & Black-Scholes with convexity adjustmentSimulation on Hull-White model

Index and securities options 145,987 Black & Black-Scholes and binomial treeMontecarlo simulation on Black-Scholes model

Currency forwards 63,908 Discounted cash flow

Total liabilities held in trading portfolio 1,118,743

Fair values of trading derivatives are calculated from inputs based on observable market data, except in the case of stock and index options, where the inputs are supplemented by estimated volatilities and correlations, using methodsgenerally accepted within the financial services community.

At 31 December 2009 trading derivatives measured at fair value, according to the value hierarchy described in note 1 to these annual accounts (accounting principles and polices applied) were classified as follows:

€'000

Level I Level II Level III

Trading derivatives (assets) - 921,366 199,067 Trading derivatives (liabilities) - 924,900 193,843


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Changes in the carrying value of derivative instruments measured at fair value within Level III, and gains or losses dueto changes in value during the year 2009, are shown in the following table :

€'000

Gain/loss taken

to income

statement due

to changes

31/12/2008 Additions Eliminations Transfers in value 31/12/2009

Liability trading derivatives (Level III) 49,179 33,153 (82,574) 0 5,466 5,224

Note 8. Loans and advances to other debtors

Loans and advances to other debtors on the consolidated balance sheet at 31 December 2009 and 2008 are analysedas follows:

€'000

2009 2008



Total 63,232,890 63,006,201

Analysis by type:

Commercial loans 2,282,350 2,825,425 Secured receivables 36,279,639 35,677,281 Other term receivables 17,119,243 17,577,242 Payable on demand and other accounts 983,538 1,006,036 Finance leases 2,928,343 3,473,593 Factoring and "confirming" 2,748,705 2,508,305 Doubtful assets 2,650,179 1,626,892 Impairment provisions (1,779,902) (1,698,039)Other valuation adjustments 20,795 9,466

Total 63,232,890 63,006,201

Analysis by sector:

General government 890,219 426,201 Resident sector 56,944,709 58,470,286 Non-resident sector 4,506,890 4,171,395 Doubtful assets 2,650,179 1,626,892 Impairment provisions (1,779,902) (1,698,039)Other valuation adjustments 20,795 9,466

Total 63,232,890 63,006,201


Euro denominated 61,293,291 60,997,450 Foreign currency denominated 1,939,599 2,008,751

Total 63,232,890 63,006,201

Average annual rates of interest on loans and advances to other debtors in the years 2009 and 2008 were 4.62% and 6.10% respectively.

At 31 December 2009 total gross value of finance leasing contracts totalled €3,064,000,000, with unaccrued financeincome amounting to €364,000,000. The non-guaranteed residual value for the leases was €130,000,000. Valueadjustments due to impairment of finance leases amounted to €74,000,000.


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The distribution of loans and advances to other debtors by geographical region at 31 December 2009 and 2008 wasas follows:

€'000

2009 2008

Spain 60,656,984 60,470,056 Other European Union 2,831,154 2,806,638 Latin America 223,980 254,169 USA and Canada 851,909 814,300 Other OECD 69,100 70,177 Rest of world 379,665 288,900 Impairment provisions (1,779,902) (1,698,039)

Total 63,232,890 63,006,201

Loans and advances to other debtors due for repayment but not classified as doubtful assets at 31 December 2009amounted to €269,975,000 (€190,750,000 at 31 December 2008). At 31 December 2009 more than 69% of this totalwas not more than one month overdue (31 December 2008: 74% of the total).

Doubtful assets

Assets recognized as doubtful under different balance sheet headings at 31 December 2009 and 2008 were as follows:

€'000

2009 2008

Loans and advances to credit institutions 693 2,050 Debt securities 6,438 1,817 Loans and advances to other debtors 2,650,179 1,626,892

Total 2,657,310 1,630,759

Changes in doubtful assets were as follows:

€'000

Balance at 31 December 2007 325,551

Additions 1,752,514 Recoveries (342,999)Written off (104,307)

Balance at 31 December 2008 1,630,759

Additions 3,029,196 Recoveries (1,935,267)Written off (67,378)


The distribution of doubtful assets at 31 December 2009 and 2008 according to the type of security provided was asfollows:

€'000

2009 2008

Mortgage (1) 1,521,044 914,037Other security represented by a charge on property (2) 194,380 93,961 Other security 941,886 622,761

Total 2,657,310 1,630,759

(1) Loans secured by mortgage where amount loaned is less than 100% of assessed value.

(2) Includes all other loans secured on property.


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The distribution of doubtful assets by geographical region at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Spain 2,502,501 1,508,453 Other European Union 95,948 59,727 Latin America 3,433 5,077 USA and Canada 44,715 51,570 Other OECD 3,100 1,745 Rest of world 7,613 4,187

Total 2,657,310 1,630,759

Impairment provisions

Impairment provisions resulting in value adjustments to assets under different balance sheet headings at 31 December2009 and 2008 were as follows:

€'000

2009 2008

Loans and advances to credit institutions 595 877 Debt securities 16,119 5,997 Loans and advances to customers 1,779,902 1,698,039

Total 1,796,616 1,704,913

Details of changes in, and opening and closing balances of, impairment provisions to cover against credit risk exposureare shown in the following table:

€'000

Specific Generic Country risk Total

Balance at 31 December 2007 132,348 1,087,751 5,631 1,225,730

Provisions charged to income statement 651,769 366,481 3,723 1,021,973 Releases to income statement (98,856) (360,262) (3,623) (462,741)Exchange differences 104 416 133 653 Transfers (83,973) 0 0 (83,973)Other movements 6,091 (2,820) 0 3,271

Balance at 31 December 2008 607,483 1,091,566 5,864 1,704,913

Provisions charged to income statement 1,380,531 31,352 1,749 1,413,632 Releases to income statement (425,438) (739,013) (2,881) (1,167,332)Exchange differences 419 (890) (34) (505)Transfers (141,264) 0 0 (141,264)Other movements (11,108) (1,720) 0 (12,828)

Balance at 31 December 2009 1,410,623 381,295 4,698 1,796,616

Specific provisions at 31 December 2009 included €506,343,000 in provisions for sub-standard risks(€274,823,000 at 31 December 2008).

The distribution of impairment provisions by geographical region at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Spain 1,713,923 1,606,971 Other European Union 36,368 51,585 Latin America 8,381 14,804 USA and Canada 29,022 21,295 Other OECD 429 742 Rest of world 8,493 9,516

Total 1,796,616 1,704,913


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Additional information

Finance income accruing on impaired financial assets but not recognized in the consolidated income statement at 31December 2009 and 2008 amounted to €65,033,000 and €32,744,000 respectively.

Impaired financial assets derecognized from the balance sheet on the ground that the probability of recovery wasremote showed the following evolution:

€'000


Additions: 119,538

Assets with poor prospects of recovery 114,087 Derecognized for other reasons 5,451

Recoveries: (14,883)

Due to receipt of cash without additional financing (11,948)Due to repossession of tangible assets (2,935)

Permanently written off: (28,592)

Due to debt forgiveness (26,626)Due to statute of limitations (1,966)

Net change due to exchange differences (187)


Additions: 188,176

Assets with poor prospects of recovery 140,404 Derecognized for other reasons 47,772

Recoveries: (14,781)

Due to receipt of cash without additional financing (10,997)Due to repossession of tangible assets (3,784)

Permanently written off: (105,936)

Due to debt forgiveness (72,795)Due to statute of limitations (4,284)Due to other circumstances (28,857)

Net change due to exchange differences 9


At 31 December 2009 the nominal values of mortgage bonds in circulation issued by the Bank totalled€11,009,000,000 (these bonds were not sold through a public offering). At this date the nominal value of outstandingmortgage loans backing the bond issue and fulfilling the eligibility criteria totalled €16,218,000,000, out of a totalnominal value of €26,041,000,000.

As required by Royal Decree 716/2009 on certain aspects of the implementation of Law 2/1081 of 25 March on theregulation of the mortgage market and other matters relating to the mortgage finance system, the Board of Directors hasmade a statement that, at 31 December 2009, the Bank has a set of policies and procedures in place to ensurecompliance with the mortgage market regulations.

In line with these policies and procedures for managing the group's mortgage market activities, the Board of Directorsis committed to the group's risk management and control procedures (see note 35, Financial Risk Management). In thearea of credit risk, in particular, the Board of Directors delegates powers and discretions to the Risk Control Committee,which then sub-delegates authority at each level. The internal procedures set up to handle the origination and monitoringof the assets that make up the group's lending and particularly those secured by mortgage, which back the group'smortgage bond issues, are described in detail below for each type of loan applicant.

Individuals

• Analysis. Applications are analysed with the help of scoring tools that measure the risk involved in a transaction byevaluating such customer profile aspects as the likely return and the nature of the property on which the loan is tobe secured. There will be some circumstances that require the intervention of a risk analyst, who will examine thecase in more detail and whose opinion will be required before any decision can be made on the application,favourable or otherwise.


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• Decision. A decision will be based on the result of the credit scoring procedure supplemented, where necessary, bythe opinion of an analyst. There will, in addition, be a whole range of other details and parameters to be considered,such as the consistency of the customer's application and how well it matches his possibilities; the customer'sability to pay based on his current and future position; the value of the property provided as security for the loan (asdetermined by an appraisal carried out by a Bank of Spain-authorized valuation firm which Banco Sabadell's owninternal approval processes will, additionally, have shown to be free of any association with the group); examinationsof internal and external databases of defaulters, etc.One part of the decision-making process is to establish the maximum amount of the loan, based on the assessedvalue of the security (the "Loan to Value Ratio" or "LTV"). As a general rule, under internal group procedures themaximum LTV is applicable to purchases by individuals of properties for use as their normal residence and is fixedat 80%. This provides the basis for a range of other maximum LTV ratios below 80% to be set, according to thepurpose of the loan. A further step that must be taken before the application can be decided is to review all charges associated with theproperty on which the loan is to be secured and also any insurance taken out to cover the security. Once a loanapplication has been approved, the mortgage must be registered with the Property Registry as part of theformalities for finalizing the loan.

• Autonomy levels. The scoring of an application is the key element in determining the viability of a loan. Where theloan being sought is above a certain level, or where factors are present that are not readily captured by a scoringprocedure, a risk analyst will be involved. The limit for each autonomy level is based on credit scores, with additionalconditions being specified at each level to determine when special intervention is required. A set of exceptionalcircumstances has been defined for borrowers or sectors which are provided for in the group's internal rules andprocedures.

• Monitoring. The group has a wide-ranging monitoring system in place to identify customers that may be showingearly signs of default, ensuring that prompt action can be taken to initiate a response procedure in every case. A keypart of this process consists of well-established procedures to review and validate the security provided.

Businesses

• Analysis. This is carried out by "key management teams" made up of staff members on both the business and therisk management sides, thus ensuring a suitable separation of functions. This is supported by a credit rating toolthat takes account of the following parameters:- Management capability and effectiveness- Competitive position in the market- Economic and financial aspects- Track record- Security/guarantees.

• Decision. A decision will be based on the credit rating assessment and a range of other data and parameters suchas the consistency of the application, ability to pay and the nature of the security provided (as determined by anappraisal carried out by a Bank of Spain-authorized valuation firm which Banco Sabadell's own approval processeswill, additionally, have shown to be free of any association with the group); the "fit" between the company's workingcapital and its total sales; the appropriateness of the total amount borrowed from the group based on thebusiness's capital strength; examinations of internal and external databases of defaulters, and so on.With companies the decision process followed is similar to that used with individuals, with a scale of maximum LTVratios being defined internally by the group having regard to the intended purpose of the loan. For businessborrowers, as a general rule, the maximum LTV ratio is applied to mortgage loans to property developers, which arethen transferred to buyers of homes for use as their principal residences. This is fixed at 80%. Business loans are likewise subject to processes to evaluate any charges associated with the security provided andto have any mortgage registered with the Property Registry.

• Autonomy levels. Autonomy levels are set based on the expected loss involved in a transaction. There are severallevels at which decisions may be taken. Each of these levels involves the "key management team", one member ofwhich will be on the business side and one on the risk management side. All loan approvals must be the result of ajoint decision. As with individuals, a set of exceptional circumstances has been specified for borrowers or sectors,and these are provided for in the group's internal procedures.

• Monitoring. A comprehensive monitoring system ensures that customers showing signs of deterioratingcreditworthiness can be identified. Loan monitoring is triggered by certain events such as the expiry of a creditrating, a change in the nature of the business or risk and other aspects identified by the group's system of early


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warning alerts. Again, this includes procedures to ensure that the borrower's security or guarantees are constantlybeing reviewed and validated.

The Banco Sabadell group is an active participant and maintains a number of funding programmes on the capitalmarkets (see note 35). As one element of its funding strategy, Banco de Sabadell, S.A. is a regular issuer of coveredbonds, having made its first such issue in 2003. Its mortgage bond issues are backed by a portfolio of loans secured byreal estate mortgages that meet the eligibility criteria applicable under Royal Decree 716/2009 which provides rules onthe mortgage market and mortgage finance in Spain. The group has review procedures in place to monitor its entireportfolio of loans and credit lines secured by mortgages. These include maintaining special accounting records of all themortgage assets – and any assets that replace them – used to back its covered bonds and mortgage bonds, and of anyfinancial derivatives associated with them; verifying that all loans and assets meet the eligibility criteria for use ascollateral for issues of covered bonds; and ensuring that bond issues are at all times kept within their maximum limitsand generally complies with the applicable regulations.


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Note 9. Financial asset transfers

In recent years the Banco Sabadell group has undertaken a number of securitization programmes, either alone or inpartnership with other highly rated domestic and foreign banks. Financial assets securitized by the group under theseprogrammes at the end of the years 2009 and 2008 are summarized below. Assets on which the associated risks andrewards were transferred are shown separately.

€'000

2009 2008

Derecognized in full from balance sheet: 102,864 223,542

Securitized mortgage loans 90,651 199,141 Other securitized assets 7,550 19,574 Other financial asset transfers 4,663 4,827

Retained in full on balance sheet: 10,241,621 11,269,247

Securitized mortgage loans 6,110,407 7,036,101 Other securitized assets 4,131,214 4,233,146

Total 10,344,485 11,492,789

Assets and liabilities held in securitization funds set up after 1 January 2004 and whose associated risks and rewardswere not transferred to third parties have been retained in the consolidated financial statements. That is, for the assetslisted below there was no transfer of risk but some form of subordinate financing or other credit enhancement for thesecuritization vehicles was arranged.


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Details of current securitization programmes are given in the table below:

€'000

Rating Issue Liability outstanding

Fund name Number of

Year and series Fitch Moody's S&P securities Amount 2009 2008 Yield Market

2002 FTPYME TDA SABADELL 1, F.T.A. 6,000 600,000 0 78,670 AIAFSeries 1CA (a) AAA --- --- 3,201 320,100 0 29,625 EURIBOR 6M+0.01%Series 1SA AA --- --- 2,544 254,400 0 23,545 EURIBOR 6M+0.40%Series 2SA A --- --- 111 11,100 0 11,100 EURIBOR 6M+0.50%Series B BB --- --- 144 14,400 0 14,400 EURIBOR 6M+0.75%

2003 GC FTGENCAT II, F.T.A. 9,500 950,000 34,168 47,045 AIAFSeries AG (b) AAA Aaa --- 7,068 706,800 13,338 23,636 EURIBOR 3M+0.11%Series AS AA+ Aa1 --- 1,767 176,700 3,334 5,909 EURIBOR 3M+0.48%Series BG (b) AA Aa2 --- 176 17,600 4,631 4,600 EURIBOR 3M+0.28%Series BS A A1 --- 176 17,600 4,631 4,600 EURIBOR 3M+0.70%Series C BBB Baa1 --- 313 31,300 8,235 8,300 EURIBOR 3M+1.45%

2003 FTPYME TDA SABADELL 2, F.T.A. 5,000 500,000 121,885 182,404 AIAFSeries 1CA (a) AAA --- AAA 1,968 196,800 43,636 65,303 EURIBOR 3MSeries 1SA AAA --- AAA 2,667 266,700 59,135 88,497 EURIBOR 3M+0.26%Series 2SA AA --- A 215 21,500 11,259 16,849 EURIBOR 3M+0.50%Series 3SA BBB --- BBB 150 15,000 7,855 11,755 EURIBOR 3M+1.20%

2004 GC SABADELL 1, F.T.H. 12,000 1,200,000 536,169 616,909 AIAFSeries A1 --- Aaa AAA 1,500 150,000 0 0 EURIBOR 3M+0.06%Series A2 --- Aaa AAA 10,206 1,020,600 508,244 587,509 EURIBOR 3M+0.17%Series B --- A2 A 192 19,200 18,237 19,200 EURIBOR 3M+0.42%Series C --- Baa2 BBB 102 10,200 9,688 10,200 EURIBOR 3M+0.78%

2004 IM FTPYME SABADELL 3, F.T.A. 6,000 600,000 34,294 216,917 AIAFSeries 1SA --- Aaa AAA 4,408 440,800 12,800 67,437 EURIBOR 3M+0.11%Series 1CA (a) --- Aaa AAA 1,241 124,100 0 124,100 EURIBOR 3M-0.01%Series 2 --- A2 A 234 23,400 14,329 16,919 EURIBOR 3M+0.35%Series 3SA --- Baa3 BBB- 117 11,700 7,164 8,460 EURIBOR 3M+0.80%

2005 GC FTPYME SABADELL 4, F.T.A. 7,500 750,000 259,805 365,929 AIAFSeries AS AAA Aaa --- 5,494 549,400 59,205 165,329 EURIBOR 3M+0.10%Series AG (a) AAA Aaa --- 1,623 162,300 162,300 162,300 EURIBOR 3M+0.00%Series B A+ A2 --- 240 24,000 24,000 24,000 EURIBOR 3M+0.42%Series C BBB Baa3 --- 143 14,300 14,300 14,300 EURIBOR 3M+0.70%

2005 GC FTGENCAT SABADELL 1, F.T.A. 5,000 500,000 298,996 410,910 AIAFSeries AS AAA --- --- 1,289 128,900 0 39,810 EURIBOR 3M+0.15%Series AG (b) AAA --- --- 3,456 345,600 273,496 345,600 EURIBOR 3M-0.04%Series B A --- --- 198 19,800 19,800 19,800 EURIBOR 3M+0.42%Series C BBB --- --- 57 5,700 5,700 5,700 EURIBOR 3M+0.78%

2006 IM FTGENCAT SABADELL 2, F.T.A. 5,000 500,000 418,281 500,000 AIAFSeries AS AAA --- --- 2,028 202,800 121,081 202,800 EURIBOR 3M+0.15%Series AG (b) AAA --- --- 2,717 271,700 271,700 271,700 EURIBOR 3M-0.045%Series B A --- --- 198 19,800 19,800 19,800 EURIBOR 3M+0.40%Series C BBB --- --- 57 5,700 5,700 5,700 EURIBOR 3M+0.70%

2006 GC FTPYME SABADELL 5, F.T.A. 12,500 1,250,000 535,804 749,969 AIAFSeries A1 AAA --- --- 2,200 220,000 0 0 EURIBOR 3M+0.07%Series A2 AAA --- --- 8,803 880,300 386,104 600,269 EURIBOR 3M+0.13%Series A3 (G) (a) AAA --- --- 828 82,800 82,800 82,800 EURIBOR 3M+0.01%Series B A --- --- 400 40,000 40,000 40,000 EURIBOR 3M+0.30%Series C BBB --- --- 269 26,900 26,900 26,900 EURIBOR 3M+0.58%

Sub-total to 2006 2,239,402 3,168,753


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€'000

Rating Issue Liability outstanding

Fund name Number of

Year and series Fitch Moody's S&P securities Amount 2009 2008 Yield Market

Sub-total to 2006 2,239,402 3,168,753

2007 GC FTPYME SABADELL 6, F.T.A. 10,000 1,000,000 558,015 758,074 AIAFSeries A1 --- Aaa AAA 1,750 175,000 0 0 EURIBOR 3M+0.11%Series A2 --- Aaa AAA 6,354 635,400 368,415 568,474 EURIBOR 3M+0.19%Series A3(G) (a) --- Aaa AAA 1,341 134,100 134,100 134,100 EURIBOR 3M+0.005%Series B --- A2 A 355 35,500 35,500 35,500 EURIBOR 3M+0.43%Series C --- Baa2 BBB- 200 20,000 20,000 20,000 EURIBOR 3M+0.75%

2007 IM SABADELL EMPRESAS 1, F.T.A. 10,000 1,000,000 583,674 1,000,000 AIAFSeries A1 --- Aaa AAA 2,000 200,000 0 200,000 EURIBOR 3M+0.25%Series A2 --- Aaa AAA 7,390 739,000 522,674 739,000 EURIBOR 3M+0.35%Series B --- A3 A 250 25,000 25,000 25,000 EURIBOR 3M+1.25%Series C --- Baa3 BBB 360 36,000 36,000 36,000 EURIBOR 3M+2.50%

2007 IM FTGENCAT SABADELL 3, F.T.A. 3,500 350,000 209,911 284,086 AIAFSeries AS --- --- AAA 1,690 169,000 28,911 103,086 EURIBOR 3M+0.25%Series AG (b) --- --- AAA 1,573 157,300 157,300 157,300 EURIBOR 3M+0.21%Series B --- --- A 139 13,900 13,900 13,900 EURIBOR 3M+1.25%Series C --- --- BBB 98 9,800 9,800 9,800 EURIBOR 3M+2.50%

2008 GC SABADELL EMPRESAS 2, F.T.A. 10,000 1,000,000 656,561 1,000,000 AIAFA1 --- --- AAA 2,000 200,000 0 200,000 EURIBOR 3M+0.35%A2 --- --- AAA 7,475 747,500 604,061 747,500 EURIBOR 3M+0.55%B --- --- AAA 400 40,000 40,000 40,000 EURIBOR 3M+1.25%C --- --- BBB- 125 12,500 12,500 12,500 EURIBOR 3M+1.75%

2008 IM SABADELL RMBS 2, F.T.A. 14,000 1,400,000 1,201,367 1,400,000 AIAFA --- --- AAA 13,650 1,365,000 1,166,367 1,365,000 EURIBOR 3M+0.45%B --- --- A 182 18,200 18,200 18,200 EURIBOR 3M+1.25%C --- --- BBB 168 16,800 16,800 16,800 EURIBOR 3M+1.75%

2008 IM FTPYME SABADELL 7, F.T.A. 10,000 1,000,000 716,188 1,000,000 AIAFA1 --- --- AAA 4,975 497,500 213,688 497,500 EURIBOR 3M+0.45%A2 (G) --- --- AAA 4,025 402,500 402,500 402,500 EURIBOR 3M+0.50%B --- --- A 650 65,000 65,000 65,000 EURIBOR 3M+1.25%C --- --- BB- 350 35,000 35,000 35,000 EURIBOR 3M+1.75%

2008 IMFTGENCAT SABADELL 4, F.T.A. 5,000 500,000 500,000 500,000 AIAFA1 --- --- AAA 2,350 235,000 235,000 235,000 EURIBOR 3M+0.30%A2 (G) --- --- AAA 1,941 194,100 194,100 194,100 EURIBOR 3M+0.50%B --- --- A 393 39,300 39,300 39,300 EURIBOR 3M+1.25%C --- --- B 316 31,600 31,600 31,600 EURIBOR 3M+1.75%

2008 IM SABADELL RMBS 3, F.T.A. 14,400 1,440,000 1,440,000 1,440,000 AIAFA --- Aaa --- 14,112 1,411,200 1,411,200 1,411,200 EURIBOR 3M+0.40%B --- A1 --- 144 14,400 14,400 14,400 EURIBOR 3M+0.85%C --- Baa3 --- 144 14,400 14,400 14,400 EURIBOR 3M+1.25%

2008 IM SABADELL EMPRESAS 3, F.T.A. 17,400 1,740,000 1,740,000 1,740,000 AIAFA --- Aaa --- 14,094 1,409,400 1,409,400 1,409,400 EURIBOR 3M+0.35%B --- A3 --- 2,088 208,800 208,800 208,800 EURIBOR 3M+1.0%C --- Ba2 --- 1,218 121,800 121,800 121,800 EURIBOR 3M+1.50%

2009 GC SABADELL EMPRESAS 4, F.T.A. 6,200 620,000 620,000 0 AIAFA --- Aaa --- 5,258 525,800 525,800 --- EURIBOR 3M+0.55%B --- A3 --- 251 25,100 25,100 --- EURIBOR 3M+1.25%C --- Ba2 --- 691 69,100 69,100 --- EURIBOR 3M+1.75%

2009 IM SABADELL EMPRESAS 5, F.T.A. 9,000 900,000 900,000 0 AIAFA1 --- --- AAA 1,500 150,000 150,000 0 EURIBOR 3M+0.40%A2 --- --- AAA 5,340 534,000 534,000 0 EURIBOR 3M+0.50%B --- --- B+ 2,160 216,000 216,000 0 EURIBOR 3M+1.50%

Total 11,365,117 12,290,912

(a) Guaranteed by the Spanish Government.(b) Guaranteed by the Catalan Government.

Of the total outstanding liability, bonds associated with assets that were not removed from the balance sheetamounted to a total of €2,155,218,000 in 2009 and €2,627,346,000 in 2008. These bonds are reported in the balancesheet under debt certificates including bonds (see note 19).

Note 10. Changes in the fair value of hedged items in portfolio hedges of interest rate risk

At 31 December 2009 the balances under this heading on the asset and liability sides of the consolidated balance sheetwere made up of gains and losses on items covered by fair value hedges against interest rate risk on portfolios offinancial instruments. At the end of the year losses on hedged items were €452,290,000 (€219,952,000 at 31December 2008) but these losses were almost entirely offset by gains on their associated hedging derivatives.


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Note 11. Hedging derivatives (assets and liabilities)

Hedging derivatives reported at fair value on the consolidated balance sheets at 31 December 2009 and 2008 areanalysed as follows:

€'000

2009 2008

Assets Liabilities Assets Liabilities

Micro-hedges

Fair value hedges 8,055 68,129 64,951 173,622 Cash flow hedges 381 639 5,833 1,504

Of which: Recognized in equity (note 27) 387 415 5,543 1,317

Macro-hedges:

Fair value hedges 659,284 7,085 429,984 5,361 Cash flow hedges 361 33,136 0 49,932

Of which: Recognized in equity (note 27) 470 17,755 0 49,811

Total 668,081 108,989 500,768 230,419


Euro denominated 667,752 108,227 486,278 230,314 Foreign currency denominated 329 762 14,490 105

Total 668,081 108,989 500,768 230,419

The main types of interest rate risk hedging contract entered into by the group are fixed/variable interest rate swaps.The most usual valuation technique used with these swaps is the discounted cash flow method.

The group enters into interest rate hedging contracts as part of its policy for managing interest rate risk (see note 35on financial risk management). The main types of hedging instrument used are described below:

a) Fair value hedges:

The items covered by these swaps are as follows:

• Capital market funding operations by the group, resulting in debt issues at fixed rates of interest. At 31 December2009 and 2008 the fair value of swaps covering these items represented net liabilities of €599,435,000 and€387,238,000 respectively.

• Deposits sold through the group's branch network at fixed rates of interest. At 31 December 2009 and 2008 thefair value of swaps covering these items represented net liabilities of €27,389,000 and €18,662,000 respectively.

• Individual loans by the group at fixed rates of interest. At 31 December 2009 and 2008 the fair value of swapscovering these items showed gains of €10,985,000 and €4,703,000 respectively.

In addition, to hedge certain foreign currency denominated issues, the Bank had a cross-currency swap arrangement inplace with a counterparty of recognized good standing, the fair value adjustment gain on which totalled €22,816,000 at31 December 2009 (a gain of €36,265,000 at 31 December 2008). This has been designated as a hedging instrumentto cover the currency risk on a number of US dollar-denominated capital-raising issues in the USA.

The majority of the group's hedging operations are carried out by Banco de Sabadell, S.A. and Banco Urquijo SabadellBanca Privada, S.A.


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Gains and losses recognized during the year on hedging instruments and on hedged items are shown in the following table:

€'000

2009 2008

Hedging Hedged Hedging Hedged

instruments items instruments items

Micro-hedges 20,055 (20,079) 440,680 (447,991)

Fixed-rate assets (1,494) 1,236 (13,305) 9,890 Exchange rate hedges (671) 514 1,541 (1,331)Capital market 41 65 396,190 (393,082)Fixed-rate liabilities 22,179 (21,894) 56,254 (63,468)

Macro-hedges 253,647 (244,014) 219,952 (219,952)

Capital market and fixed-rate liabilities 253,647 (244,014) 219,952 (219,952)

Total 273,702 (264,093) 660,632 (667,943)

b) Cash flow hedges:

Amounts recognized in consolidated equity in the year and amounts derecognized from consolidated equity and taken tothe consolidated income statement for the year are reported in the consolidated statement of changes in equity for theBanco Sabadell group.

In the case of interest rate micro-hedges, the inflows from expected cash flows are considered likely to occur in thenear term.

The purpose of the cash flow macro-hedge is to reduce net interest income volatility due to fluctuations in interestrates over a 1-year time horizon. This macro-hedge is thus a hedge of future cash flows related to the net exposure of aportfolio made up of highly probable liabilities with exposures similar to interest rate risk. At the present time the hedginginstruments used for this purpose are financial interest rate swaps.

Note 12. Non-current assets held for sale and liabilities associated with non-current assets held for sale

These items of the consolidated balance sheet at 31 December 2009 and 2008 are analysed below:

€'000

2009 2008

Assets 81,541 23,883

Land and buildings for own use 35,375 9,511 Repossessed assets 46,166 14,372

Impairment provisions (9,995) (2,772)

Total non-current assets held for sale 71,546 21,111

Liabilities associated with non-current assets held for sale 0 0

The above totals are made up of non-current assets and liabilities whose book values are expected to be recoverableon disposal within one year of the balance sheet date.

Repossessed assets comprise assets received from borrowers or others debtors of the Bank in full or part settlementof financial assets representing claims against those borrowers or debtors.


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Note 13. Investments

The following table shows the composition of, and changes in, this item at 31 December 2009 and 2008.

€'000

Results of Translation

equity- Acquisition Disposal Payment differences

Balance at accounted or increase or of and other Balance at

31.12.2008 undertakings in capital dissolution dividends Transfer movements 31.12.2009

Undertakings accounted for by

the equity method:

Adelanta Corporación, S.A. 37,870 74 0 0 (50) 0 0 37,894 Aviación Regional Cántabra, A.I.E. 8,220 513 0 0 (40) 0 0 8,693 Banco del Bajío, S.A. (a) 91,398 7,450 6,485 0 (4,403) 0 (545) 100,385 BanSabadell Pensiones , E.G.F.P., S.A. 15,406 1,380 0 0 (3,152) 0 0 13,634 BanSabadell Seguros Generales, S.A.

de Seguros y Reaseguros 6,286 355 0 0 0 0 (28) 6,613 BanSabadell Vida, S.A. de Seguros y Reaseg. 75,521 26,088 0 0 0 0 22,824 124,433 Centro Financiero B.H.D., S.A. (a) 37,379 9,994 4,885 0 (9,608) 0 (677) 41,973 Dexia Sabadell, S.A. (b) 150,637 26,000 0 0 0 0 6,898 183,535 Establecimientos Industriales y Servicios, S.L. 39,107 (291) 7 0 0 0 (504) 38,319 Garnova, S.L. 46,830 1,090 0 0 0 0 0 47,920 Grafos, S.A. Arte sobre Papel 1,865 1,152 0 0 0 0 20 3,037 Intermas Nets, S.A. 23,036 1,590 0 0 (480) 0 0 24,146 J. Feliu de la Penya, S.L. 0 (800) 10,501 0 (120) 0 (2,254) 7,327 Parc Eòlic Veciana - Cabaro, S.L. 1,104 129 0 0 0 0 0 1,233 Parque Eólico la Peñuca, S.L. 3,261 219 0 0 0 0 (167) 3,313 Parque Eólico Magaz, S.L. 4,233 (362) 2,192 0 0 0 (636) 5,427 SBD Creixent, S.A. 2,890 (21) 0 0 0 0 0 2,869 Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. 2,215 248 0 0 0 0 0 2,463 Sociedad de Inversiones y Participaciones

Comsa Emte, S.L. 0 0 47,271 0 0 0 0 47,271 Other holdings 40,708 (1,442) 679 (34,355) 0 0 0 5,590

Total 587,966 73,366 72,020 (34,355) (17,853) 0 24,931 706,075

€'000

Results of Translation

equity- Acquisition Disposal Payment differences

Balance at accounted or increase or of and other Balance at

31.12.2007 undertakings in capital dissolution dividends Transfer movements 31.12.2008

Entities accounted for by

the equity method:

Adelanta Corporación, S.A. 0 669 37,201 0 0 0 0 37,870 Aviación Regional Cántabra, A.I.E. 8,370 (150) 0 0 0 0 0 8,220 Banco del Bajío, S.A. (a) 83,903 12,140 6,309 0 (3,325) 0 (7,629) 91,398 BanSabadell Pensiones, E.G.F.P., S.A. 0 3,152 0 0 0 12,254 0 15,406 BanSabadell Seguros Generales, S.A.

de Seguros y Reaseguros 0 391 0 0 0 5,895 0 6,286 BanSabadell Vida, S.A. de Seguros y Reaseg. 0 9,055 0 0 0 75,356 (8,890) 75,521 Centro Financiero B.H.D., S.A. (a) 29,021 10,781 2,317 0 (5,082) 0 342 37,379 Dexia Sabadell, S.A. (b) 78,464 15,614 45,200 0 0 0 11,359 150,637 EMTE Grupo Empresarial y

Corporativo, S.L. (c) 24,052 294 3,000 0 0 0 0 27,346 Establecimientos Industriales y Servicios, S.L. 0 1,671 37,436 0 0 0 0 39,107 Garnova, S.L. 0 4,016 42,814 0 0 0 0 46,830 Intermas Nets, S.A. 22,278 823 0 0 (65) 0 0 23,036 Parque Eólico la Peñuca, S.L. 2,389 872 0 0 0 0 0 3,261 Parque Eólico Magaz, S.L. 0 (157) 4,390 0 0 0 0 4,233 Telstar, S.A. 6,807 100 0 0 0 0 0 6,907 Other holdings 17,237 (1,798) 568 0 (127) 0 (1,351) 14,529

Total 272,521 57,473 179,235 0 (8,599) 93,505 (6,169) 587,966

(a) Euro equivalent.

(b) Formerly known as Dexia Sabadell Banco Local, S.A.

(c) Formerly known as Solduga, S.L.


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Changes in goodwill associated with investments in the years to 31 December 2009 and 2008 were as follows:

€'000

Balance at Recognized/ Balance at Recognized/ Balance at

31.12.2007 derecognized 31.12.2008 derecognized 31.12.2009

Adelanta Corporación, S.A. 0 0 0 28,391 28,391 Centro Financiero BHD, S.A. 3,585 0 3,585 0 3,585 Dexia Sabadell, S.A. 3,237 0 3,237 0 3,237 Establecimientos Industriales y Servicios, S.L. 0 0 0 37,443 37,443 Garnova, S.L. 0 27,887 27,887 0 27,887 Intermas Nets, S.A. 15,695 0 15,695 0 15,695 J. Feliu de la Penya, S.L. 0 0 0 2,974 2,974 Parque Eólico Magaz, S.L. 0 3,655 3,655 2,192 5,847 Otros 2,808 230 3,038 (1,544) 1,494

Total 25,325 31,772 57,097 69,456 126,553

Note 14. Tangible assets

The composition of this item of the consolidated balance sheet at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Cost Depreciation Impairment Net value Cost Depreciation Impairment Net value

Tangible fixed assets 1,563,811 (595,917) (5,185) 962,709 1,649,878 (616,320) (33,689) 999,869

For own use: 1,423,479 (551,601) (5,185) 866,693 1,516,578 (575,022) (33,689) 907,867 Computer and related equipment 207,540 (163,596) 0 43,944 219,192 (181,478) 0 37,714 Furniture, vehicles & other equipment 594,627 (285,009) (2,272) 307,346 601,307 (281,767) (9,795) 309,745 Buildings 568,653 (102,993) (2,913) 462,747 625,203 (111,773) (23,894) 489,536 Building work in progress 29,679 0 0 29,679 40,292 0 0 40,292 Other 22,980 (3) 0 22,977 30,584 (4) 0 30,580

Leased out under operating leases 140,332 (44,316) 0 96,016 133,300 (41,298) 0 92,002

Investment property 184,353 (3,411) (3,461) 177,481 82,888 (1,840) 0 81,048

Buildings 180,080 (3,411) (3,461) 173,208 64,212 (1,840) 0 62,372 Rural property, building plots and sites 4,273 0 0 4,273 18,676 0 0 18,676

Total 1,748,164 (599,328) (8,646) 1,140,190 1,732,766 (618,160) (33,689) 1,080,917


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Changes in tangible assets in 2009 and 2008 are shown in the following table:

€'000

Furniture & Investment Leased out under

Buildings equipment properties operating leases Total

Cost:

Balance at 31 December 2007 665,108 755,146 10,504 131,735 1,562,493 Additions 31,882 139,712 77,678 55,472 304,744 Disposals (3,751) (82,703) (1,491) (53,907) (141,852)Changes in basis of consolidation 0 64 0 0 64 Other 2,839 8,281 (3,803) 0 7,317

Balance at 31 December 2008 696,078 820,500 82,888 133,300 1,732,766 Additions 12,796 102,902 114,534 58,031 288,263 Disposals (24,279) (149,549) (122) (33,394) (207,344)Changes in basis of consolidation 0 26,284 2,534 0 28,818 Other (63,281) 2,028 (15,481) (17,605) (94,339)

Balance at 31 December 2009 621,314 802,165 184,353 140,332 1,748,164

Accumulated depreciation:

Balance at 31 December 2007 103,049 418,742 1,863 38,211 561,865 Additions 9,693 60,101 923 21,674 92,391 Disposals (289) (15,929) (19) (17,940) (34,177)Changes in basis of consolidation 0 21 0 0 21 Other (677) 311 (927) (647) (1,940)

Balance at 31 December 2008 111,776 463,246 1,840 41,298 618,160 Additions 9,049 60,119 2,014 21,499 92,681 Disposals (6,205) (76,246) (87) (8,414) (90,952)Changes in basis of consolidation 0 1,288 0 0 1,288 Other (11,622) 196 (356) (10,067) (21,849)

Balance at 31 December 2009 102,998 448,603 3,411 44,316 599,328

Impairment losses

Balance at 31 December 2007 3,163 17,000 0 0 20,163 Additions 21,283 0 0 0 21,283 Disposals (370) 0 0 0 (370)Other (182) (7,205) 0 0 (7,387)

Balance at 31 December 2008 23,894 9,795 0 0 33,689 Additions 945 0 3,462 0 4,407 Disposals (21,211) 0 0 0 (21,211)Other (716) (7,523) 0 0 (8,239)

Balance at 31 December 2009 2,912 2,272 3,462 0 8,646

Net balance at 31 December 2008 560,408 347,459 81,048 92,002 1,080,917

Net balance at 31 December 2009 515,404 351,290 177,480 96,016 1,140,190

The "other" line item under Land and buildings includes transfers to non-current assets held for sale totalling€51,143,000 at 31 December 2009, net of depreciation; the Investment properties column includes assets transferredto inventories whose value at 31 December 2009 was €14,206,000.

The fair value of properties for the group's own use at 31 December 2009 was approximately €1,034,252,000(approximately €1,243,250,000 in 2008). Fair values of properties have been based on assessed values certified byfirms of valuers. In reaching their assessments, valuers used the comparative method for unoccupied and/or own usepremises, the income capitalization method for leased properties and the static residual approach for land values.

The gross value of own-use tangible assets that remained in use and had been fully depreciated at 31 December 2009and 2008 amounted to €196,038,000 and €229,221,000 respectively.

The net book cost of tangible assets of foreign operations was €39,377,000 at the close of 2009 (€47,424,000 atthe close of 2008).

In the course of 2009 the Bank entered into sale and leaseback transactions in relation to some of its properties. The gains from these sale and leaseback arrangements totalled €67,463,000 during the year and have been recognized under gains (losses) on derecognition of assets not classified as non-current assets held for sale (seenote 32 (h)). Outgoings of €3,729,000 were incurred under the leasing agreements in 2009 and have been recognized inthe "premises, fittings and equipment" item of the "other general administrative expenses" category under Administrativeexpenses (see note 32 (f)).


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The present value of the minimum amount of future payments likely to be incurred by the group under operating leases,that is, during the minimum term of the leases (assuming that any available options to renew the lease or purchase theasset are not exercised) stood at €7,422,000 for one-year terms, €25,174,000 for terms from one to five years and€33,784,000 for terms of more than five years.

With regard to the "Leased out under operating leases" column of the table, the bulk of the group's operating leasebusiness is carried on by BanSabadell Renting, S.A. and consists of vehicle leasing.

Assets comprised within the "Investment properties" column showed an aggregate fair value of €172,020,000 at theend of the year. Rental income from these investment properties and the direct costs associated with these properties,whether giving rise to rental income during the year or not, were not such as to have a significant impact on theconsolidated annual accounts.

In 1996 Banco de Sabadell, S.A., Banco Herrero, S.A. and Europea de Inversiones y Rentas, S.L. (both now mergedinto Banco Sabadell) availed themselves of article 5 of Royal Decree Law 7/1996 of 7 June and subsequent legislativeprovisions to restate their property, plant and equipment in accordance with Royal Decree 2607/1996 of 20 December.The maximum amount to which any asset could be revalued was the professionally assessed market value of the asset.Increases in the valuations of property, plant and equipment for these undertakings were as follows:

€'000

Increase in valuation

Banco de Sabadell, S.A. 36,402 Banco Herrero, S.A. (1) 6,353 Europea de Inversiones y Rentas, S.L. (2) 2,254

Total 45,009

(1) Banco Herrero, S.A. was absorbed by Banco de Sabadell, S.A. in 2002.

(2) Europea de Inversiones y Rentas, S.L. was absorbed by Banco de Sabadell, S.A. in 2008.

Of the total amount of assets subject to restatement,€543,000 was written off for depreciation during the year 2009for Banco de Sabadell, S.A. (2008: €666,000 written off for Banco Sabadell, S.A. of which €11,000 related to propertyformerly owned by the merged company Europea de Inversiones y Rentas).

Also included in tangible assets are assets currently on the Bank's balance sheet as a result of a series of mergersthat have seen the incorporation of Solbank SBD, S.A., Banco Herrero, S.A., Banco de Asturias, S.A., BanSabadell LeasingEFC, S.A., Solbank Leasing EFC, S.A., BanAsturias Leasing EFC, S.A., Banco Atlántico, S.A., Banco Urquijo, S.A. andEuropea de Inversiones y Rentas, S.L. Details of these mergers are provided in legalized accounting records filed with theMercantile Registry.


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Note 15. Intangible assets

The composition of this item at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Goodwill: 490,930 527,821

Aurica XXI, S.C.R., S.A. 1,128 1,128 Axel Group, S.L. 5,324 5,324 Banco Urquijo 473,837 473,837 BanSabadell Fincom, E.F.C., S.A. 4,923 4,923 Compañía de Electricidad y Cogeneración de Uvero, S.A. 0 1,046 Jerez Solar, S.L. 3,486 0 Sabadell Corporate Finance, S.L. 1,248 0 BanSabadell Profesional, S.L. (2) 984 984 Transatlantic Holding Corporation 0 40,579

Other intangible assets: 179,050 190,715

With finite useful lives: 179,050 190,715 Contractual relations with customers (Banco Urquijo) 32,065 37,966 Deposits from other creditors (Banco Urquijo) 8,101 10,322 Banco Urquijo brand 7,616 8,503 Intangibles - Transatlantic Bank 0 5,469 Private banking business, Miami (1) 25,458 29,945 Computer software purchase costs 104,043 96,845 Other deferred charges 1,767 1,665

Total 669,980 718,536

(1) See note 2.

(2) Formerly Tecnocredit, S.A.

Goodwill

To measure the goodwill in Banco Urquijo, the cost of the business combination was determined based on the fair valueof the assets surrendered, the liabilities incurred, any potential income and cost synergies identified, and the costsdirectly attributable to the business combination. From a comparison of the cost of the business combination with the netfair value of the assets, liabilities and contingent liabilities of the acquired undertaking, a difference of €473,837,000arose and was recognized in assets as goodwill. In measuring assets at their fair values, increases in property valueswere recognized for a total of €80,690,000 (€61,410,000 after tax) and intangible assets were identified with a value of€78,587,000 (€54,598,000 after tax).

This goodwill was then allocated to the cash-generating units (CGUs) thought likely to benefit from the synergiesidentified. These were the Private Banking CGU, the Commercial Banking CGU, the Corporate Banking CGU and OtherCGUs. Synergies that could not be allocated to any one CGU because of limitations in the historical data available for theacquired undertaking were assigned to all CGUs. In 2009 the goodwill assigned to the Business Banking CGU wasreassigned to the Commercial Banking CGU and the newly created Corporate Banking CGU in line with the group's currentbusiness model.

At the end of 2009 the Bank made an assessment, on a recoverable value basis, to see whether there were anyindications of impairment in the goodwill associated with Banco Urquijo. The assessment showed there had been noimpairment in the value of the goodwill.

The valuation method used was to estimate the present value of future distributable net profits associated with thebusiness carried on by Banco Urquijo over a projection period of 5 years (up to 2014) and to calculate a terminal valuebased on a nil growth rate in perpetuity. The key variables on which the financial projections were built were: growth in theinterest margin (as determined by forecast business volumes and rates of interest), changes in other income andexpense items, and capital ratios.

These forecasts were based on a recovery in lending growth and declining default and delinquency rates in the latterpart of the projection period. To estimate future interest rate movements, in line with recent forecasts of analysts andinternational financial institutions, it was assumed that the ECB would keep official rates unchanged in the absence ofinflationary pressures or until economic recovery began to look sustainable. Money market risk premiums, it wasassumed, would remain at the low levels reached since September 2007. To obtain interest spread forecasts for loansand deposits, a fixed minimum spread was assumed. Assumptions for other key components of income and expenseincluded a recovery in fee and commission income and cost increases remaining subdued. Finally, to determine the flowsof distributable profit some assumptions about minimum capital ratios were made having regard to Basel II requirements.


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The present value of future distributable income flows used to measure value in use was calculated taking thediscount rate as the cost of Banco Sabadell's capital (Ke) from the standpoint of a market participant. To do this theCapital Asset Pricing Model (CAPM) was used.

In this method, discount rates of between 9.3% and 11.2% were used, depending on the CGU that was being valued.The growth rates used in the projections for lending and deposit-taking were between 1.8% and 10.1% and between 0%

and 10.4% respectively, according to the particular analysis being carried out for each CGU.A final accounting for the business combination resulting from the acquisition of Transatlantic Holding Corp. was

completed in the course of 2008. This resulted in the goodwill from the acquisition being finally assessed at€91,751,000 and identified intangible assets associated with the transaction amounting to €7,108,000.

At the end of 2009 an assessment was carried out to determine whether there were any signs of impairment of thisgoodwill. An impairment of the goodwill was recognized and the full amount was conservatively written down by€39,208,000 (€51,000,000 in 2008). The said impairment has been recorded in these annual accounts under "Lossesdue to impairment of other assets - Goodwill and other intangible assets" in the consolidated income statement.

The valuation method, the key variables and the projection period that were used were the same as those describedabove in relation to the goodwill assessment carried out for Banco Urquijo.

The assumptions used, both in the goodwill assessment for Banco Urquijo and the final valuation of the goodwill forTransatlantic Holding Corp. at 31 December 2009, have been checked and verified by independent appraisers.

Other intangible assets

In other intangible assets the main intangibles associated with the purchase of Banco Urquijo were the values ofcontractual rights under agreements with Banco Urquijo customers for certain products (OEICs, investment and pensionfunds, credit/debit cards, short-term loans, brokerage and custody services), the values of deposits, and the value of theBanco Urquijo brand. These assets have been valued by the income (discounted cash flow) method, with the multi-periodexcess earnings technique being used for income from contractual relations and deposits, and the price premiumtechnique to measure the brand value.

These intangible items have finite useful lives of 12 years for Private Banking customers, seven years for CommercialBanking customers and five years for other categories. They are amortized over these lives on a straight-line basis in away similar to that used for tangible assets.

The intangibles associated with the 2008 acquisition of the BBVA private banking business in Miami include the valueof contractual arrangements arising from customer relationships transferred along with the business and consistingmainly of short-term loans and also of deposits. As required by the accounting rules, a final accounting for the businesscombination resulting from this acquisition was completed in the course of 2009. The final accounting identified andrecognized intangible assets to a value of €29,495,000.

Assessments were carried out to determine whether there were indications of impairment in any of these intangiblesby comparing the actual performance of intangible-generating variables with the performance assumed in the initialvaluation. These variables included possible loss of customers, average balance per customer, average gross income andassigned cost:income ratio. As of 31 December 2009 there was no need to recognize any impairment.

On the other hand, the intangible assets identified following the acquisition of Transatlantic Holding Corporation werewritten down in their entirety at the end of 2009, based on conservative valuation criteria.

The "computer software purchase costs" item in the table refers principally to deferred expense related to outsourcedIT work and software licence purchases.

Work continued throughout the year on programmes to increase the Bank's operating efficiency, with a special focus onthemes related to providing information to customers and introducing advanced marketing tools to increase branchproductivity and make use of the extra selling capacity freed up as a result of reducing the amount of administrative workto be done by branches. Meanwhile, a steady stream of enhancements was being made to the Bank's risk monitoring andrecovery management systems, helping to improve loan delinquency rates; the focus on developing channels wasstrengthened, cash machines were upgraded, the group's web content was enriched and the new BS Móvil site launched;and the Trade project, which will totally revamp our Treasury Desk, was started.


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Changes in goodwill in the years 2009 and 2008 were as follows:

€'000

Goodwill Impairment Total

Balance at 31 December 2007 570,454 0 570,454

Additions 5,907 (51,000) (45,093)Disposals and write-offs 0 0 0 Other 2,460 0 2,460

Balance at 31 December 2008 578,821 (51,000) 527,821

Additions 4,734 (39,208) (34,474)Disposals and write-offs 0 0 0 Other (1,371) (1,046) (2,417)

Balance at 31 December 2009 582,184 (91,254) 490,930

Changes in other intangible assets in 2009 and 2008 were as follows:

€'000

Cost Amortization Impairment Total

Balance at 31 December 2007 364,939 (209,977) (9,624) 145,338

Additions/reductions due to changes in basis of consolidation 47 (10) 0 37 Additions 95,373 (40,671) (4,265) 50,437 Disposals and write-offs (20,879) 14,729 0 (6,150)Other 991 62 0 1,053


Additions/reductions due to changes in basis of consolidation 0 0 0 0 Additions 49,015 (50,049) (4,434) (5,468)Disposals and write-offs (33,189) 28,600 0 (4,589)Other (15,219) (278) 13,889 (1,608)


The gross value of other intangible assets that were still in use and had been fully amortized at 31 December 2009and 2008 totalled €161,587,000 and €182,272,000 respectively.


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Note 16. Other assets

The composition of other assets at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Inventories 1,330,844 776,469 Other 89,861 144,542

Total 1,420,705 921,011

Changes in inventories in 2009 and 2008 were as follows:

€'000

Real estate

Land developments Other Total

Balance at 31 December 2007 0 0 2,522 2,522

Additions 693,355 136,330 2,629 832,314 Reductions and write-offs 0 0 (396) (396)Impairment (52,297) (5,674) 0 (57,971)

Balance at 31 December 2008 641,058 130,656 4,755 776,469

Additions 652,389 107,293 135 759,817 Reductions and write-offs (1,681) (37,756) (272) (39,709)Transfers 39,295 (24,800) 0 14,495 Impairment (165,261) (14,967) 0 (180,228)

Balance at 31 December 2009 1,165,800 160,426 4,618 1,330,844

The fair value of inventories was €1,386,000,000 at 31 December 2009 (€784,000,000 at 31 December 2008).At 31 December 2009 the total value of inventories subject to a charge or mortgage was €9,017,000.

Note 17. Deposits from credit institutions

Deposits from credit institutions, a liability item on the consolidated balance sheet, are analysed as follows for the years2009 and 2008:

€'000

2009 2008



Total 8,512,365 4,795,465

Analysis by type:

Time deposits 4,557,791 3,153,617 Repurchase agreements 3,710,921 1,407,411 Other accounts 220,340 190,630 Valuation adjustments 23,313 43,807

Total 8,512,365 4,795,465



Total 8,512,365 4,795,465

Average annual rates of interest payable on deposits from credit institutions for the years 2009 and 2008 were 2.13%and 4.35% respectively.


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Note 18. Deposits from other creditors

The deposits from other creditors reported on the consolidated balance sheet at 31 December 2009 and 2008 can beanalysed as follows:

€'000

2009 2008



Total 39,130,722 39,199,242

Analysis by type:

Demand deposits 14,981,353 14,883,843 Time deposits 22,149,882 21,250,307 Repurchase agreements 1,723,792 2,757,162 Valuation adjustments 275,695 307,930

Total 39,130,722 39,199,242

Analysis by sector:

General government 1,287,692 1,040,859 Resident sector 34,175,608 34,349,394 Non-resident sector 3,391,727 3,501,059 Valuation adjustments 275,695 307,930

Total 39,130,722 39,199,242


Euro denominated 36,849,611 36,962,127 Foreign currency denominated 2,281,111 2,237,115

Total 39,130,722 39,199,242

Average annual rates of interest payable on deposits from other creditors for the years 2009 and 2008 were 2.05%and 3.33% respectively.


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Note 19. Debt certificates including bonds

Details of issues and buybacks/redemptions of debt securities by the group from 31 December 2008 to 31 December2009 are given in the table below together with comparative information for the previous year.

€'000

31/12/2009

Opening (+/-) Exchange Closing

balance (-) Buybacks/ and other balance

31/12/2008 (+) Issues redemptions movements 31/12/2009

Debt securities issued in an EU 19,796,362 5,507,019 (5,286,998) 30,113 20,046,496Member State and requiring the registration of a prospectus

Debt securities issued in an EU 748,905 8,296,133 (6,888,694) 6,882 2,163,226Member State and not requiring the registration of a prospectus

Debt securities issued in a non-EU 1,478,993 99,566 (934,013) (41,821) 602,725 Member State

Total 22,024,260 13,902,718 (13,109,705) (4,826) 22,812,447

€'000

31/12/2008

Opening (+/-) Exchange Closing

balance (-) Buybacks/ and other balance

31/12/2007 (+) Issues redemptions movements 31/12/2008

Debt securities issued in an EU 25,656,390 4,793,652 (11,054,331) 400,651 19,796,362Member State and requiring the registration of a prospectus

Debt securities issued in an EU 0 759,800 0 (10,895) 748,905 Member State and not requiring the registration of a prospectus

Debt securities issued in a non-EU 1,383,372 6,250 0 89,371 1,478,993Member State

Total 27,039,762 5,559,702 (11,054,331) 479,127 22,024,260


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Details of debt certificates including bonds issued by the group and recorded on the balance sheet at 31 December2009 and 2008 are given in the table below:

€'000

Date of Type of Rate of interest Maturity Issue

Issuer issue security 2009 2008 at 31.12.2009 date currency

Banco de Sabadell, S.A. 20.09.2005 Debt securities 1,000,000 1,000,000 EURIBOR 3M + 0.10 20.09.2010 EuroBanco de Sabadell, S.A. 07.07.2006 Debt securities 0 1,500,000 - 07.07.2009 EuroBanco de Sabadell, S.A. 04.10.2006 Debt securities 50,000 50,000 EURIBOR 3M + 0.14 04.10.2016 EuroBanco de Sabadell, S.A. 26.10.2006 Debt securities 1,000,000 1,000,000 EURIBOR 3M + 0.13 26.10.2011 EuroBanco de Sabadell, S.A. 25.04.2007 Fx debt securities 0 934,013 - 23.04.2009 USDBanco de Sabadell, S.A. 25.04.2007 Fx debt securities 485,909 503,079 LIBOR 3M + 0.10 23.04.2010 USDBanco de Sabadell, S.A. 10.03.2008 Structured bonds 8,800 8,800 linked to underlyings 10.03.2011 EuroBanco de Sabadell, S.A. 30.05.2008 Structured bonds 8,900 8,900 linked to underlyings 30.05.2010 EuroBanco de Sabadell, S.A. 29.07.2008 Structured bonds 5,100 5,100 linked to underlyings 29.07.2010 EuroBanco de Sabadell, S.A. 20.04.2009 Debt securities 75,000 0 EURIBOR 3M + 0.35 20.04.2011 EuroBanco de Sabadell, S.A. 22.05.2009 Debt securities 750,000 0 4.38% 22.05.2012 EuroBanco de Sabadell, S.A. 20.11.2009 Debt securities 800,000 0 EURIBOR 3M + 0.80 20.02.2012 EuroBanco de Sabadell, S.A. 28.12.2009 Debt securities 150,000 0 EURIBOR 3M 28.12.2012 EuroSubscribed by group companies - - (22,909) 0 - - -

Banco de Sabadell, S.A. (1) 20.03.2006 Notes 0 324 - Various dates EuroBanco de Sabadell, S.A. (1) 13.03.2007 Notes 0 216,422 - Various dates EuroBanco de Sabadell, S.A. (1) 11.03.2008 Notes 8,195 2,720,652 1.90% - 4.01% Various dates EuroBanco de Sabadell, S.A. (1) 12.03.2009 Notes 2,762,713 0 0.26% - 2.70% Various dates EuroBanco de Sabadell, S.A. (Londonbranch) (1) 25.06.2008 Notes (ECP) 2,167,859 759,800 0.415% - 1.9% Various dates EuroSubscribed by group companies - - (1,492) (19,540) - - -

Banco de Sabadell, S.A. 29.04.2003 Mortgage bonds 1,500,000 1,500,000 4.50% 29.04.2013 EuroBanco de Sabadell, S.A. 26.01.2004 Mortgage bonds 1,200,000 1,200,000 3.75% 26.01.2011 EuroBanco de Sabadell, S.A. 15.06.2005 Mortgage bonds 1,500,000 1,500,000 3.25% 15.06.2015 EuroBanco de Sabadell, S.A. 19.01.2006 Mortgage bonds 1,750,000 1,750,000 3.50% 19.01.2016 EuroBanco de Sabadell, S.A. 10.05.2006 Mortgage bonds 300,000 300,000 4.13% 10.05.2016 EuroBanco de Sabadell, S.A. 16.05.2006 Mortgage bonds 120,000 120,000 4.25% 16.05.2016 EuroBanco de Sabadell, S.A. 24.01.2007 Mortgage bonds 1,500,000 1,500,000 4,25% 24.01.2017 EuroBanco de Sabadell, S.A. 20.06.2007 Mortgage bonds 300,000 300,000 EURIBOR 3M + 0.05 20.06.2017 EuroBanco de Sabadell, S.A. 05.11.2007 Mortgage bonds 0 200,000 - 05.11.2009 EuroBanco de Sabadell, S.A. 16.11.2007 Mortgage bonds 0 200,000 - 16.11.2009 EuroBanco de Sabadell, S.A. 09.05.2008 Mortgage bonds 1,250,000 1,250,000 5.00% 09.05.2010 EuroBanco de Sabadell, S.A. 17.11.2008 Mortgage bonds 0 200,000 - 17.11.2009 EuroBanco de Sabadell, S.A. 29.12.2008 Mortgage bonds 600,200 600,200 4.00% 29.12.2011 EuroBanco de Sabadell, S.A. 17.02.2009 Mortgage bonds 488,500 0 3.50% 17.02.2012 EuroBanco de Sabadell, S.A. 30.04.2009 Mortgage bonds 100,000 0 EURIBOR 3M + 1 08.05.2021 EuroBanco de Sabadell, S.A. 17.07.2009 Mortgage bonds 50,000 0 3.12% 17.07.2012 EuroBanco de Sabadell, S.A. 24.07.2009 Mortgage bonds 200,000 0 EURIBOR 3M + 1.30 31.07.2017 EuroBanco de Sabadell, S.A. 10.09.2009 Mortgage bonds 150,000 0 EURIBOR 3M + 0.90 18.09.2018 EuroSubscribed by group companies - - (3,000) (203,000) - - -

BancSabadell d'Andorra, S.A. Various dates Ordinary bonds 116,816 17,250 Various rates Various dates EuroSecuritization funds Various dates Ordinary bonds 2,155,218 2,627,346 Various rates Various dates Euro

Valuation and other adjustments - - 286.638 274.914 - - -

Total 22,812,447 22,024,260

(1) A prospectus for an €8,500 million issue has been filed with the CNMV.

Note 20. Subordinated liabilities

Details of subordinated liabilities issued by the group and recorded on the consolidated balance sheet at 31 December2009 and 2008 are as follows:

€'000

Rate of Maturity/

Date of Amount interest at repayment

Issuer issue 2009 2008 31.12.2009 date

Banco Atlántico, S.A. (a) 09.08.2002 30,000 30,000 1.100% 01.10.2010Banco Atlántico, S.A. (a) 21.08.2003 30,000 30,000 1.260% 11.10.2011Banco de Sabadell, S.A. 18.02.2004 0 300,000 - 18.11.2009Banco de Sabadell, S.A. 25.05.2006 1,000,000 1,000,000 1.015% 25.05.2016Banco de Sabadell, S.A. 20.09.2006 348,150 500,000 5.234% 20.09.2016Banco de Sabadell, S.A. 24.02.2009 500,000 0 6.500% -Sabadell International Equity Ltd. 30.03.1999 250,000 250,000 2.328% -Subscribed by group companies - (125,800) (27,500) - -Valuation and other adjustments - 7,348 11,187 - -

Total 2,039,698 2,093,687

a) Now merged with Banco de Sabadell, S.A.


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Subordinated liabilities rank below the claims of all other unsecured creditors of the group. All issues are denominatedin euros.

On 29 January 2009 a securities note was filed with Spain's stock market regulator the CNMV in respect of its SeriesI/2009 preference share issue. The issue was for a total of €500,000,000 and took place in February 2009. Thenominal return payable on the issue at 31 December 2009 was 6.5% per annum.

On 24 March 2009 Banco de Sabadell, S.A. made a buyback and early redemption offer for a maximum of€250,000,000 on the issue. The buyback price of the preference shares was set at two levels: a price of 42.5% pershare for all holders agreeing to take up the offer before 6 April 2009, and a second price of 40% per share for holdersagreeing to take up the offer after 6 April and before 21 April 2009. The buyback resulted in positive gains totalling€96,816,000, which have been recorded under Gains or losses on financial assets and liabilities (net) in theconsolidated income statement in these annual accounts (see note 32 (c)). Preference shares in the Banco SabadellSeries I/2006 issue remaining in circulation after the buyback amounted to €348,150,000.

At 31 December 2009 the rate of interest payable on the Sabadell International Equity Ltd. preference share issue was2.328% (4,753% at 31 December 2008).

Note 21. Other financial liabilities

The "other financial liabilities" item of the consolidated balance sheet at 31 December 2009 and 2008 is analysedbelow.

€'000

2009 2008



Total 1,397,664 1,309,541

Analysis by type:

Obligations payable 114,963 285,983 Collateral received 558,301 326,954 Clearing houses 19,773 34,991 Tax collection accounts 146,699 145,642 Other financial liabilities 557,928 515,971

Total 1,397,664 1,309,541



Total 1,397,664 1,309,541

Note 22. Liabilities under insurance contracts

The balances for this heading at 31 December 2009 and 2008 are analysed below:

€'000

2009 2008

Technical reserves for life insurance where the investment riskis borne by policyholders 182,166 161,733

Liabilities due to reinsurance and co-insurance 0 30

Total 182,166 161,763


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Note 23. Provisions

The components of this item of the consolidated balance sheet at 31 December 2009 and 2008 were as follows:

€'000

2009 2008

Provisions for pensions and similar obligations 189,583 202,972 Provisions for contingent exposures and commitments 81,183 119,167 Other provisions 42,501 44,765

Total 313,267 366,904

Details of changes in provisions during the years 2009 and 2008 are given in the following table:

€'000

Pensions and Contingent

similar exposures & Other

obligations commitments provisions Total


Provisions charged to income statement: 17,342 39,979 1,301 58,622

Personnel expenses 6,004 0 0 6,004 Interest expense and similar charges 11,338 0 0 11,338 Provisioning expenses 0 39,979 1,301 41,280

Releases to income statement 0 (10,214) (29,311) (39,525)

Actuarial gains/losses (3,131) 0 0 (3,131)

Exchange differences 0 384 7 391

Utilizations: (51,420) 0 (1,559) (52,979)

Insurance premiums paid (12,538) 0 0 (12,538)Pension payments (38,882) 0 0 (38,882)Other payments 0 0 (1,559) (1,559)

Other movements (22,205) (2) 1,587 (20,620)


Provisions charged to income statement: 15,066 39,438 1,146 55,650

Personnel expenses 5,565 0 0 5,565 Interest expense and similar charges 9,501 0 0 9,501 Provisioning expenses 0 39,438 1,146 40,584

Releases to income statement 0 (77,243) (2,450) (79,693)

Actuarial gains/losses 1,955 0 0 1,955

Exchange differences 0 (257) (12) (269)

Utilizations: (37,167) 0 (1,821) (38,988)

Insurance premiums paid (3,010) 0 0 (3,010)Pension payments (34,157) 0 0 (34,157)Other payments 0 0 (1,821) (1,821)

Other movements 6,757 78 873 7,708


The main provision components are as follows.

• Provisions for pensions and similar obligations: includes provisions to cover post-employment benefits, includingpension commitments in respect of employees taking early retirement and similar obligations.

• Provisions for contingent exposures: includes all provisions to cover contingent exposures associated with financialguarantees or other contractual commitments.

• Other provisions: consists largely of reserve funds assigned by the group to cover certain risks incurred in thenormal course of business, including those described in note 33.

Most provisions are long-term in character.


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Pensions and similar obligations

The balances giving rise to pension liabilities recognized in the group balance sheet are shown below:

€'000

2009 2008 2007 2006 2005

Obligations due to pension commitments 656,430 685,994 738,582 799,493 695,021 Actuarial gains (losses) in scheme assets not

recognized in income statement (5,327) (11,745) (717) 12,466 15,224 Fair value of scheme assets (461,520) (471,277) (475,479) (513,471) (433,606)

Net liability recognized on balance sheet 189,583 202,972 262,386 298,488 276,639

The return on the pension scheme for 2009 was 3.54%.Changes in obligations due to pension commitments and in the fair value of pension scheme assets during the years

2009 and 2008 are shown in the following table:

€'000

Obligations due Fair value

to pension of scheme

commitments assets

Balance at 31 December 2007 738,582 475,479

Interest costs 32,449 0 Expected returns 0 21,111 Normal costs in year 6,004 0 Benefit payments (51,969) (13,078)Settlements, reductions and terminations (19,820) (16,593)Employer's contributions 0 12,284 Actuarial gains and losses (4,505) (7,926)Other movements (14,747) 0


Interest costs 30,301 0 Expected returns 0 20,800 Normal costs in year 5,565 0 Benefit payments (50,673) (16,509)Settlements, reductions and terminations (27,160) (27,616)Employer's contributions 0 3,010 Actuarial gains and losses 12,414 10,558 Other movements (11) 0


Obligations covered by specific assets totalled €656,405,000 (including €49,615,000 in commitments to earlyretirees) at 31 December 2009, and €685,936,000 (including €66,313,000 for early retirees) at 31 December 2008.

The fair value of pension-linked assets reported in the group balance sheet stood at €209,484,000 at 31 December2009 and €228,019,000 at 31 December 2008.

The main categories of scheme assets as a proportion of total scheme assets were as follows:

%

2009 2008

Own equity instruments 0.39% 0.47%Other equity instruments 1.94% 1.02%Debt instruments 23.07% 21.22%Mutual funds 0.00% 0.00%Other (Non-linked insurance policies) 74.60% 77.29%

Total 100.00% 100.00%


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The fair value of scheme assets includes the following financial instruments issued by the Bank:

€'000

2009 2008

Equity instruments 1,780 2,228 Debt instruments 0 3,021 Deposits and current accounts 26,865 70,475

Total 28,645 75,724

Estimates of probability-weighted present values at 31 December 2009 of benefits payable over the next ten years areshown below:

€'000

Year Total

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Probable pension payments 29,009 24,997 21,458 18,012 14,757 12,706 11,166 10,018 9,359 9,011 160,493

Note 24. Fair value of financial assets and liabilities

The fair values of the main balance sheet items valued at amortized cost are shown in the table below.Assets and liabilities stated in the balance sheet at amortized cost have been valued by the discounted future cash

flow method using risk-free interest rate curve plus a spread to reflect the credit risk of the different financial instrumentsbeing valued. The interest rate curve used in the analysis was derived from the rates quoted for Spanish governmentbonds from which pure discount factors could be derived to calculate present values that the market would accept asunskewed. The curve is constructed from an equation which adjusts to observed market rates and gives forward interestrates for any intermediate period or maturity.

€'000

2009

Carrying value Fair value

Assets at amortized cost:

Loans and advances to credit institutions 2,544,962 2,553,180 Loans and advances to other debtors 63,232,890 66,856,067

Total assets at amortized cost 65,777,852 69,409,247

€'000

2009

Carrying value Fair value

Liabilities at amortized cost:

Deposits from central banks 1,064,909 1,055,706 Deposits from credit institutions 8,512,365 8,429,478 Deposits from other creditors 39,130,722 37,498,184 Debt certificates including bonds 22,812,447 22,811,435 Subordinated liabilities 2,039,698 2,185,430 Other financial liabilities 1,397,664 1,397,664

Total liabilities at amortized cost 74,957,805 73,377,897


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Note 25. Foreign currency transactions

Euro equivalent values for different classes of foreign currency-denominated assets and liabilities held by the group at 31December 2009 and 2008 were as follows:

€'000

2009 2008

Foreign currency assets:

Cash and deposits with central banks 139,025 44,458 Loans and advances to credit institutions 151,674 250,279 Debt securities 96,956 83,047 Loans and advances to other debtors 1,939,599 2,008,751 Other assets 288,166 388,609

Total 2,615,420 2,775,144

Foreign currency liabilities:

Deposits from central banks 3,040 626 Deposits from credit institutions 465,499 490,024 Deposits from other creditors 2,281,111 2,237,115 Other liabilities 967,186 1,615,590

Total 3,716,836 4,343,355

The group's net position in foreign currency assets and liabilities is covered by transactions consisting of spot andforward currency trades and exchange rate swaps in line with the group's risk management policy (see note 35).

Note 26. Own funds

Changes in own funds in the years 2009 and 2008 were as follows:

€'000

Reserves Other Profit/

and share equity Treasury loss for Interim

Capital premium instruments shares the year dividend Total

Balance at 31 December 2007 153,002 3,753,530 0 (29,320) 782,335 (158,164) 4,501,383

Appropriation of profits in previous years 0 439,611 0 0 (439,611) 0 0 Interim dividend for 2007 0 0 0 0 (158,164) 158,164 0 Final dividend for 2007 0 0 0 0 (184,560) 0 (184,560)Translation differences and other movements 0 (667) 0 0 0 0 (667)Acquisitions of own equity instruments 0 0 0 (694,598) 0 0 (694,598)Disposals of own equity instruments 0 0 0 525,744 0 0 525,744 Transfers (3,002) (172,507) 0 175,509 0 0 0 Profit for the year 2008 0 0 0 0 673,835 0 673,835 Interim dividend for 2008 0 0 0 0 0 (193,921) (193,921)

Balance at 31 December 2008 150,000 4,019,967 0 (22,665) 673,835 (193,921) 4,627,216

Appropriation of profits in previous years 0 335,914 0 0 (335,914) 0 0 Interim dividend for 2008 0 0 0 0 (193,921) 193,921 0 Final dividend for 2008 0 0 0 0 (144,000) 0 (144,000)Translation differences and other movements 0 (301) 0 0 0 0 (301)Acquisitions of own equity instruments 0 0 0 (422,844) 0 0 (422,844)Disposals of own equity instruments 0 11,416 0 307,306 0 0 318,722 Issues of other equity instruments (1) 0 (6,949) 500,000 0 0 0 493,051 Transfers 0 0 0 0 0 0 0 Profit for the year 2009 0 0 0 0 522,489 0 522,489 Interim dividend for 2009 0 0 0 0 0 (168,000) (168,000)

Balance at 31 December 2009 150,000 4,360,047 500,000 (138,203) 522,489 (168,000) 5,226,333

(1) See "Other equity instruments" in this note.


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Minimum capital requirement - capital management

At 31 December 2009 and 2008, the group's qualifying capital resources were above the required levels both under Bankof Spain rules and under the requirements of the Bank of International Settlements in Basel (BIS).

Ongoing management of the group's capital base has ensured that funding has been available to finance growth inconformity with minimum regulatory capital requirements.

At 31 December 2009 the group's qualifying capital under the revised BIS framework (known as Basel II) stood at€6,376,726,000. This gives the group a capital surplus of €1,653,875,000, as can be seen from the following table:

Capital management

€'000

Change

2009 2008 y.o.y. (%)

Capital 150,000 150,000 0.00 Reserves 4,456,488 4,336,383 2.77 Convertible bonds 500,000 0 0.00 Minority interests 30,612 19,296 58.64 Deductions (613,995) (584,990) 4.96

Core capital 4,523,105 3,920,689 15.37

Core capital ratio (%) 7.66 6.67 Preference shares and deductions 847,808 362,843 133.66

Primary capital 5,370,913 4,283,532 25.39

Tier I capital ratio (%) 9.10 7.28

Secondary capital 1,005,813 1,466,628 (31.42)

Tier II capital ratio (%) 1.70 2.49

Capital base 6,376,726 5,750,160 10.90

Minimum capital requirement 4,722,851 4,704,740 0.38

Capital surplus 1,653,875 1,045,420 58.20

BIS Ratio (%) 10.80 9.78 10.43

Risk-weighted assets (RWA) 59,035,638 58,809,250 0.38

Core capital contributed 7.66% towards the BIS ratio and accounted for 71% of qualifying capital resources. This washelped by an increase in core capital from retained profits for the year.

The addition of preference share issues to core capital and the deduction of certain items (including investments infinancial and insurance undertakings) brings Tier I capital to a total of €5,370,913,000, that is, 84% of qualifying capitalresources, giving a Tier I capital ratio of 9.10%.

Secondary or Tier II capital provides a further 16% of the BIS ratio and is made up very largely of subordinated debt,valuation adjustments and generic provisions (subject to regulatory limits as to eligibility), less other requireddeductions.

Share capital

With the authority of a resolution of the Annual General Meeting of the company on 27 March 2008, and subject toobtaining all relevant official permissions, on 12 December 2008 a total of 24,013,680 treasury shares held by the Bankwere redeemed out of voluntary reserves and €3,001,710, the nominal value of the cancelled shares, was transferred toa capital redemption reserve. The redeemed shares amounted to 1.962 % of the total share capital. The share capitalprovisions of article 7 of the Bank's articles of association were amended accordingly.

The Bank's issued share capital at 31 December 2009 was €150,000,000 divided into 1,200,000,000 registeredshares with a nominal value of €0.125 each. The corresponding figure at 31 December 2008 was €150,000,000 dividedinto 1,200,000,000 registered shares with the same nominal value. All shares are fully paid and are numberedconsecutively from 1 to 1,200,000,000, both inclusive.

The Bank's shares are quoted on the Madrid, Barcelona and Valencia stock exchanges via the automatic quotationsystem managed by Sociedad de Bolsas, S.A.

None of the other undertakings included in the consolidated accounts are quoted on any stock exchange.


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The rights attaching to all equity instruments of the Bank are regulated by the Spanish companies legislation ("Ley deSociedades Anónimas"). At a General Meeting a shareholder may cast votes in a number that reflects his proportionalholding in the share capital, subject to a limit of 10% of the total number of votes.

As required by article 23 of Royal Decree 1362/2007 of 19 October, implementing the Securities Market Law (Law24/1988 of 28 July), the following table gives details of significant shareholdings in Banco Sabadell (i.e. holdingsamounting to 3% or more of the share capital or voting rights) at 31 December 2009:

Direct Number

Undertaking holding of shares Indirect shareholder

Mayor Vent, S.L. Unipersonal 5.601% 67,209,090 Isak Andic Ermay (1)Jaipur Investment, S.L. 5.258% 63,099,260 Inversiones Hemisferio, S.L. (2)Famol Participaciones, S.L. 5.100% 61,201,000 --Fundo de Pensoes do Grupo BCP 5.068% 60,821,413 --

(1) Holds 99.99% of Mayor Vent, S.L. Unipersonal.(2) Holds 75% of Jaipur Investment, S.L.

Share premium account

The balance of the share premium account at 31 December 2009 and 2008 was €1,373,270,000.

Other equity instruments

Banco Sabadell carried out an issue of mandatorily convertible bonds, No. 1/2009, for a total of €500,000,000.Payment for the issue took place on 21 July 2009. The bonds have a nominal value of €1000 and were issued at par. Thebonds can be exchanged voluntarily for shares of the Bank on 21 July 2010, 2011 and 2012 and are obligatorilyexchangeable on 21 July 2013. The reference price of shares in the Bank for conversion purposes was set at €4.982 pershare, with a conversion rate - that is, the number of shares of the Bank exchangeable for each bond -- of 200.72 shares.The nominal return on the issue from the time of payment to the first anniversary of the issue will, if so decided --otherwise the conversion period will start to run -- be 7% per annum and from that date until maturity -- again, if so decided-- a nominal rate of three month EURIBOR plus 4.5% per annum. The bonds will rank as follows: (i) behind all unsecuredand subordinated creditors of Banco de Sabadell, S.A.; (ii) behind all preference shares and similar securities issued nowor to be issued in future by the Bank; (iii) ahead of the ordinary shares of Sabadell, S.A.

The mandatorily convertible subordinated bonds are listed on the Madrid, Barcelona y Valencia securities markets. Thebond issue is directed principally at retail investors resident in Spain although they are also available to qualifiedinvestors, whether resident or non-resident.

Reserves

€'000

2009 2008

Restricted reserves: 330,759 351,519

Statutory reserve 30,600 30,600 Reserve for own shares pledged as security 290,514 311,274 Reserve for investment in Canary Islands 6,530 6,530 Share redenomination reserve 113 113 Capital redemption reserve 3,002 3,002

Available reserves 2,509,807 2,187,877

Reserves of equity-accounted undertakings 146,211 107,301

Total 2,986,777 2,646,697

The contributions made by consolidated undertakings to group reserves are set out in the Annex.


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Transactions in own equity instruments

The Bank's holdings of shares in the parent company showed the following evolution during the year:

Nominal value Average share Proportion

No. of shares (€'000) price (€) of total (%)

Balance at 31 December 2007 3,814,496 476,81 7.69 0.31

Purchases 119,847,964 14,981,00 5.80 9.99 Sales 95,198,847 11,899,86 5.79 7.93

Balance at 31 December 2008 (1) 4,449,933 556,24 5.09 0.36

Purchases 101,049,220 12,631,15 4.18 8.42 Sales 69,695,210 8,711,90 4.47 5.81

Balance at 31 December 2009 35,803,943 4,475,49 4.38 2.98

(1) The proportions of the Bank's total share capital represented by treasury share purchases and sales and by the final balance for the year take account of the

change in the Bank's share capital following a redemption of 24,013,680 shares with a nominal value of €3,002,000, recorded in the Mercantile Registry on 12

December 2008.

Net gains and losses arising on transactions in the Bank's own equity instruments have been included in Own funds --Reserves under Equity in the consolidated balance sheet.

At the close of the year a total of 74,971,231 shares of the Bank with a nominal value of €9,371,000 were pledged assecurity (64,180,112 shares with a nominal value of €8,023,000 at 31 December 2008).

Note 27. Valuation adjustments

Valuation adjustments for the group at 31 December 2009 and 2008 are analysed below:

€'000

2009 2008

Available-for-sale financial assets 56,734 (133,451)Debt securities 55,110 40,853 Other equity instruments 1,624 (174,304)

Cash flow hedges (12,055) (32,991)Exchange differences (2,154) 158 Entities accounted for by the equity method 140 (26,930)Other valuation adjustments 991 0

Total 43,656 (193,214)

The income tax effects of valuation adjustments for the different items of recognized income and expense at 31 December 2009 and 2008 were:

€'000

2009 2008

Gross Tax Net Gross Tax Net

amount effect amount amount effect amount

Available-for-sale financial assets 275,444 (82,632) 192,812 (327,718) 98,317 (229,401)Debt securities 24,119 (7,236) 16,883 45,534 (13,660) 31,874 Other equity instruments 251,325 (75,396) 175,929 (373,252) 111,977 (261,275)

Cash flow hedges 29,909 (8,973) 20,936 (41,638) 12,491 (29,147)Exchange differences (3,310) 991 (2,319) 3,895 (1,169) 2,726 Entities accounted for by the equity method 27,070 0 27,070 (24,227) 0 (24,227)Other recognized income and expense 1,417 (424) 993 0 0 0

Total 330,530 (91,038) 239,492 (365,461) 109,639 (280,049)


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Note 28. Minority interests

The undertakings in which minority interests are held are as follows:

€'000

2009 2008

% Minority Attributable % Minority Attributable

interests Amount profit/loss interests Amount profit/loss

BancSabadell d'Andorra, S.A. 49.03% 18,219 3,461 49.03% 13,207 1,961 Sabadell BS Select Fund of

Hedge Funds SICAV (Luxembourg) 39.84% 8,633 655 - 0 0Compañía de Electricidad y

Cogeneración de Uvero, S.A. 27.08% 462 (308) 27.08% 795 70 Other undertakings - 67 12 - 61 (10)

Total - 27,381 3,820 - 14,063 2,021

Changes in the "minority interests" heading in 2009 and 2008 were as follows:

€'000

Balance at Changes Balance at Changes Balance at

31.12.2007 in 2008 31.12.2008 in 2009 31.12.2009

Valuation adjustments (1,439) (4,964) (6,403) 2,622 (3,781)Other movements 22,689 (2,223) 20,466 10,696 31,162

Changes in proportional shareholdings and other movements 14,505 (4,244) 10,261 6,876 17,137

Profit for the year 8,184 2,021 10,205 3,820 14,025

Total 21,250 (7,187) 14,063 13,318 27,381

Note 29. Contingent exposures

The breakdown of this item is as follows:

€'000

2009 2008

Financial guarantees 7,657,672 7,680,160 Other contingent exposures 864 600

Total 7,658,536 7,680,760

Doubtful contingent exposures

The movement in the doubtful contingent exposures account was as follows:

€'000


Additions 78,629 Write-downs and recoveries (17,329)


Additions 86,769 Write-downs and recoveries (99,084)



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The distribution of contingent exposures by geographical region at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Spain 54,931 67,230 Other European Union 0 4 Latin America 176 188 Rest of world 0 0

Total 55,107 67,422

Provisions for credit risk in respect of doubtful contingent exposures were as follows:

€'000

2009 2008

Exposures covered by specific provisions: 51,465 40,306

Provisions for credit risk 51,038 39,409 Provisions for country risk 427 897

Exposures covered by generic provisions 29,718 78,861

Total 81,183 119,167

Changes in these provisions, which are recorded in provisions on the liability side of the balance sheet, are shown innote 23.

Note 30. Contingent commitments

The composition of this item at 31 December 2009 and 2008 was as follows:

€'000

2009 2008

Drawable by third parties 15,085,197 17,411,155 Credit institutions 83,210 144,139 General government 1,551,482 1,572,094 Other resident sectors 12,908,236 15,097,647 Non-resident sector 542,269 597,275

Regular way financial asset purchase contracts 693,489 60,018 Other contingent commitments 1,241,052 1,409,802

Total 17,019,738 18,880,975

Among the more significant components of the "drawable by third parties" item at 31 December 2009 werecommitments totalling €3,631,615,000 subject to debtor creditworthiness assessments in without-recourse factoringoperations (€3,982,507,000 at 31 December 2008), and mortgage loan commitments amounting to €1,350,987,000(€1,828,965,000 at 31 December 2008). The "other contingent commitments" category consisted mainly ofguarantees of other types in line with the group's risk management policy.


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Note 31. Off-balance sheet customer funds

Off-balance sheet customer funds under the group's management and funds sold but not managed by the group were ofthe following types:

€'000

2009 2008

Under management by the group: 9,001,867 9,520,977

Investment companies and mutual funds 8,238,857 8,547,755 Asset management 763,010 973,222

Mutual funds sold but not managed by the group 911,808 888,287

Pension funds (1) 2,787,969 2,440,533

Insurance (1) 5,380,398 4,086,151

Financial instruments deposited by third parties 36,657,426 36,502,983

Total 54,739,468 53,438,931

(1) The amounts shown for pension funds and insurance relate to pension funds being sold by the group.

Net fees and commissions on these products are reported in the income statement under fee and commission incomeand amounted to €130,197,000 in 2009 (€162,530,000 in 2008).

Note 32. Income statement

Some salient aspects of the group's income statement for the years 2009 and 2008 are highlighted in the tables thatfollow.

a) Interest and similar income/change

The components of net interest income and expense were as follows:

€'000

2009 2008

Interest and similar income:

Cash and balances with central banks 14,032 37,044 Loans and advances to credit institutions 28,487 172,093 Loans and advances to other debtors 2,835,615 3,865,712 Debt securities 219,319 200,189 Doubtful assets 34,556 13,602 Adjustments to income as a result of hedging transactions (4,977) 57,789 Income from insurance contracts linked to pensions 30,956 33,179 Other interest 8,245 24,931

Total 3,166,233 4,404,539

Interest expense and similar charges:

Deposits from central banks (34,694) (59,094)Deposits from credit institutions (127,224) (205,335)Deposits from other creditors (830,717) (1,212,643)Debt certificates including bonds (652,246) (1,142,749)Subordinated liabilities (88,614) (109,936)Adjustments to income as a result of hedging transactions 201,373 (185,550)Interest cost of pension funds (30,301) (32,449)Other interest (3,163) (3,939)

Total (1,565,586) (2,951,695)


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b) Fee and commission income

Fee and commission income from trading and for services was composed of the following:

€'000

2009 2008

On contingent exposures 73,037 73,121 On contingent commitments 14,121 12,702 Foreign currency and banknote exchange 1,211 1,343 Collection and payment services 230,964 265,257 Securities-related services 43,464 52,986 Distribution of non-bank financial products 116,889 141,973 Other fees and commissions 82,561 62,189

Total 562,247 609,571

Fee and commission expenses were as follows:

€'000

2009 2008

Fees and commissions payable to correspondent and other banks (40,290) (44,320)Other fee and commission expense (10,793) (7,510)

Total (51,083) (51,830)

c) Gains or losses on financial assets and liabilities (net)

The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was asfollows:

€'000

2009 2008

Held for trading 39,241 43,142 Financial instruments not measured at fair value through profit or loss 199,303 32,042 Other 9,606 (7,311)

Total 248,150 67,873

Analysis by type of financial instrument:

Net gain (loss) on debt securities 94,802 25,467 Net gain (loss) on equity instruments 27,133 13,039 Net gain (loss) on derivatives contracts 29,399 28,472 Other net gain (loss) (note 20) 96,816 895

Total 248,150 67,873

In 2009 the group sold off a number of debt securities from its portfolio of available-for-sale financial assets, recordinggains amounting to €85,999,000 at 31 December 2009.

d) Other operating income


€'000

2009 2008

Income from insurance and reinsurance contracts written 59,913 228,349 Sales and income from non-financial services 17,028 25,084 Other operating income 47,239 61,326

Income from exploitation of investment property 9,342 4,713 Insurance settlements 509 396 Other income 37,388 56,217

Total 124,180 314,759

Income from insurance and reinsurance contracts written includes issued premiums sold by the insurer AssegurancesSegur Vida, S.A. (in which the group holds an indirect interest through BancSabadell d'Andorra, S.A.). The costs of theseoperations are shown in note 32 (e).


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Income from property rentals was accounted for mainly by Solvia Development, S.L., Banco de Sabadell, S.A. andSolvia Properties, S.L. which reported rental income of €3,877,000, €2,543,000 and €1,972,000 respectively.

The figure shown for “other income” consists largely of the income of non-financial group undertakings.

e) Other operating expenses


€'000

2009 2008

Expenses on insurance and reinsurance contracts written (59,818) (228,242)Change in inventories (2,333) 34 Other operating expenses (52,695) (60,191)

Operating expenses of investment property (54) (29)Payments to deposit guarantee funds (18,791) (17,001)Other expenses (33,850) (43,161)

Total (114,846) (288,399)

Expenses from insurance and reinsurance contracts written arose mainly from provisions in respect of insurancepolicies and incurred benefit payments for the insurer Assegurances Segur Vida, S.A. (in which the group holds an indirectinterest through BancSabadell d'Andorra, S.A.). The income from these operations is shown in note 32 (d).

The operating expenses of investment property were attributable to Banco Sabadell, S.A.The figure shown under "contribution to deposit guarantee funds" is made up largely of contributions for Banco de

Sabadell, S.A. and Banco Urquijo Sabadell Banca Privada, S.A. amounting to €17,115,000 and €700,000 respectively in2009 (€16,156,000 and €790,000 in 2008).

The "other expenses" category consists, for the most part, of costs to sell items for undertakings of a non-financialnature.

f) Administrative expenses

This heading of the income statement includes expenses incurred by the Bank in respect of personnel costs and othergeneral administrative expenses.

Personnel expenses

The personnel expenses shown in the consolidated income statement for the years to 31 December 2009 and 2008 areas follows:

€'000

2009 2008

Salaries and bonuses of current employees (475,334) (479,521)Social security contributions (99,461) (100,844)Provisions for pension schemes (25,488) (16,386)Other staff-related costs (115,040) (54,389)

Total (715,323) (651,140)

The number of staff employed by all group undertakings in 2009 averaged 9,625, of whom 5,199 were men and 4,426were women (10,122 staff, of whom 5,559 were men and 4,563 were women in 2008).

The gender and category split of group employees at 31 December 2009 and 2008 was as follows:

Number of employees

2009 2008

Men Women Men Women

Technical/specialist 4,095 2,914 4,191 2,756 Administrative 1,003 1,454 1,245 1,737

Total 5,098 4,368 5,436 4,493


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The Annual General Meeting of 29 March 2007 approved a share-based incentive scheme designed to achieve thehighest levels of motivation and commitment among senior staff members in the group. Under the scheme, a certainnumber of stock appreciation rights (SAR) were given to employees who, when the rights expire, become entitled toreceive shares in the Bank equal in value to the amount by which Banco Sabadell shares appreciate over a maximumperiod of three years and three months, with an end date of 31 June 2010.

At the time the SARs were awarded, to meet the resulting commitment the Bank entered into hedging arrangementswith financial institutions outside the group. These contracts have economic effects that act to offset the commitmentundertaken by the Bank. The premium paid for the hedge (€36,500,000) was considered as the fair value of servicesreceived during the 3-year duration of the scheme.

Personnel expenses associated with the share-based incentive scheme have been recognized totalling €11,000,000for 2009 and €11,000,000 for 2008 (see note 1 (p)).

The changes in the value of SARs awarded under the share-based incentive scheme are as follows:

€'000

2009 2008

Existing at beginning of year 20,450 19,958 Grants 0 2,000 Cancellations (1,248) (1,508)Existing at end of year 19,202 20,450

Total 19,202 20,450

The exercise price for all the SARs is €7.95, with the settlement amount being the positive difference, if any, betweenthe quoted share price at the end of the scheme and the exercise price.

Other general administrative expenses

This includes all other administrative expenses incurred during the year.

€'000

2009 2008

Premises, fittings and equipment (80,492) (76,947)IT and systems (57,630) (60,197)Communications (21,728) (22,868)Advertising and promotion (21,068) (32,066)Taxes and local rates (49,298) (53,021)Other expenses (91,284) (82,931)

Total (321,500) (328,030)

A total of €794,000 in fees was paid to PricewaterhouseCoopers Auditores, S.L. for auditing services in Spain in theyear 2009 (€720,000 in 2008), plus a further €386,000 for services relating to foreign branches and subsidiaries in2009 (€361,000 in 2008).

Fees totalling €160,000 were paid to other auditors for auditing services in Spain in 2009 (€269,000 in 2008), plusanother €139,000 for services relating to foreign branches and subsidiaries in 2009 (€170,000 in 2008).

The fees paid to PricewaterhouseCoopers Auditores, S.L. and other firms operating under the PricewaterhouseCoopersAuditores, S.L. name for tax advisory services in the year 2009 was €33,000, while fee payments to these firms for otherservices amounted to €475,000. Fees for these services in 2008 totalled €26,000 and €138,000 respectively. Feespaid to other auditors for other services amounted to €1,113,000 in 2009 (€1,584,000 in 2008).


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g) Impairment losses (net)

The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was asfollows :

€'000

2009 2008

Loans and receivables (225,521) (570,896)Other financial instruments not measured at fair value through profit or loss (419,035) (165,912)

Available-for-sale financial assets (419,035) (165,912)Debt securities (16,277) (3,227)Other equity instruments (note 6) (402,758) (162,685)

Total (644,556) (736,808)

h) Gains (losses) on derecognition of assets not classified as non-current assets held for sale

The composition of this item of the consolidated income statement for the years to 31 December 2009 and 2008 was asfollows :

€'000

2009 2008

Gains 92,950 30,965

On disposal of tangible assets 73,382 12,385 On disposal of equity investments 19,568 18,580

Losses (9,375) (6,032)

On disposal of tangible assets (9,131) (5,669)On disposal of equity investments (244) (363)

Total 83,575 24,933

A major component of "gains (losses) on disposal of tangible assets" consists of gains from sale and leasebacktransactions entered into in the course of 2009 (see note 14).

i) Profit or loss from discontinued operations (net)

The composition of this item of the consolidated income statement for the years 2009 and 2008 was as follows:

€'000

2009 2008

Interest and similar income 0 47,264 Interest expense and similar charges 0 20,041 Fee and commission income 0 (3,016)Fee and commission expense 0 101 Gains or losses on financial assets and liabilities (net) 0 (1,075)Other operating income 0 629,332 Other operating expenses 0 (666,853)Administrative expenses 0 (4,142)Depreciation and amortization 0 (584)Provisioning expense (net) 0 (34,098)Gains (losses) on non-current assets held for sale not classified as discontinued operations 0 624,500 Income tax 0 (183,104)

Total 0 428,366

The profit from discontinued operations in 2008 relates to the partial disposal of the group's insurance businessduring the year. The basic earnings per share associated with these operations in 2008 were €0.36.


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The cash flows generated by discontinued operations in the years 2009 and 2008 were as follows:

€'000

2009 2008

Contribution to group results 0 428,366

Adjustment to profit or loss: 0 (413,909)

Depreciation/amortization of assets (+) 0 1,168 Impairment losses (net) (+/-) 0 0 Provisioning expense (net) (+/-) 0 0 Gains/losses on disposal of tangible assets (+/-) 0 (605,004)Taxes (+/-) 0 189,927 Other non-monetary items (+/-) 0 0

Adjusted profit or loss 0 14,457

Net increase/decrease in operating assets 0 287,463

Total net cash flows from operating activities 0 301,920

Total net cash flows from investing activities 0 598,865

Total net cash flows from financing activities 0 1,665

Net increase/decrease in cash or cash equivalents 0 902,450

Note 33. Taxation (income tax)

Undertakings treated as consolidated for tax purposes

Banco de Sabadell, S.A. is the parent company of a group treated as consolidated for tax purposes which includes allSpanish-domiciled group undertakings that qualify as dependent companies under Spanish regulations on the taxation ofthe consolidated income of corporate groups.

Undertakings treated as part of the group for tax purposes are shown in the Annex. All other group companies submit individual tax returns in accordance with the applicable tax regulations.

Reconciliation

The reconciliation of the difference between the accounting results for the years 2009 and 2008 and the assessedincome for corporation tax purposes is as follows:

€'000

2009 2008

Profit before tax 571,346 259,813 Increases in taxable income 410,756 415,325 Reductions in taxable income (493,873) (237,410)

Assessed income for tax purposes 488,229 437,728

Tax (at 30%) 146,469 131,318

Double taxation, training and other allowances (25,704) (28,718)

Net tax payable 120,765 102,600

Tax due to timing differences (net) (9,375) (51,132)Adjustments on recognition of reinvestment allowance to be deducted (61,000) (30,600)Other adjustments (net) (5,353) (8,545)

Income tax 45,037 12,323

As a result of the strategic alliance (see note 2) that led to the sale of 50% of the share capital of the groupsubsidiaries BanSabadell Vida, S.A. de Seguros y Reaseguros, BanSabadell Seguros Generales, S.A. de Seguros yReaseguros and BanSabadell Pensiones, Entidad Gestora de Fondos de Pensiones, S.A., a total of €189,927,000 wasrecorded under profit or loss from discontinued operations for the year 2008 in respect of the tax charge associated withthe sale. The total tax charge payable at 31 December 2008 in relation to the sale was €183,104,000.


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As explained in note 3 to these annual accounts, the Board of Directors has recommended an allocation of €318,000to the Reserve for investment in the Canary Islands, for subsequent confirmation by the Annual General Meeting. In 2009the reserve was wholly made up of investments made during the year in various items of fixed assets classifiable as plantand equipment.

Taxable income - increases and reductions

The increases and reductions in taxable income shown in the table above are analysed in the following table on the basisof whether they arose from temporary or permanent differences.

€'000

2009 2008

Permanent differences 5,295 59,230 Temporary differences arising in the current year 299,355 343,733 Temporary differences arising in earlier years 106,106 12,362

Increases 410,756 415,325

Permanent differences (119,662) (51,755)Temporary differences arising in the current year (173) (30,640)Temporary differences arising in earlier years (374,038) (155,015)

Reductions (493,873) (237,410)

Tax assets - deferred

This caption shows the amount reclaimable from the Spanish Treasury in respect of deferred tax assets. These ariseprimarily from differences between accounting and tax assessment procedures. The differences relate to non-taxdeductible provisions totalling €381,056,000 (€418,764,000 in 2008), transfers into pension funds totalling€78,176,000 (€103,342,000 in 2008) and merger reserves of €147,682,000 (€157,821,000 in 2008).

The changes in deferred tax assets, other than those related to valuation adjustments in equity, in the last two yearswere:

€'000


Intragroup transactions 171 Pension funds (24,956)Non-tax deductible reserve funds 89,826 Merger reserves (10,295)Recognition of loan arrangement fees (2,030)Change in corporation tax rate (13)Change in valuation adjustments (585)Accelerated depreciation (52)Consolidation adjustments (418)Other movements 12,870


Intragroup transactions 8,251 Pension funds (25,166)Non-tax deductible reserve funds (37,707)Merger reserves (10,139)Recognition of loan arrangement fees (2,015)Change in corporation tax rate (6)Advance tax payments for foreign branches 1,410 Accelerated depreciation (2,075)Consolidation adjustments (42,219)Other movements (4,107)



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Tax liabilities - deferred

This consists of amounts payable to the Spanish Treasury in respect of deferred tax liabilities. These liabilities includedeferred tax charges due to accelerated depreciation as permitted by the tax regulations, and reversals of deferred taxtotalling €7,410,000 (€8,718,000 in 2008) in relation to mergers, and €21,995,000 (€47,339,000 in 2008) due toconsolidation adjustments.

Changes in deferred tax liabilities in the last two years were as follows:

€'000


Intragroup transactions (102)Mergers (230)Deferred tax charges applicable to foreign branches 236 Valuation adjustments 9,924 Transfer of business (2,474)Asset restatements (130)Consolidation adjustments (1,248)Other movements (135)


Intragroup transactions 3,675 Mergers (1,308)Deferred tax charges applicable to foreign branches (1,457)Valuation adjustments 2,876 Transfer of business (2,474)Asset restatements (130)Consolidation adjustments (25,344)Other movements (574)


The amount payable to the Spanish Treasury is shown under current tax liabilities.

Deductions

Deductions include €62,572,000 (€77,050,000 in 2008) deducted in accordance with article 42 of the Corporation TaxLaw, as amended (“deduction of tax on reinvestment of extraordinary profits”), in respect of profits amounting to€516,408,000 (€487,901,000 in 2008) reinvested by undertakings forming part of the group for tax purposes.

Tax audits

In June 2008 the Tax Inspectorate commenced tax audits of Banco de Sabadell, S.A. in respect of corporation tax, valueadded tax, income tax to be withheld and paid on earned income from employment, professional activities and investmentincome and in respect of the tax on non-residents, where not time-expired, for the years 2003 to 2005.

The audits were completed in 2009 so far as the income tax on earned income from employment and professionalactivities and investment income and the tax on non-residents were concerned. The audit reports were confirmed, agreedand signed by the Bank, no outstanding tax having been identified.

So far as the audit for corporation tax is concerned, the Bank has accepted the audit report for the year 2004, whichshows a final assessed tax charge of €5,177,000. A final decision is awaited from the Tax Inspectorate on draftassessments contained in audit reports for the years 2003, 2004 y 2005, which had been contested by the Bank.

With regard to the audit for value added tax, an audit report has been drawn up for Banco de Sabadell, S.A. and anappeal has been lodged by the Bank. A final decision from the Tax Inspectorate is awaited on the draft assessmentcontained in the report.

As a result of previous interventions by the Tax Inspectorate, a number of audit reports have been disputed by thegroup and by entities acquired by the Bank and subsequently absorbed. Final assessments of the outstanding tax havebeen made for a total of €30,149,000. All these assessments have been contested. The Bank has, in any event, madesuitable provision for any contingencies that could arise in relation to these tax assessments.

Tax liabilities of a contingent nature could arise as a result of different possible interpretations of the tax rulesapplicable to certain types of transaction within the banking industry. However, in the opinion of the Bank and itsindependent advisors, the possibility of such liabilities arising is remote, and if they did arise they would not be such as tohave any significant impact on the annual accounts.


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All group undertakings are liable to be inspected for any tax which has not been subject to audit and for which thestatutory time limit has not expired.

Note 34. Segmental information

Segmentation policy

Segmental reporting is organized primarily according to business units, and secondarily according to geography.The business units described below are based on the group organizational structure as it was at the end of the year

2009. For customer-facing businesses (Commercial Banking, Corporate Banking and Banco Urquijo), segmentation isbased on the types of customer addressed by those units. Asset Management is a cross selling business that offersspecialized products which are sold through the group's branch network.

Business unit segmentation

Presentation principles and methods: information for each business unit is based on the individual accounting records ofeach group undertaking, after all consolidation eliminations and adjustments have been made, and on an analyticalaccounting for income and expense where particular business lines are allocated to one or more corporate entities. Theincome and expense for each customer can thus be assigned according to the business to which they have beenallocated.

Each business division is treated as a free-standing operation. Where services are provided by one division to another(distribution of products, services, systems, etc.) inter-unit pricing applies. The impact of this on the group's incomestatement is nil.

Each business pays the direct costs allocated to it through generic and analytical accounting, as well as indirect costsattributable to Central Services divisions.

Capital is allocated in such a way that each business has the equivalent of the minimum regulatory capital requirementto cover its risk exposure. This minimum capital requirement is allocated by reference to the supervisory authority foreach business (the Bank of Spain for customer-facing businesses and the National Stock Market Commission [CNMV] forAsset Management).


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Key data for each business division are shown in the following table:

a) Segmentation by business unit

Details of profit before tax and other financial data for each business unit for the year 2009 are shown in the table below,along with a reconciliation of the totals shown in the table with those shown in the consolidated group accounts.

€'000

2009

Commercial Corporate Banco Asset

Banking Banking Urquijo Management

Interest margin 1,340,226 140,322 26,146 89

Fees and commissions (net) 428,089 40,835 19,633 33,228Other income 45,551 8,245 4,810 1,462

Gross income 1,813,866 189,402 50,589 34,779

Operating expenses (861,022) (32,919) (36,360) (18,130)Provisioning expense (net) 0 0 923 0Impairment losses (579,638) (91,642) (1,664) 0 Other gains/losses 0 0 (148) 0

Operating profit or loss 373,206 64,841 13,340 16,649

Profit before tax, by segment 373,206 64,841 13,340 16,649

Ratios (%)

ROE 11.0% 6.2% 5.6% 30.5%Cost:income ratio 45.7% 17.2% 61.7% 52.2%

Average total assets (€Mn,) 50,795 9,987 2,130 9,155

Other information:

Employees 6,505 95 240 144Branches in Spain 1,172 2 14 -

Profit before tax - reconciliation Consolidated

All Business Units 468,035

(+/-) Unallocated profits/losses (*) 311,576 (+/-) Eliminations (inter-segment profits/losses) 0 (+/-) Other profits/losses (*) (208,265)(+/-) Income tax and/or discontinued operations 0 Profit before tax 571,346

(*) This includes exceptional items consisting of profits on buybacks of preference shares and losses due to impairment of assets.


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€'000

2008

Commercial Corporate Banco Asset

banking banking Urquijo Management

Interest margin 1,260,343 124,569 31,810 2,609

Fees and commissions (net) 462,447 34,850 20,715 40,042Other income 64,470 9,040 5,748 (1,459)

Gross income 1,787,260 168,459 58,273 41,192

Operating expenses (862,596) (37,665) (38,369) (17,509)Provisioning expense (net) 0 0 (167) 0 Impairment losses (462,501) (64,447) (7,209) 0 Other gains/losses 0 (16) (294) 1,401

Operating profit or loss 462,163 66,331 12,234 25,084

Profit before tax, by segment 462,163 66,331 12,234 25,084

Ratios (%)

ROE 12.6% 6.8% 3.4% 45.9%Cost: income ratio 46.5% 22.2% 56.4% 42.5%

Average total assets (€Mn.) 52,874 9,540 2,278 9,437

Other information:

Employees 7,454 110 275 148Branches in Spain 1,208 2 15 0

Profit before tax - reconciliation Consolidated

All Business Units 565,812

(+/-) Unallocated profits/losses (294,384)(+/-) Eliminations (inter-segment profits/losses) 0(+/-) Other profits/losses (11,615)(+/-) Income tax and/or discontinued operations 0Profit before tax 259,813

Average total assets for the group as a whole at 31 December 2009 were €81,408,429,000 compared with€79,890,616,000 a year earlier.

The ordinary income generated by each business unit in 2009 and 2008 was as follows:

€'000

Consolidated

Income from customers Intersegmental income Total ordinary income

SEGMENT 31/12/2009 31/12/2008 31/12/2009 31/12/2008 31/12/2009 31/12/2008

Commercial Banking 2,777,361 3,601,594 137,851 145,269 2,915,212 3,746,863Corporate Banking 333,777 567,205 2,688 3,607 336,465 570,812Banco Urquijo 52,493 86,653 31,119 48,506 83,612 135,159Asset Management 84,671 115,951 5,105 6,483 89,776 122,434

(-) Adjustments and eliminations tointersegmental ordinary income 0 0 (51,848) (74,138) (51,848) (74,138)

Total 3,248,302 4,371,403 124,915 129,727 3,373,217 4,501,130

The following table shows the interest margin and the net fee and commission income generated by each businessunit in 2009, as a proportion of the total:

Segmentation of interest margin and income from services

Loans & advances Deposits from Income from

to other debtors other creditors services (*)

Share of av. Share of av. Share of av. Share of av. Share of av.

SEGMENT total volume total return total volume total return total volume

Commercial Banking 81.0% 88.2% 87.2% 89.4% 80.8%Corporate Banking 17.2% 10.4% 10.0% 7.8% 7.7%Banco Urquijo 1.7% 1.4% 2.8% 2.8% 3.7%Asset Management 0.0% 0.0% 0.0% 0.0% 7.8%

Total 100% 100% 100% 100% 100%

(*) Percentage of the total fee and commission income for each segment.


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b) Segmentation by geography

The distribution of interest and similar income by geography for the years 2009 and 2008 was as follows:

€'000

Distribution of Interest and similar income by geography

Individual Consolidated

31/12/2009 31/12/2008 31/12/2009 31/12/2008

Domestic market 3,100,487 4,222,564 3,085,696 4,270,482Export markets:

European Union 25,565 46,822 26,509 45,921OCDE countries 18,197 28,184 33,463 50,301Other countries 0 0 20,565 37,835

Total 3,144,249 4,297,570 3,166,233 4,404,539

Note 35. Financial risk management

The main financial risks faced by Banco Sabadell group companies in the course of their operations involving the use offinancial instruments are credit risk, market risk and liquidity risk.

The group is aware that the accurate and efficient management and control of risk ensures that shareholder value ismaximized and that an appropriate degree of solvency is maintained in a context of sustainable growth.

With this in view, the management and control of risk has been embodied in a broad framework of principles, policies,procedures and advanced valuation methods, forming an efficient decision-taking structure whose aim is to achieve anoptimum balance of return and risk.

Underlying principles

The Banco Sabadell group has laid down basic principles for the management and control of risk. These are described inthe following paragraphs.

• Solvency. Banco Sabadell has opted for a prudent and balanced policy on risk to ensure sustained and profitablebusiness growth in line with the strategic targets set by the group for maximum value creation. It is vital that thestructure of limits and thresholds should be able to prevent concentrations of risk from building up in such a way asto compromise a significant proportion of the Bank's capital resources. For this reason, the risk variable is takeninto account in decisions at every level and is quantified according to a single measure: economic capital.

• Responsibility. The Board of Directors is committed to maintaining processes for the management and control ofrisk: deciding on policy, setting limits, assigning powers and discretions at different levels of the organization, andapproving management models, procedures and techniques of measurement, supervision and control. At theexecutive level there is a clear separation of functions between risk-originating business units and the functionsresponsible for managing and controlling risk.

• Monitoring and control. The ongoing management of risk is supported by robust control procedures to ensurecompliance with specified limits, clearly defined responsibilities for monitoring indicators and predictive alerts, andthe use of an advanced risk assessment methodology.

Credit risk

Credit risk arises from the possibility of one of the parties to a contract for a financial instrument failing to perform theobligations arising from its financial liabilities.

Credit risk exposure is subjected to rigorous monitoring and control through regular reviews of borrowers'creditworthiness and their ability to meet their obligations to the group, with exposure limits for each counterparty beingadjusted to levels that are deemed to be acceptable. It is also normal practice to mitigate exposure to credit risk byrequiring borrowers to provide collateral or other security to the Bank.

The group makes provisions to cover against credit risk, both in respect of specific losses actually incurred at thebalance sheet date and for losses considered likely in the light of past experience. This is done in such a way as to ensurethat losses could not exceed loss provisions even in the event of a major change in economic conditions or in borrowerquality.


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To maximize the business opportunities provided by each customer and to guarantee an appropriate degree of security,responsibility for monitoring risks is shared between the relationship manager and the risk analyst, who by maintainingeffective communication are able to obtain a comprehensive view of each customer's individual circumstances.

The relationship manager monitors the business aspect through direct contact with customers and by handling theirday-to-day banking, while the risk analyst takes a more system-based approach making use of his specialized knowledge.

The Board of Directors delegates powers and discretions to the Risk Control Committee, which then sub-delegatesauthority at each level. The implementation of authority thresholds on credit approval management systems ensures thatpowers delegated at each level are linked to the expected loss calculated for each transaction of every businesscustomer on the system.

The establishment of advanced methodologies for managing risk exposures – in line with the New Basel Capital Accord(NBCA) and best practice – also benefits the process in ensuring that proactive measures can be taken once a risk hasbeen identified. Of vital importance in this process are risk assessment tools such as credit rating for corporateborrowers and credit scoring for retail customers, as well as indicators that serve as advance alerts in monitoring risk.

Recovery of past-due accounts is the responsibility of a specialized function which coordinates initial out-of-courtnegotiations and, where necessary, legal proceedings conducted by the group's legal department or by independent legaladvisors, depending on the nature and size of the debt. The outcomes of the recovery process are evaluated to measurethe effectiveness of the loss mitigation procedures that are in place.

Year-end carrying values of financial assets involving credit risk exposures, analysed by asset type, counterparty typeand instrument type, and for domestic and foreign operations, are set out in the table that follows. These values give agood indication of maximum exposure to credit risk since they are based on the maximum indebtedness for eachborrower at the close of each year.

€'000

2009 2008

Spanish Foreign Spanish Foreign

Credit risk exposure operations operations Total operations operations Total

Cash and deposits with central banks 1,677,173 142,984 1,820,157 2,310,575 46,999 2,357,574

Loans and advances to credit institutions 1,575,226 193,581 1,768,807 1,453,826 270,158 1,723,984

Doubtful assets 287 406 693 1,490 560 2,050

Loans and advances to other debtors 62,495,584 2,364,873 64,860,457 62,518,910 2,031,308 64,550,218

General government 863,133 41,177 904,310 404,371 28,471 432,842 Doubtful assets 14,091 0 14,091 6,639 0 6,639

Other private sector 61,632,451 2,323,696 63,956,147 62,114,539 2,002,837 64,117,376 Doubtful assets 2,590,627 45,461 2,636,088 1,568,142 52,111 1,620,253

Debt securities 6,748,355 202,605 6,950,960 4,939,805 207,633 5,147,438

General government 2,639,835 28,403 2,668,238 2,557,459 11,625 2,569,084 Credit institutions 3,598,235 114,105 3,712,340 1,988,577 139,734 2,128,311 Other private sector 503,847 60,097 563,944 391,952 56,274 448,226 Doubtful assets 6,438 0 6,438 1,817 0 1,817

Trading derivatives 1,112,091 8,342 1,120,433 1,279,674 6,783 1,286,457

Hedging derivatives 668,081 0 668,081 500,644 124 500,768

Contingent exposures 7,427,039 231,497 7,658,536 7,443,427 237,333 7,680,760

Contingent commitments 16,836,968 182,770 17,019,738 18,701,188 179,787 18,880,975

Total 98,540,517 3,326,652 101,867,169 99,148,049 2,980,125 102,128,174

The group also has exposures and commitments to borrowers of a contingent nature. These generally arise fromguarantees given by the group or commitments under credit facilities extended to customers for up to a given limit so thatthey have access to funds when required. These facilities also involve credit exposure and are subject to the sameprocesses of approval, monitoring and control as described above.


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An analysis of the group's loans and advances by market segment is given in the following table:

%

2009 2008

Agriculture, livestock and fisheries 1 1Industry 20 19Construction 5 4Real estate 11 12Services and other 38 39Residential mortgages 22 21Other loans to individuals 3 4

Total 100 100

The distribution of gross loans and advances by Spanish region is as follows:

%

2009 2008

Catalonia 53 50 Madrid 19 20 Community of Valencia 7 8 Balearic Islands 3 3 Asturias 6 5 Basque Country 1 3 Castile & León 3 3 Andalucía 8 8

Total 100 100

The values of the credit risk exposures described above have not been reduced by the value of any collateral or othercredit enhancement that may have been accepted as security. Such guarantees are in everyday use with the types offinancial instrument dealt in by the group.

Guarantees normally consist of charges on property, and will in most cases be mortgages on buildings for residentialuse, either completed or under construction. To a lesser degree, the Bank will also accept other types of security such asmortgages on business premises, industrial buildings and the like, or deposits of securities. Another type of securitycommonly used by the Bank to mitigate credit risk is the aval or third-party guarantee, provided that it is fully satisfied asto the solvency of the guarantor.

All these risk mitigation techniques are in a form that affords full legal certainty, that is, by framing them in contractsthat are legally binding on all parties and can be enforced in all relevant jurisdictions, thus ensuring that the security canbe realized at any time. The whole contract process is subject to internal review for legal soundness and legal opinionsmay be sought from international experts where contracts are drawn up under the laws of a foreign country.

Guarantees involving a charge on property are drawn up as public instruments and executed before a notary to be fullyvalid and effective as against third parties. A public instrument, in the case of a real property mortgage, will then beregistered in the appropriate land registry to make its effectiveness in law and vis-à-vis third parties complete. In the caseof a chattel mortgage or pledge, the pledged items are generally deposited with the Bank. Contracts are not open tounilateral termination by borrowers and the security remains in effect until the loan has been repaid in full.

Personal guarantees or suretyships in the Bank's favour may be arranged and will again, in all but exceptional cases,be in the form of a notarially authorized public instrument to ensure that the contract is drawn up to give maximum legalsecurity and that legal proceedings can be taken to enforce it in the event of default. Such contracts give the Bank adirect, irrevocable, first demand claim against the guarantor.

In its market trading operations the Banco Sabadell group, in line with current industry practice, enters into agreementsto set up netting arrangements with most of the institutional counterparties with which it trades in derivative instrumentsand has agreed a number of Credit Support Annexes (CSAs). Both these measures are designed to mitigate the group'sexposure to, and prevent excessive concentrations of, credit risk. Security deposits held by Banco Sabadell by way ofcollateral at the end of 2009 totalled €541,000,000 (€305,000,000 at the end of 2008).

The primary concentration of credit risk in relation to all these types of guarantee or credit enhancement arises fromthe use of mortgages to mitigate credit risk exposures resulting from loans to finance home purchases or thedevelopment of residential or other types of real estate. Loans secured by mortgages currently account for 50% of allgroup loans and advances.


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The credit quality of financial assets held by the Banco Sabadell group may be inferred from its loan loss ratios which,as the next table shows, have reached historically low levels compared with the industry average, while provisioning ratiosremain high. The ratios are shown in the following table:

%

2009 2008 2007

Loan loss ratio 3,73 2,35 0,47 Loan loss coverage ratio 69,03 106,93 394,29

As mentioned earlier, the group uses internally generated models to rate most of the borrowers (or transactions) withwhom it incurs credit exposure. These models have been designed in accordance with best practice as proposed by theNBCA. However, not all asset portfolios giving rise to credit risk are subject to these models, partly because the design ofsuch models demands a certain degree of experience of actual cases of default. To give a clear view of the overall qualityof the portfolio, the following table uses risk categories defined in the financial reporting standards laid down by the Bankof Spain's Circular 4/2004. These categories are used to analyse credit risks to which the group is exposed and toestimate provisioning requirements to cover against impairment losses in portfolios of debt instruments.

%

Credit quality of financial assets 2009 2008

Negligible risk 15 12Low risk 25 20Medium-low risk 29 35Medium risk 28 31Medium-high risk 2 1High risk 1 1

Total 100 100

As much as 88% of the Bank's credit risk is internally rated. The distribution of these exposures, rated on an internalrating scale according to the available information, is as follows:

%

Measured by credit rating/scoring

Analysis of risk exposures by credit rating 2009

AAA/AA 9A 13BBB 31BB 37B 9Other ratings 1

Total 100,00

Market risk

Market risk arises from possible fluctuations in the fair value or future cash flows of a financial instrument as a result ofchanges in the factors affecting market risk. Several types of market risk can be distinguished: these include interest raterisk, currency risk and equity risk.

Different approaches are taken to the management of market risk, depending on which of the group's main businesslines has given rise to the risk:

• Risks arising from the group's customer-focused commercial banking and corporate banking businesses, known asstructural risk. This can be sub-classified into interest rate risk, currency risk and liquidity risk. These categories ofrisk are discussed separately below.

• Risks generated through proprietary trading or market making activities by group undertakings, including trading inforeign exchange instruments, equities and bonds, whether on the spot or the derivatives markets. Trading of thiskind will often be undertaken as part of treasury and capital market operations, with which this section isspecifically concerned.

Market risk is measured by the VaR (Value at Risk) method, which allows the risks on different types of financial markettransaction to be analysed as a single class. The VaR method provides an estimate of the potential maximum loss on a


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position that would result from an adverse, but normal, movement in any of the above risk factors. This estimate isexpressed in money terms and is calculated at a specified date, to a specified confidence level and over a specified timehorizon.

Market risk is monitored on a daily basis and reports on current risk levels and on compliance with the limits assignedto each unit are sent to the risk control functions. Limits are assigned by the Board of Directors for each risk monitoringunit (based on nominal amounts, VaR or sensitivity limits, as applicable). This makes it possible to keep track of changesin exposure levels and measure the contribution of each risk factor.

Risk control of this kind is supplemented by special simulation exercises and extreme market scenarios ("stresstesting). The reliability of the VaR methodology is validated by back testing techniques which are used to verify that VaRestimates are consistent with the specified confidence level. Using the VaR methodology does not, however, rule out thepossibility that losses will be above the set limits, as significant market movements may occur that exceed the confidencelevels being applied.

Risk levels for 2009 and 2008 as measured by the 1-day VaR at a 99% confidence level were as follows:

€Mn.

2009 2008

Average Maximum Minimum Average Maximum Minimum

Interest rate risk 0.13 0.75 0.00 0.42 1.38 0.09

Currency risk - trading 0.02 0.06 0.00 0.03 0.05 0.02

Equity risk 1.06 1.67 0.61 1.66 2.49 0.77

Aggregate VaR 1.21 2.48 0.61 2.10 3.24 0.89

Currency risk - structural 2.22 4.11 1.25 1.77 3.88 1.10

Interest rate risk

Interest rate risk arises from changes in market rates of interest that impact on different balance sheet assets andliabilities. The group is exposed to this risk of unexpected interest rate movements, which may ultimately feed throughinto unforeseen changes in interest margins and economic value if, as is common in banking, there are temporarymismatches in the maturity or repricing dates of asset, liability or off-balance sheet exposures.

Interest rate risk is managed on a consolidated basis for the whole group. This task is performed by the Asset andLiability Committee. This means actively managing the balance sheet by means of transactions (micro- and macro-hedges) designed to optimize the level of risk exposure in relation to expected returns. For risk management andaccounting purposes the group maintains two distinct types of macro-hedge of the interest rate risk from portfolios offinancial instruments:

• Cash flow macro-hedges of interest rate risk : The purpose of the cash flow macro-hedge is to reduce the volatility ofnet interest income due to changes in interest rates over a one-year time horizon. The macro-hedge is thus a hedgeof future cash flows related to the net exposure of a portfolio made up of highly probable assets and liabilities withexposures similar to interest rate risk. At the present time the hedging instruments used for this purpose areinterest rate swaps.

• Fair value macro-hedges of interest rate risk: The purpose of this kind of hedge as an accounting tool is to cover theeconomic value of the hedged portfolios, the components of which are fixed-rate assets and liabilities, options thatare implicit or linked to balance sheet products (caps and floors, for example), and derivatives sold to customersthrough the Treasury Desk. At the present time the hedging instruments used for this purpose are interest rateswaps.

The results of hedging operations are reviewed on a regular basis and tests carried out to measure their effectiveness.A number of methodologies are used to measure interest rate risk, allowing a more flexible approach to be taken. One

such methodology is to measure the sensitivity of net interest income to changes in interest rates over a one-year horizonon a maturity and repricing matrix. In this technique the carrying values of financial assets and liabilities are groupedaccording to their maturity dates or the dates on which their rates of interest come up for review, whichever is nearer intime. For the purposes of this analysis the remaining maturity is assumed to be the time from 31 December 2009 to thedue date of each payment. In addition, for current accounts, it is assumed that expected maturities will exceedcontractually agreed terms, in line with the Bank's past experience. The analysis allows an estimate to be made of theeffect that a change in interest rates would have on net interest income, assuming that all rates change by the same


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amount and in a sustained manner. An analysis of interest rate sensitivity at 31 December 2009 and 2008 is presentedin the following table:

€'000

1 month From 1 to From 3 to From 1 to From 2 to From 3 to From 4 to More than Not

31.12.2009 or less 3 months 12 months 2 years 3 years 4 years 5 years 5 years sensitive Total

Loans and advances 11,937,294 21,479,190 30,187,242 852,413 402,015 214,339 144,250 551,537 9,572 65,777,852 Money market 1,005,460 219,622 884,906 0 0 0 0 200,000 9,454 2,319,442 Capital market 1,249,793 600,572 714,445 398,012 601,258 542,343 1,055,906 2,082,626 (274) 7,244,681 Other assets 155,232 0 0 0 0 0 0 0 7,325,679 7,480,911

Total assets 14,347,779 22,299,384 31,786,593 1,250,425 1,003,273 756,682 1,200,156 2,834,163 7,344,431 82,822,886

Customer accounts 11,750,113 8,148,689 9,320,435 3,006,695 503,320 479,922 940,477 4,981,071 0 39,130,722 Money market 4,320,503 2,205,493 1,377,828 0 3,490 0 0 203,490 0 8,110,804 Capital market 5,627,462 6,872,504 3,542,375 1,963,187 1,558,547 1,571,863 559,632 5,577,930 0 27,273,500 Other liabilities 51,500 0 0 0 0 0 0 0 8,256,360 8,307,860

Total liabilities 21,749,578 17,226,686 14,240,638 4,969,882 2,065,357 2,051,785 1,500,109 10,762,491 8,256,360 82,822,886

Hedging derivatives 8,123,339 6,269,608 (1,345,006) (4,181,098) (148,805)(1,653,777) (1,084,012) (5,980,249) 0 0

Interest rate sensitivity gap 721,540 11,342,306 16,200,949 (7,900,555) (1,210,889)(2,948,880) (1,383,965)(13,908,577) (911,929) 0

€'000

1 month From 1 to From 3 to From 1 to From 2 to From 3 to From 4 to More than Not

31.12.2008 or less 3 months 12 months 2 years 3 years 4 years 5 years 5 years sensitive Total

Loans and advances 14,497,149 20,610,683 27,705,325 557,924 360,442 232,844 139,626 457,698 7,369 64,569,060 Money market 2,564,919 8,747 663,068 5,572 0 0 0 0 18,573 3,260,879 Capital market 909,383 233,094 519,751 78,610 508,632 138,461 141,951 2,109,752 3,030 4,642,664 Other assets 574,231 0 0 0 0 0 0 0 7,331,230 7,905,461

Total assets 18,545,682 20,852,524 28,888,144 642,106 869,074 371,305 281,577 2,567,450 7,360,202 80,378,064

Customer accounts 14,692,865 8,116,555 13,001,596 1,155,871 494,242 59,836 103,823 5,175,811 45,678 42,846,277 Money market 4,666,292 133,299 1,096,663 14,423 0 0 0 3,626 0 5,914,303 Capital market 4,177,313 5,580,008 2,448,540 1,343,133 1,896,322 58,635 1,644,095 5,324,289 0 22,472,335 Other liabilities 54,628 0 0 0 0 0 0 0 9,090,521 9,145,149

Total liabilities 23,591,098 13,829,862 16,546,799 2,513,427 2,390,564 118,471 1,747,918 10,503,726 9,136,199 80,378,064

Hedging derivatives (4,508,196) (3,004,765) (1,576,525) (48,922) 2,285,947 2,706 1,650,017 5,230,992 (31,254) 0

Interest rate sensitivity gap (9,553,612) 4,017,897 10,764,820 (1,920,243) 764,457 255,540 183,676 (2,705,284) (1,807,251) 0

The term structure shown in the table is typical for a bank with commercial banking as its main activity, with gaps ormismatches that are negative in the very short term, positive for terms of up to one year (reflecting the loan componentsof the portfolio), and negative for longer term or not sensitive instruments. The matrix also shows the effects that hedginginstruments have in altering the term profile of the group's exposure to interest rate risk.

This kind of analysis is supplemented by simulations which measure the effects of different interest rate movementsat different maturities, for example, due to changes in the slope of the yield curve. These simulations assign probabilitiesto each scenario so as to arrive at a more precise estimate of the effect that interest rate movements might have.Another technique used is to measure the sensitivity of equity to changes in interest rates by duration gap analysis. Thismeasures the effect of interest rate changes over a longer time horizon.

The sensitivity of net interest income and shareholders' equity, in relative terms in the latter case, to a change of 100basis points (1%) in euro interest rates would be €23,14 million and 3.05% respectively (1.14% in 2008). The mainassumption used in making this estimate is to take the estimated average term for current accounts as roughly two and ahalf years even though, contractually speaking, balances in current accounts can be withdrawn at any time. Thisassumption is consistent with the observation that balances in current accounts can normally be expected to remainstable. Another assumption that is made is to exclude all possible maturities other than those fixed by contract, that is,such scenarios as early repayment or requests for early redemption are not taken into account. Finally, it is assumed thatthe change of 100 basis points in interest rates is immediate and sustained throughout the time horizon. A change of thiskind is itself hypothetical and would not for one moment indicate that such a change should be expected. It has beenused for illustrative purposes only.

Currency risk

Currency risk arises from possible changes in exchange rates between different currencies. The group's structural foreign currency exposure remained stable throughout 2009 and is associated with long-term

investments in foreign branches and subsidiaries.Otherwise, the group's foreign currency exposure is not significant and is generally linked to activities to support

customer-focused operations.


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The Board of Directors sets overall daily limits for intraday positions (positions resulting from all transactions up to acertain moment in a single day) and overnight positions (positions reached at the end of the day). These limits aremonitored and reviewed on a daily basis.

Liquidity risk

This is the risk that a bank may have difficulty in meeting obligations associated with financial liabilities that are settled bythe delivery of cash or another financial asset.

The group is exposed to daily demands on its available cash resources to meet contractual obligations related tofinancial instruments, such as maturing deposits, drawdowns of credit facilities, settlements on derivatives and so on.Experience shows, however, that only a minimum amount is ever actually required and this can be predicted with a highdegree of confidence.

Limits are set by the Board of Directors for the maintenance of minimum cash levels and for levels of structuralborrowing. The group monitors changes in its liquid asset position on a daily basis and holds a diversified portfolio ofsuch assets. It also carries out yearly projections to anticipate future needs.

In addition, a review is carried out of gaps or mismatches between cash inflows and outflows over a short, medium andlong time horizon using a maturity matrix based on the time remaining between the date to which the financial statementswere made up and the contract maturity dates of assets and liabilities.

In the matrix presented below, times to maturity have been based on contract maturity/repayment dates; for assetsand liabilities on which payments are made over a period of time, the time to maturity has been taken as the timebetween 31 December 2009 and the due date of each payment.

The maturity matrix at 31 December 2009 and 2008 is as follows:

€'000

1 month From 1 to From 3 to From 1 to More than No fixed

31.12.2009 At sight or less 3 months 12 months 5 years 5 years Sub-total maturity Total

Loans and advances 0 4,539,773 6,244,655 12,835,710 16,849,939 25,298,203 65,768,280 9,572 65,777,852Money market 0 1,013,333 219,622 884,906 0 200,000 2,317,861 1,582 2,319,442Capital market 0 1,219,936 520,331 706,745 2,633,078 2,164,865 7,244,955 (274) 7,244,681Other assets 0 155,231 0 0 0 0 155,231 7,325,679 7,480,911

Total assets 0 6,928,273 6,984,607 14,427,362 19,483,017 27,663,067 75,486,327 7,336,559 82,822,886

Customer accounts 6,815,863 8,206,370 5,741,366 10,219,405 6,641,976 1,505,741 39,130,722 0 39,130,722Money market 0 4,320,503 2,205,493 1,377,827 3,490 203,490 8,110,804 0 8,110,804Capital market 0 2,326,046 1,290,948 4,746,393 11,555,604 7,354,510 27,273,501 0 27,273,501Other liabilities 0 51,500 0 0 0 0 51,500 8,256,359 8,307,860

Total liabilities 6,815,863 14,904,419 9,237,806 16,343,626 18,201,071 9,063,742 74,566,527 8,256,359 82,822,886

Liquidity gap (6,815,863) (7,976,146) (2,253,199) (1,916,264) 1,281,946 18,599,325 919,800 (919,800) 0

€'000

1 month From 1 to From 3 to From 1 to More than No fixed

31.12.2008 At sight or less 3 months 12 months 5 years 5 years Sub-total maturity Total

Loans and advances 0 5,343,796 7,404,745 15,464,989 19,580,263 16,769,335 64,563,128 5,931 64,569,060 Money market 0 2,571,065 8,747 663,068 0 5,572 3,248,453 12,428 3,260,880 Capital market 0 4,473,472 11,486 15,993 51,374 91,497 4,643,822 (1,159) 4,642,663 Other assets 0 3,638,377 3,064,543 3,592 0 0 6,706,512 1,198,950 7,905,462

Total assets 0 16,026,710 10,489,522 16,147,642 19,631,637 16,866,404 79,161,915 1,216,150 80,378,065

Customer accounts 6,956,531 11,458,941 5,098,770 12,861,412 5,357,399 1,113,221 42,846,274 0 42,846,274 Money market 0 4,666,292 133,299 1,096,663 14,423 3,625 5,914,302 0 5,914,302 Capital market 0 118,634 414,002 2,809,775 9,932,926 9,196,998 22,472,336 0 22,472,336 Other liabilities 0 2,250,778 2,303,970 3,489 0 0 4,558,237 4,586,916 9,145,153

Total liabilities 6,956,531 18,494,645 7,950,041 16,771,340 15,304,748 10,313,845 75,791,149 4,586,916 80,378,065

Liquidity gap 6,956,531 (2,467,935) 2,539,481 (623,698) 4,326,889 6,552,559 3,370,766 (3,370,766) 0

In this analysis the very short-term end of the range is typically where refinancing is most required. This is due tocontinually maturing short-term liabilities which, in banking, tend to have a higher turnover than assets. In practice,however, these short-term liabilities are continually being rolled over and therefore their funding requirements, even wheredebt volumes are increasing, can be accommodated.

Even so, group policy is to maintain a safety margin to cover financing needs in any circumstances. This means, interalia, maintaining a reserve of liquid assets considered as eligible collateral by the European Central Bank for possiblewithdrawals of funds to more than cover the group's three-month funding requirements.


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The group has commitments of a contingent nature which may also affect its cash requirements. Most of these relateto credit facilities with agreed limits which were undrawn at close of the reporting year. Limits on these commitments arealso set by the Board of Directors and are constantly monitored.

Systematic checks are made to verify that the group's ability to raise funds on the capital markets is sufficient tosatisfy its requirements in the short, medium and long term. The Banco Sabadell group meets its cash needs in a numberof ways and has programmes in place to raise finance on the capital markets to ensure diversified sources of funds.Some of these funding programmes are described below.

• Nonparticipating Securities Issuance Programme: the programme has been filed with Spain's stock marketregulator, the CNMV, and covers issuance of medium-term and long-term bonds (both straight and subordinated) andmortgage bonds under CNMV supervision as required by Spanish law. These are placed with investors on thedomestic and global markets. The limit for issues under the Nonparticipating Securities Issuance Programme at 31December 2009 was €7,725 million (€7,936 million at 31 December 2008).

• Banco Sabadell Commercial Paper Issuance Programme: covers the issuance of corporate notes and is directed atboth institutional and retail investors. On 12 March 2009 a "Banco Sabadell Commercial Paper IssuanceProgramme 2009" for up to a limit of €6,500 million was filed with the CNMV. As of 31 December 2009 the value ofnotes in circulation under the programme was €2,771 million (€2,937 million at 31 December 2008).

Other sources of funding include:

• Medium and long-term bilateral loans with financial and other institutions.• Issues of asset-backed securities. Since 1998 the group has been involved in setting up 21 securitization funds for

the transfer of mortgage loans, business finance loans for small and medium-sized firms and finance leasereceivables. A portion of the bonds issued by securitization funds have been sold on the capital markets and theremainder are held by Banco Sabadell. Most of the mortgage bonds held by Banco Sabadell are pledged as securityon a credit line held by the Bank with the Bank of Spain to help it manage its short-term liquidity requirements.

In 2008 the Spanish government introduced a series of measures to help increase the supply of funding to thecountry's economy. One of these was to set up, by Royal Decree Law 6/2008, a Fund for the Acquisition of FinancialAssets (Spanish abbreviation: FAAF) with an initial capital injection of 30 million euros to be used to buy highly ratedassets from financial institutions. In 2008 the FAAF carried out two auctions to buy assets of up to ten million euros.

The Bank carries out regular liquidity stress testing exercises to ensure that it is able to assess inflows and outflows offunds and the impact of these flows on its cash position under different scenarios. As part of this analysis it has acontingency plan in place to deal with unforeseen scenarios that could result in an immediate funding requirement. Thecontingency plan is constantly being updated and identifies the Bank's assets that are most readily convertible to cash inthe short term; it also sets out action plans should it become necessary to raise additional cash.

Risk concentrations

Credit risk is undoubtedly the main business risk faced by the Banco Sabadell group. As an active player in the globalbanking industry the group has a sizeable concentration of exposures to other financial institutions. Managing theseexposures involves the setting of limits by the Board of Directors and the monitoring of these limits on a day-to-day basis.As mentioned earlier, specific measures are also in place to mitigate risk, including netting agreements with the majorityof counterparties with which derivatives are traded.

As of 31 December 2009, there were only six borrowers (2008: five borrowers) involving individual exposures of morethan 10% of the group's capital; for four of these borrowers (2008: three borrowers) did not the figure exceed 15% of thegroup's capital. The overall exposure to these six borrowers amounted to €4,897,199,000 (3,878,149,000 at 31December 2008).

Capital management

The group's general policy on capital management is to ensure that its available capital is sufficient to cover the overalllevels of risk being incurred.

This involves setting up sophisticated systems to measure each type of risk incurred by the group and methodologiesthat are able to encompass all of them. Such an approach requires a broad perspective of risk that takes account ofpossible stress scenarios and suitable financial planning in each case. The risk assessment systems used are in linewith current best practice.

Each year the group carries out its own capital assessment process as prescribed by the new Basel Capital Accordand, in greater detail, by the Bank of Spain's capital adequacy regulations, and reports the results to the supervisoryauthority.


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The process is based on a broad spectrum of previously identified risks and a qualitative internal evaluation of policies,procedures, and systems for originating, measuring and controlling each type of risk and appropriate mitigationtechniques.

The next stage is to carry out a comprehensive quantitative assessment of the group's capital requirement. This willbe based on internal parameters and use the group's own models (such as borrower credit rating or scoring systems)and other internal estimates appropriate for each type of risk. The assessments for each type of risk are then integratedand a figure is set in terms of a common unit of measurement, known as economic capital, according to an internally setcapital requirement based on the level of risk quality desired. The group's business and financial objectives and stresstesting exercises are also fed into the process to reach a final determination as to whether certain businessdevelopments or extreme but nevertheless possible scenarios could pose a threat to the Bank's solvency, having regardto its available capital.

Note 36. The environment

All group operations are subject to legal requirements on environmental protection and health and safety at work. Thegroup considers that it substantially complies with these legal requirements and has procedures in place to ensure suchcompliance.

The group has taken appropriate action on environmental protection and improvement and to minimize possibleenvironmental impacts, as required by law. A number of group-wide waste treatment, consumable recycling and energysaving schemes were continued during the year. Given the absence of any likely environmental risk or expense, it was notthought necessary to set aside any provision for contingencies of this nature.

Note 37. Related party transactions

No significant transaction took place with any major shareholder during the years 2009 and 2008; those transactionsthat did take place were in the normal course of business and on an arm's length basis.

No transactions that could be described as significant were entered into with directors or senior managers of the Bank.Those that did take place were in the normal course of the group's business or were done at market prices or on thesame terms as for employees.

The group is not aware of any transaction, other than on an arm's length basis, with any person or entity connected inany way to a director or senior manager.

The most significant balances held by the group with related parties and the effect on the income statement oftransactions entered into with them, are shown in the following table:

€'000

2009 2008

Assets:

Loans and advances to other debtors 750,744 329,918

Liabilities:

Deposits from other creditors 3,195,315 2,326,690

Memorandum accounts:

Contingent exposures 89,014 60,967 Contingent commitments 71,070 115,185

Income statement:

Interest and similar income 10,915 17,752 Interest expense and similar charges (52,750) (47,119)Returns on equity instruments 0 8,149 Net fees and commissions 35,897 26,988 Other operating income 1,548 1,651


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Note 38. Agents

As of 31 December 2009 and 2008, no group undertaking had entered into an agency agreement that would allow anagent to act for and on behalf of the group on an ongoing basis in any customer relationship or in any negotiation orbusiness of a kind commonly engaged in by a credit institution.

Note 39. Customer service department

As required by the Spanish Finance Ministry's Order 734/2004, a report on the group's Customer Service Departmenthas been provided in the Report of the Directors that follows these notes to the annual accounts.

Note 40. Remuneration paid to directors and senior management group

The following table shows, for the years to 31 December 2009 and 2008, the amounts paid to directors in fees and incontributions to meet directors' pension commitments for services rendered by them in that capacity:

€'000

Pension

Fees paid commitments Total

2009 2008 2009 2008 2009 2008

José Oliu Creus * 252.0 280.0 37.8 42.0 289.8 322.0Joan Llonch Andreu 162.0 198.0 18.9 21.0 180.9 219.0Jaime Guardiola Romojaro * 108.0 120.0 - - 108.0 120.0Isak Andic Ermay 126.0 140.0 - - 126.0 140.0Miguel Bósser Rovira 126.0 140.0 18.9 21.0 144.9 161.0Francesc Casas Selvas 144.0 160.0 18.9 21.0 162.9 181.0Héctor María Colonques Moreno 144.0 160.0 18.9 21.0 162.9 181.0Sol Daurella Comadrán (1) 90.0 - - 90.0Joaquín Folch-Rusiñol Corachán 126.0 140.0 18.9 21.0 144.9 161.0Maria Teresa Garcia-Milà Lloveras (3) 144.0 160.0 - - 144.0 160.0José Manuel Lara Bosch 126.0 140.0 - - 126.0 140.0José Permanyer Cunillera ** 144.0 160.0 18.9 21.0 162.9 181.0Carlos Jorge Ramalho dos Santos Ferreira (2) 108.0 88.6 - - 108.0 88.6

Total 1,800.0 1,886.6 151.2 168.0 1,951.2 2,054.6

* Directors exercising executive functions.

** On 30 June 2008 José Permanyer Cunillera ceased to be an Executive Director and was appointed a non-executive director.

(1) At the Annual General Meeting of 19 March 2009 it was resolved that Sol Daurella Comadrán be appointed an independent external director.

(2) At the Annual General Meeting of 27 March 2008 it was resolved that Carlos Jorge Ramalho dos Santos Ferreira be appointed to the Board as a shareholderdirector.

Amounts paid in salaries and other emoluments to executive directors during the year 2009 totalled €3,933,000 and€477,000 respectively (2008: €3,541,000 and €4,697,000 respectively). Other compensation paid in the year 2008includes payments that were made in 2008 but related to amounts accruing under incentive or other special schemescovering periods of two or more years prior to 2008. Life assurance premiums covering contingent pension commitmentsin respect of pension rights accruing in 2009 amounted to a further €8,893,000 (2008: €7,077,000).

Loan and guarantee risks undertaken by the Bank and consolidated undertakings for all directors of the parentcompany totalled €16,594,000 at 31 December 2009. Of this amount €14,197,000 comprised loans and €2,397,000related to avals and documentary credits (2008: €17,566,000, including €15,000,000 in loans and €2,566,000 in avalsand documentary credits). The average rate of interest charged was 3.12% (2008: 4.70%). Deposits by directors totalled€4,788,000 (€7,672,000 in 2008).


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Salary payments to members of the senior management group (other than those sitting on the Board as executivedirectors, for whom details are given above) amounted to €6,321,000 in 2009(2008: €7,529,000). Premiums paid inrespect of accrued pension entitlements of senior managers totalled €3,827,000 in 2009 (2008: €2,195,000).

Loan and guarantee risks undertaken by the Bank and consolidated undertakings for the senior management group(other than executive directors, for whom details are provided above) totalled €14,586,000 at 31 December 2009. Ofthis amount €11,924,000 comprised loans and €2,662,000 related to avals and documentary credits. Deposits bysenior managers totalled €11,155,000.

Vested entitlements in respect of share appreciation rights granted to members of the senior management groupincluding executive directors resulted in personnel expenses of €5,131,000 during the year (2008: €5,039,000)(seenote 32 (f)).

Details of existing agreements between the company and members of the Board and senior managers with regard tocompensation on severance of contract are set out in the report of the directors that follows these annual accounts.

The members of the senior management group and their areas of responsibility at 31 December 2009 are set outbelow:

José Oliu Creus ChairmanJaime Guardiola Romojaro Managing DirectorJosé Luis Negro Rodríguez Deputy Secretary to the Board & Comptroller GeneralCirus Andreu Cabot Investment, Products and AnalysisLuis Buil Vall Regional Director - Barcelona AreaIgnacio Camí Casellas Assistant General ManagerJosé Canalias Puig Regional Director - CataloniaMaría José García Beato Secretary General - Head of Legal DepartmentRafael José García Nauffal RiskSalvador Grané Terradas Real Estate ManagementJoan-Mateu Grumé Sierra Corporate OperationsJaime Matas Vallverdú Regional Director - Valencia, Murcia & Balearic IslandsBlanca Montero Corominas Regional Director - Madrid, Castile & GaliciaMiquel Montes Güell Operations and Corporate DevelopmentFernando Pérez-Hickman Muñoz Business Development - AmericasJaume Puig Balsells Commercial BankingRamón de la Riva Reina Markets and Private Banking Enric Rovira Masachs Corporate Banking and Global OperationsTomás Varela Muiña Chief Financial OfficerJavier Vela Hernández Human Resources Carlos Ventura Santamans Corporate Banking

Note 41. Directors’ duty of loyalty

Pursuant to article 127 ter of the Spanish Companies Act, introduced by Law 26/2003 of 17 July amending Law24/1988 of 28 July on the Securities Market and the consolidated text of the Companies Act, in the interests ofcorporate transparency, the Directors have made the following statement to the Company:

a. No situation has arisen that would directly or indirectly give rise to a conflict between an individual's private interestand the interests of the Company.

b. No Director holds shares in the equity of any company whose objects are identical, similar or complementary tothose of the Company, with the following exceptions:

Director Company Proportional shareholding (%)

Jaime Guardiola Romojaro Banco Bilbao Vizcaya Argentaria, S.A. 0.00137José Permanyer Cunillera Banco Santander Central Hispano, S.A. 0.00006José Permanyer Cunillera Banco Bilbao Vizcaya Argentaria, S.A. 0.00021José Oliu Creus Banco Comercial Português, S.A. 0.00028Hector María Colonques Moreno Banco de Valencia, S.A. 0.00264Maria Teresa García-Milà Lloveras Banco Santander Central Hispano, S.A. 0.0000064


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The Directors have also confirmed that none of them holds any office or position of responsibility or performs anyservices, for their own account or for the account of any other person, in any company whose objects are identical, similaror complementary to those of the Company, with the following exceptions:

Director Company Position/office held

José Oliu Creus Banco Comercial Português, S.A. Member, General and Supervisory Board

José Oliu Creus BanSabadell Holding, S.L., Sociedad Unipersonal ChairmanJoan Llonch Andreu BancSabadell d'Andorra, S.A. DirectorJoan Llonch Andreu BanSabadell Holding, S.L., Sociedad Unipersonal DirectorJoan Llonch Andreu Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. Deputy ChairmanJaime Guardiola Romojaro Ibersecurities, Sociedad de Valores, S.A., Sociedad Unipersonal ChairmanMiguel Bósser Rovira BanSabadell Holding, S.L., Sociedad Unipersonal DirectorCarlos Jorge Ramalho dos Santos Ferreira Banco Comercial Português, S.A. ChairmanCarlos Jorge Ramalho dos Santos Ferreira Bank Millenium, S.A. Chairman, General and

Supervisory BoardJosé Permanyer Cunillera BancSabadell d'Andorra, S.A. DirectorJosé Permanyer Cunillera Aurica XXI, S.C.R., S.A. ChairmanJosé Permanyer Cunillera BanSabadell Inversió Desenvolupament, S.A., Sociedad Unipersonal ChairmanJosé Permanyer Cunillera Sinia Renovables, S.C.R. de Régimen Simplificado Chairman

Note 42. Post-balance sheet events

On 23 July 2009, Banco de Sabadell, S.A. concluded an agreement with the Bank of New York Mellon to buy 100% of theordinary shares of its Miami, Florida subsidiary Mellon United National Bank ("MUNB").

On 15 January 2010, having obtained the necessary official and regulatory authorizations, Banco Sabadell dischargedits obligations under the agreement for a final consideration of €111,000,000 (USD 160.6 million).

As from that date the subsidiary acquired by Banco Sabadell has been operating under the name of Sabadell UnitedBank.

MUNB is a retail banking operation with a franchise in specialist services to professional customers. It currentlypossesses 15 branches in southern Florida with a strong presence in Miami-Dade, Broward and Palm Beach counties and335 employees.

The acquisition will allow Banco Sabadell to increase its growing domestic banking business in southern Florida,strengthen its operations platform in Miami and continue to develop its local banking programme in the area.

With this acquisition, Banco Sabadell takes over deposits of USD 1,675 million and loans of USD 875 million,accounting for 60% of the lending book.


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Annex: Banco Sabadell group undertakings at 31 December 2009

Proportional holding (%)

Name of company Principal business Registered office Direct Indirect

Fully consolidated companies

Assegurances Segur Vida, S.A. Insurance Andorra la Vella - 50.97 Aurica XXI, S.C.R., S.A. Venture capital company Barcelona 100.00 - Axel Group, S.L. Financial advisers Madrid 100.00 - Ballerton Corporation Serviços, S.A. Holding company Madeira - 100.00 Banco Atlantico Bahamas Bank and Trust Ltd. Banking Nassau, Bahamas 99.99 0.01 Banco Atlantico Mónaco S.A.M. Banking Monaco 100.00 - Banco de Sabadell, S.A. Banking Sabadell - - Banco Urquijo Sabadell Banca Privada, S.A. Banking Madrid 100.00 - BancSabadell d'Andorra, S.A. Banking Andorra la Vella 50.97 - BanSabadell Correduría de Seguros, S.A. Insurance brokers Sabadell 100.00 - BanSabadell Factura, S.L. Electronic billing services Sant Cugat del Vallès 100.00 - BanSabadell Financiación, E.F.C., S.A. Finance company Sabadell 100.00 - BanSabadell Fincom, E.F.C., S.A. Finance company Sant Cugat del Vallès 100.00 - BanSabadell Holding, S.L. Holding company Sabadell 100.00 - BanSabadell Information System S.A. Computer services Sant Fruitós de Bages 81.00 - BanSabadell Inversió Desenvolupament, S.A. Holding company Barcelona 100.00 - BanSabadell Inversión, S.A., S.G.I.I.C. Investment fund managers Sant Cugat del Vallès 100.00 - BanSabadell Professional, S.A. (a) Services Barcelona 100.00 - BanSabadell Renting, S.L. Equipment leasing Sant Cugat del Vallès 100.00 - BanSabadell Securities Services, S.L Services Sabadell 100.00 - Compañía de Cogeneración del Caribe Dominicana, S.A. Electricity utility Santo Domingo (Dom. Rep.) - 100.00 Compañía de Cogeneración del Caribe, S.L. Electricity utility Barcelona - 99.99 Compañía de Electricidad y Cogeneración de Uvero, S.A. Electricity utility Higuey (Dom. Rep.) - 72.92 Europa Invest, S.A. Investment fund managers Luxembourg 22.00 78.00 Europea Pall Mall Ltd. Real estate London 100.00 - Explotaciones Energéticas SINIA XXI, S.L. Holding company Madrid - 100.00 Herrero International, S.A.R.L. Holding company Luxembourg - 100.00 Hobalear, S.A. Real estate Sabadell - 100.00 Ibersecurities Holding, S.A. Holding company Madrid 100.00 -Ibersecurities,Soc.de V., S.A., Soc.Unip. Stockbrokers Madrid - 100.00 Inmobiliaria Asturiana, S.A. Real estate Oviedo 99.63 - Interstate Property Holdings, LLC Company Instrumental Miami - 100.00 Promociones y Financiaciones Herrero, S.A. Holding company Oviedo 100.00 - Sabadell Asia Trade Services Ltd. Services Hong Kong 100.00 - Sabadell Brasil Trade Services - Ass.Cial Ltda. Representative office Brazil 99.99 0.01 Sabadell BS Select Fund of Hedge Funds, S.I.C.A.V., S.A. Holding company Luxembourg 60.16 - Sabadell Corporate Finance, S.L. Financial advisers Madrid 30.00 70.00 Sabadell d'Andorra Borsa, S.A. Investment company Andorra la Vella - 50.97 Sabadell d'Andorra Inversions Societat Gestora, S.A. Investment fund managers Andorra la Vella - 50.97 Sabadell International Equity Ltd. (b) Finance company George Town - - Sabadell International Finance, B.V. Finance company Amsterdam 100.00 - Sabadell Securities USA, Inc. Services Miami 100.00 - Santex Pluser, S.L. Real estate Barcelona - 100.00 Servicio de Administración de Inversiones, S.A. Holding company Madrid 100.00 - Servicios Reunidos, S.A. Services Sabadell 100.00 - Sinia Renovables, S.C.R. de R.S., S.A. Venture capital company Barcelona 100.00 - Solvia Development, S.L (c) Real estate Sant Cugat del Vallès 100.00 - Solvia Estate, S.L. Real estate Sant Cugat del Vallès 100.00 - Solvia Gestió Immobiliària, S.L. Property rentals Madrid 100.00 - Solvia Hotels, S.L. Real estate Sant Cugat del Vallès 100.00 - Solvia Housing, S.L. Real estate Madrid 100.00 - Solvia Properties, S.L. Real estate Sant Cugat del Vallès 100.00 - Transatlantic Bank Inc. Banking Miami - 100.00 Transatlantic Holding Corp. Holding company Miami 100.00 - Urquijo Gestión, S.G.I.I.C., S.A. Investment fund managers Madrid - 100.00

Total

(a) The company name was changed from Tecnocredit S.A. to BanSabadell Professional, S.L. in May 2009.

(b 100% of the voting rights are held by the parent company.

(c) The company name was changed from Promociones Argañosa, S.L. to Solvia Development, S.L. in January 2009.


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€'000

Contribution

to reserves Contribution Treated as

Financial data (1) Group or losses of to consolidated

Dividends Total net consolidated consolidated for tax

Name of company Capital Reserves Results (2) paid (3) assets investment undertakings profit purposes


Assegurances Segur Vida, S.A. 602 114 227 175 257,746 602 16 116 NoAurica XXI, S.C.R., S.A. 14,200 144 17,402 0 125,516 17,492 (654) 17,402 YesAxel Group, S.L. 26 182 1 392 1,009 7,792 944 1 YesBallerton Corporation Serviços, S.A. 50 24,213 158 0 24,422 3,140 (268) 158 NoBanco Atlántico Bahamas Bank and Trust Ltd. 1,388 861 (37) 0 2,920 2,439 901 (37) NoBanco Atlántico Mónaco S.A.M. 11,250 11,628 293 0 25,192 19,498 3,004 293 NoBanco de Sabadell, S.A. 150,000 3,995,605 528,787 312,000 81,583,450 0 4,208,779 528,787 YesBanco Urquijo Sabadell Banca Privada, S.A. 73,148 126,833 11,219 0 2,099,589 143,030 60,595 11,219 YesBancSabadell d'Andorra, S.A. 30,069 10,887 5,249 765 652,186 15,326 3,490 2,077 NoBanSabadell Correduría de Seguros, S.A. 60 18 832 1,135 2,813 588 (612) 832 YesBanSabadell Factura, S.L. 100 (1,501) (898) 0 1,820 299 (1,589) (898) YesBanSabadell Financiación, E.F.C., S.A. 24,040 25,591 8,816 0 658,217 24,040 25,591 8,816 YesBanSabadell Fincom, E.F.C., S.A. 35,520 25,163 (25,167) 0 523,949 72,232 (6,042) (25,167) NoBanSabadell Holding, S.L. 330,340 (117,963) (147,818) 0 333,293 239,544 (58,776) (147,818) YesBanSabadell Information System, S.A. 240 (4,966) 10,571 0 96,126 3,962 (5,365) 10,571 YesBanSabadell Inversió Desenvolupament, S.A. 15,025 (9,142) 16,593 0 86,372 19,368 (3,196) 16,593 YesBanSabadell Inversión, S.A., S.G.I.I.C. 601 54,920 16,731 57,000 123,595 607 54,910 16,731 YesBanSabadell Professional, S.A. 60 194 30 0 891 1,130 383 30 NoBanSabadell Renting, S.L. 2,000 3,902 (360) 0 175,759 3,861 2,405 (360) YesBanSabadell Securities Services, S.L. 2,500 0 4,098 0 7,939 2,500 0 4,098 YesCompañía de Cogeneración del Caribe

Dominicana, S.A. 69 (217) (5,051) 0 2,391 63 37 (5,051) NoCompañía de Cogeneración del Caribe, S.L. 2,933 (4,310) (286) 0 687 3,007 (503) (286) YesCompañía de Electricidad y Cogeneración

de Uvero, S.A. 3,096 (288) (1,112) 0 2,704 2,410 855 (804) NoEuropa Invest, S,A, 125 267 (208) 0 501 336 47 (208) NoEuropea Pall Mall Ltd. 17,427 (3,795) (482) 0 13,369 20,843 (697) (482) NoExplotaciones Energéticas SINIA XXI, S.L. 1,352 10,862 (761) 0 71,360 4,672 22,106 (761) YesHerrero International, S.A.R.L. 429 3,820 2 0 4,349 1,139 197 2 NoHobalear, S.A. 60 478 34 0 596 414 478 34 YesIbersecurities Holding, S.A. 31,581 48,865 128 0 80,710 54,922 (84,881) 128 YesIbersecurities,Soc.de V., S.A., Soc.Unip. 3,000 53,309 4,045 0 63,847 76,794 48,323 4,045 YesInmobiliaria Asturiana, S.A. 198 40 244 4,286 559 2,468 (313) 243 YesInterstate Property Holdings, LLC 5,553 (1,112) (8,514) 0 56,999 5,405 (901) (8,514) NoPromociones y Financiaciones Herrero, S.A. 3,456 271 (1) 0 3,726 24,185 10 (1) YesSabadell Asia Trade Services Ltd. 0 595 135 0 602 0 476 135 NoSabadell Brasil Trade Services - Ass.Cial Ltda. 1,362 (1,091) (22) 0 266 250 (29) (22) NoSabadell BS Select Fund of Hedge Funds, S.I.C.A.V., S.A. 21,444 (1,718) 1,645 0 21,472 12,900 (1,026) 699 NoSabadell Corporate Finance, S.L. 70 196 (655) 0 420 358 (1,151) (655) YesSabadell d'Andorra Borsa, S.A. 60 14 0 0 74 60 7 0 NoSabadell d'Andorra Inversions Societat Gestora, S.A. 300 274 361 325 950 300 140 184 NoSabadell International Equity Ltd. 250,001 55 12 0 250,114 1 0 0 NoSabadell International Finance, B.V. 2,000 0 (37) 232 2,010 2,000 (27) (37) NoSabadell Securities USA, Inc. 548 (18) (137) 0 460 551 (26) (137) NoSantex Pluser, S.L. 5,083 (1,036) 830 0 38,509 5,083 (950) 830 NoServicio de Administración de Inversiones, S.A. 6,010 762 (2) 0 6,770 16,690 (6,094) (2) YesServicios Reunidos, S.A. 60 20 0 0 80 67 13 0 YesSinia Renovables, S.C.R. de R.S., S.A. 15,000 (428) (219) 0 59,748 15,000 (381) (219) YesSolvia Development, S.L 15,807 (28,233) (152,036) 0 1,403,407 41,155 (39,050) (152,035) YesSolvia Estate, S.L. 60 (3) (17,393) 0 98,804 60 (3) (17,393) YesSolvia Gestió Immobiliària, S.L 2,705 (87) 3,492 0 8,846 2,786 (168) 3,492 YesSolvia Hotels ,S.L. 500 (5) (4) 0 491 500 0 (3) YesSolvia Housing, S.L. 2,073 1,303 (55) 0 13,351 3,356 21 (55) YesSolvia Properties,S.L. 500 (5) 283 0 30,824 500 0 283 YesTransatlantic Bank Inc. 2,082 36,297 (1,601) 0 373,852 6,083 (1,808) (1,601) NoTransatlantic Holding Corp. 0 19,265 (398) 0 23,284 146,955 (2,165) (398) NoUrquijo Gestión, S.G.I.I.C., S.A. 3,606 3,419 (1,023) 0 12,684 5,286 1,654 (1,023) Yes

Total 376,310 1,034,049 4,218,707 263,832

(1) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2009. (2) Results are subject to approval by the Annual General Meeting of each company.(3) Includes final dividends for the previous year and interim dividends paid to the group during the year.


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Proportionally consolidated companies

Emte Renovables, S.L. Holding company Sant Joan Despí - 62.11Financiera Iberoamericana, S.A. Finance company Havana 50.00 - Jerez Solar, S.L. Electricity utility Sant Joan Despí - 62.11Plaxic Estelar, S.L. Real estate Barcelona - 45.01

Total

Equity-accounted companies (1)

Adelanta Corporación, S.A. Services Ourense - 24.00 Aviación Regional Cántabra, A.I.E. Services Boadilla del Monte 26.42 Aviones Alfambra CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Cabriel CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Gorgos CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Sella CRJ-900, A.I.E. Services Madrid 25.00 - Banco del Bajío, S.A. Banking León (Mexico) 20.00 - BanSabadell Pensiones , E.G.F.P., S.A. Pension fund managers Sabadell 50.00 - BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros Insurance Sant Cugat del Vallès 50.00 - BanSabadell Vida, S.A. de Seguros y Reaseguros Insurance Sabadell 50.00 - Biodiesel Aragón, S.L. Chemicals Altorricón - 40.86 Centro Financiero B.H.D., S.A. Financial services Santo Domingo 20.00 - Dexia Sabadell, S.A. Banking Madrid 40.00 - Sociedad de Inversiones y Participaciones COMSA EMTE, S.L (a) Holding company Esplugues de Llobregat - 20.00 Establecimientos Industriales y Servicios, S.L. Electricity utility Barcelona - 26.75 FS Colaboración y Asistencia, S.A. Services Barcelona - 35.00 Garnova, S.L. Food products Granollers - 25.00 Gaviel, S.A. Real estate investment Barcelona 50.00 - General de Biocarburantes, S.A. Chemicals Marina de Cudeyo - 25.00 Grafos, S.A. Arte sobre Papel Graphic artists Barcelona - 45.00 Intermas Nets, S.A. Chemicals Llinars del Vallès - 20.00 J. Feliu de la Penya, S.L Lighting products Canovelles - 20.00 Parc Eòlic Veciana-Cabaro, S.L. Electricity utility Barcelona - 40.00 Parque Eólico la Peñuca, S.L. Electricity utility León - 40.00 Parque Eólico Magaz, S.L. Electricity utility Magaz de Pisuerga - 49.00 SBD Creixent, S.A. Real estate Sabadell 23.01 - Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. Investment company Sant Cugat del Vallès 36.34 - Tolosa 161, S.L. Services Terrassa - 23.00

Total

(1) Accounted for by the equity method because the parent company does not have managerial control.

(a) In July 2009 Aurica XXI, S.C.R., S.A. took a shareholding in Sociedad de Inversiones y Participaciones COMSA EMTE, S.L. in exchange for its holding in EmteGrupo Empresarial y Corporativo, S.L.


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Emte Renovables, S.L.(a) 8,050 (32) (56) 0 8,028 5,000 0 (35) NoFinanciera Iberoamericana, S.A. 14,577 797 2,260 1,007 52,695 7,443 (703) 1,130 NoJerez Solar, S.L. 3,050 (902) (1,006) 0 64,672 1,894 0 (625) NoPlaxic Estelar, S.L. 3 (5,934) (2,237) 0 42,691 1 (3,372) (1,007) No

Total 1,007 14,338 (4,075) (537)


Adelanta Corporación, S.A. (c) 301 32,894 547 50 39,968 37,202 619 288 NoAviación Regional Cántabra, A.I.E. (a) 29,606 (1,056) 1,528 37 122,552 7,824 356 440 NoAviones Alfambra CRJ-900, A.I.E. (a) 4,496 (1,329) (119) 0 22,049 1,060 (192) (32) NoAviones Cabriel CRJ-900, A.I.E. (a) 4,495 (1,327) (118) 0 22,039 1,060 (192) (32) NoAviones Gorgos CRJ-900, A.I.E. (a) 4,495 (1,324) (119) 0 22,015 1,060 (192) (33) NoAviones Sella CRJ-900, A.I.E. (a) 4,495 (1,322) (119) 0 21,963 1,060 (192) (33) NoBanco del Bajío, S.A. (a) 119,015 331,646 32,348 4,403 4,060,700 84,803 19,248 7,145 NoBanSabadell Pensiones , E.G.F.P., S.A. 7,813 16,694 2,760 3,152 31,416 9,378 3,667 1,380 NoBanSabadell Seguros Generales, S.A. de Seg. y Reaseg. 10,000 2,029 1,199 0 44,112 5,000 1,398 600 NoBanSabadell Vida, S.A. de Seguros y Reaseguros 43,858 164,888 45,702 0 5,994,330 27,106 75,045 22,851 NoBiodiesel Aragón, S.L. (c) 7,061 (843) (2,911) 0 38,927 2,815 (489) (1,226) NoCentro Financiero B.H.D., S.A. (a) 87,492 19,119 41,487 9,608 1,512,573 32,863 2,413 10,986 NoDexia Sabadell, S.A. (a) 237,061 87,030 62,574 0 16,324,612 101,226 36,169 27,305 NoSociedad de Inversiones y Participaciones

COMSA EMTE, S.L. (d) 15,000 221,356 5,501 0 767,599 47,271 0 0 NoEstablecimientos Industriales y Servicios, S.L. (a) 49 6,106 (41) 1,817 35,548 37,443 1,671 1,846 NoFS Colaboración y Asistencia, S.A. (a) 600 857 571 0 4,044 887 (202) 217 NoGarnova, S.L. (a) 48,072 15,304 14,614 1,343 91,880 42,814 4,017 2,794 NoGaviel, S.A. (b) 1,203 49 52 0 1,307 630 21 (3) NoGeneral de Biocarburantes, S.A. (a) 6,000 (2,848) (311) 0 10,787 2,250 (130) 0 NoGrafos, S.A. Arte sobre Papel 1,800 7,134 795 0 30,575 3,781 (1,114) 273 NoIntermas Nets, S.A. (a) 845 25,880 2,603 480 66,220 22,213 343 1,290 NoJ. Feliu de la Penya, S.L (a) 851 28,442 (3,534) 120 67,545 10,501 (120) (800)Parc Eòlic Veciana-Cabaro, S.L. (b) 3,300 (718) (74) 0 45,047 1,320 (216) (30) NoParque Eólico la Peñuca, S.L. (b) 3,333 5,847 (233) 0 37,030 1,339 1,928 80 NoParque Eólico Magaz, S.L. (a) 1,500 (485) (789) 0 46,724 6,582 (157) (294) NoSBD Creixent, S.A. (a) 12,895 (253) (90) 0 21,637 2,968 (78) (21) NoSociedad de Cartera del Vallés, S.I.C.A.V., S.A.(a) 4,818 180 517 0 5,533 422 1,794 248 NoTolosa 161, S.L. (b) 9 (5) (4) 0 3 2 0 (1) No

Total 21,010 492,880 145,415 75,238

Consolidation adjustments 183,956

Total 398,327 1,541,267 4,360,047 522,489


(2) Foreign-registered companies have been translated into euros at the exchange rate ruling on 31 December 2009.

(3) Results are subject to approval by the Annual General Meeting of each company.

(4) Includes final dividends for the previous year and interim dividends paid to the group during the year.

(a) Data shown for these undertakings under "Financial data" are correct as of 30 November 2009.

(b) Data shown for these undertakings under "Financial data" are correct as of 31 October 2009.

(c) Data shown for these undertakings under "Financial data" are correct as of 30 September 2009.

(c) Data shown for these undertakings under "Financial data" are correct as of 31 August 2009.

Total revenues of associated undertakings accounted for by the equity method were €4,583,837,000 in the year to 31December 2009. The overall liabilities of associated undertakings at the close of 2009 totalled €27,669,527,000.


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Assegurances Segur Vida, S.A. Insurance Andorra la Vella - 50.97 Aurica XXI, S.C.R., S.A. Venture capital company Barcelona 100.00 - Axel Group, S.L. Financial advisers Madrid 100.00 - Ballerton Corporation Serviços, S.A. Holding company Madeira - 100.00 Banco Atlantico Bahamas Bank and Trust Ltd. Banking Nassau, Bahamas 99.99 0.01 Banco Atlantico Mónaco S.A.M. Banking Monaco 100.00 - Banco de Sabadell, S.A. Banking Sabadell - - Banco Urquijo Sabadell Banca Privada, S.A. Banking Madrid 100.00 - BancSabadell d'Andorra, S.A. Banking Andorra la Vella 50.97 - BanSabadell Correduría de Seguros, S.A. Insurance brokers Sabadell 100.00 - BanSabadell Factura, S.L. Electronic billing services Sant Cugat del Vallès 100.00 - BanSabadell Financiación, E.F.C., S.A. Finance company Sabadell 100.00 - BanSabadell Fincom, E.F.C., S.A. Finance company Sant Cugat del Vallès 100.00 - BanSabadell Holding, S.L. Holding company Sabadell 100.00 - BanSabadell Inversió Desenvolupament, S.A. Holding company Barcelona 100.00 - BanSabadell Inversión, S.A., S.G.I.I.C. Investment fund managers Sant Cugat del Vallès 100.00 - BanSabadell Renting, S.L. Equipment leasing Sant Cugat del Vallès 100.00 - Compañía de Cogeneración del Caribe Dominicana, S.A. Electricity utility Santo Domingo (Dom. Rep.) - 100.00 Compañía de Cogeneración del Caribe, S.L. Electricity utility Barcelona - 99.99 Compañía de Electricidad y Cogeneración de Uvero, S.A. Electricity utility Higuey (Dom. Rep.) - 72.92 Dish, S.A. Hotel management Sant Cugat del Vallès 100.00 - Europa Invest, S.A. Investment fund managers Luxembourg 22.00 78.00 Europea Pall Mall Ltd. Real estate London 100.00 - Explotaciones Energéticas SINIA XXI, S.L. Holding company Madrid - 100.00 Gestora Plan HF94, S.L. Services Oviedo 100.00 - Herrero International, S.A.R.L. Holding company Luxembourg - 100.00 Hobalear, S.A. Real estate Sabadell - 100.00 Ibersecurities Holding, S.A. Holding company Madrid 100.00 -Ibersecurities,Soc.de V., S.A., Soc.Unip. Stockbrokers Madrid - 100.00 Inmobiliaria Asturiana, S.A. Real estate Oviedo 99.63 - Interstate Property Holdings, LLC Company Instrumental Miami - 100.00 Promociones Argañosa, S.L. (a) Real estate Oviedo 100.00 - Promociones y Financiaciones Herrero, S.A. Holding company Oviedo 100.00 - Promotora de Negocios y Representaciones, S.A. Property rentals Madrid 100.00 - Sabadell Asia Trade Services Ltd. Services Hong Kong 100.00 - Sabadell Brasil Trade Services - Ass.Cial Ltda. Representative office Brazil 99.99 0.01 Sabadell Corporate Finance, S.L. Financial advisers Madrid 30.00 70.00 Sabadell d'Andorra Borsa, S.A. Investment company Andorra la Vella - 50.97 Sabadell d'Andorra Inversions Societat Gestora, S.A. Investment fund managers Andorra la Vella - 50.97 Sabadell Information Systems, S.A. Computer services Sant Fruitós de Bages 81.00 - Sabadell International Equity Ltd. (b) Finance company George Town - - Sabadell International Finance, B.V. Finance company Amsterdam 100.00 - Sabadell Securities USA, Inc. Services Miami 100.00 - Santex Pluser, S.L. Real estate Barcelona - 100.00 Servicio de Administración de Inversiones, S.A. Holding company Madrid 100.00 - Servicios Reunidos, S.A. Services Sabadell 100.00 - Sinia Renovables, S.C.R. de R.S., S.A. Venture capital company Barcelona 100.00 - Solvia Estate, S.A. Real estate Sant Cugat del Vallès 100.00 - Tecnocredit, S.A. Services Barcelona 100.00 - Transatlantic Bank Inc. Banking Miami - 100.00 Transatlantic Holding Corp. Holding company Miami 100.00 - Urquijo Gestión, S.G.I.I.C., S.A. Investment fund managers Madrid - 100.00 Urquijo Servicios Patrimoniales, S.L. (c) Real estate Madrid 100.00 -

Total

(a) A change of name from Promociones Argañosa, S.L. to Solvia Development, S.L. was registered with the Mercantile Registry in January 2009.

(b) 100% of the voting rights are held by the parent company.

(c) A change of name from Urquijo Servicios Patrimoniales, S.L. to Solvia Housing, S.L. was registered with the Mercantile Registry in January 2009.


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Assegurances Segur Vida, S.A. (a) 602 32 728 728 261,902 602 16 372 NoAurica XXI, S.C.R., S.A. 14,200 3,118 (2,592) 0 114,238 17,492 (982) (2,592) YesAxel Group, S.L. 26 36 1,338 0 1,401 6,544 1,344 1,338 YesBallerton Corporation Serviços, S.A. 50 23,451 726 0 24,640 3,140 (1,000) 726 NoBanco Atlantico Bahamas Bank and Trust Ltd. 1,571 999 (28) 0 3,304 2,439 909 (28) NoBanco Atlantico Mónaco S.A.M. 11,250 10,502 649 0 24,984 19,498 2,085 649 NoBanco de Sabadell, S.A. 150,000 3,540,673 788,386 378,481 78,799,924 0 3,772,215 788,387 YesBanco Urquijo Sabadell Banca Privada, S.A. 73,148 120,314 6,520 0 2,215,164 143,030 50,541 6,520 YesBancSabadell d'Andorra, S.A. 30,069 7,068 4,343 1,724 682,659 15,326 2,881 2,988 NoBanSabadell Correduría de Seguros, S.A. 60 18 1,135 1,762 4,343 588 (612) 1,135 YesBanSabadell Factura, S.L. 100 (570) (1,018) 0 1,023 100 (570) (1,018) YesBanSabadell Financiación, E.F.C., S.A. 24,040 26,030 (439) 0 582,748 24,040 26,030 (439) YesBanSabadell Fincom, E.F.C., S.A. 35,720 (4,728) (1,385) 0 557,403 38,476 (3,742) (1,582) NoBanSabadell Holding, S.L. 330,340 (11,948) (106,016) 0 314,129 239,544 19,726 (106,016) YesBanSabadell Inversió Desenvolupament, S.A. 15,025 3,005 (10,749) 67,905 140,171 15,025 7,817 (10,749) YesBanSabadell Inversión, S.A., S.G.I.I.C. 601 84,515 27,405 0 184,134 607 84,724 27,405 YesBanSabadell Renting, S.L. 2,000 3,935 205 0 168,102 3,861 2,519 205 YesCompañía de Cogeneración del Caribe Dominicana, S.A. 7 65 24 0 14,243 63 0 24 NoCompañía de Cogeneración del Caribe, S.L. 2,933 (568) (4,030) 0 2,602 3,007 (2,504) (4,030) YesCompañía de Electricidad y

Cogeneración de Uvero, S.A. 3,205 (596) 325 0 6,829 2,410 680 255 NoDish, S.A. 87 33 6 0 131 136 (16) 6 NoEuropa Invest, S.A. 125 249 (7) 0 563 336 32 (7) NoEuropea Pall Mall Ltd. 16,249 (3,466) (108) 0 12,903 20,843 (616) (108) NoExplotaciones Energéticas SINIA XXI, S.L. 1,352 3,146 7,730 0 66,073 4,672 10,360 7,730 YesGestora Plan HF94, S.L. 3 0 0 0 88 3 0 0 YesHerrero International, S.A.R.L. 429 3,755 66 0 4,433 1,139 130 66 NoHobalear, S.A. 60 441 37 0 563 414 441 37 YesIbersecurities Holding, S.A. 31,581 48,199 666 0 80,648 54,922 (85,547) 666 YesIbersecurities,Soc.de V., S.A., Soc.Unip. 3,000 43,766 9,543 0 69,845 76,794 38,737 9,543 YesInmobiliaria Asturiana, S.A. 198 4,968 2 0 5,551 3,094 3,970 2 YesInterstate Property Holdings, LLC. 5,748 0 (901) 0 63,298 5,748 0 (901) NoPromociones Argañosa, S.L. (b) 15,807 477 (41,548) 0 877,433 16,455 91 (41,548) YesPromociones y Financiaciones Herrero, S.A. 3,456 271 0 0 3,727 24,185 10 0 YesPromotora de Negocios y Representaciones, S.A. (c) 2,705 81 (168) 0 2,649 2,786 0 (168) YesSabadell Asia Trade Services Ltd. 0 330 147 0 483 0 330 147 NoSabadell Brasil Trade Services - Ass.Cial Ltda. 1,054 (862) 17 0 225 250 (46) 17 NoSabadell Corporate Finance, S.L. 70 27 267 1,923 695 358 (1,417) 267 YesSabadell d'Andorra Borsa, S.A. 60 14 0 0 45 60 7 0 NoSabadell d'Andorra Inversions Societat Gestora, S.A. 300 216 507 723 816 300 110 259 NoSabadell Information Systems, S.A. 240 (15,350) 9,986 0 95,358 0 (15,351) 9,986 YesSabadell International Equity Ltd. 250,001 54 1 0 250,110 1 (11) 11 NoSabadell International Finance, B.V. 2,000 0 205 253 2,239 2,000 20 205 NoSabadell Securities USA, Inc. 137 7 (24) 0 121 127 0 (24) NoSantex Pluser, S.L. 5,083 (39) (912) 0 37,554 5,083 (39) (912) NoServicio de Administración de Inversiones, S.A. 6,010 762 0 0 6,772 16,690 (6,094) 0 YesServicios Reunidos, S.A. 60 20 0 0 80 67 13 0 YesSinia Renovables, S.C.R. de R.S., S.A. 15,000 (7) (423) 0 57,774 15,000 0 (423) YesSolvia Estate, S.A. 60 0 (3) 0 16,480 60 0 (3) YesTecnocredit, S.A. 60 176 293 0 728 1,130 91 293 NoTransatlantic Bank Inc. 2,156 39,754 (1,889) 0 325,931 6,469 3,161 (1,889) NoTransatlantic Holding Corp. 2,156 9,188 (948) 0 15,651 138,631 (391) (948) NoUrquijo Gestión, S.G.I.I.C., S.A. 3,606 15,821 (963) 0 26,411 18,286 2,546 (963) YesUrquijo Services Patrimoniales (d) 2,073 1,347 (43) 0 13,108 3,356 63 (43) Yes

Total 453,499 955,187 3,912,661 684,848





(b) A change of name from Promociones Argañosa, S.L. to Solvia Development, S.L. has been filed for registration with the Mercantile Registry.

(c) A change of name from Promotora de Negocios y Representaciones, S.L. to Solvia Gestió Immobiliària, S.L. was registered with the Mercantile Registry in 2009.

(d) A change of name from Urquijo Services Patrimoniales, S.L. to Solvia Housing, S.L. was registered with the Mercantile Registry in 2009.


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Financiera Iberoamericana, S.A. Finance company Havana 50.00 - Plaxic Estelar, S.L. Real estate Barcelona - 45.01 Sabadell BS Select Fund of Hedge Funds, S.I.C.A.V., S.A. Holding company Luxembourg 35.59 -

Total


Adelanta Corporación, S.A. Services Ourense - 24.00 Aviación Regional Cántabra, A.I.E. Services Boadilla del Monte 26.42 - Aviones Alfambra CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Cabriel CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Gorgos CRJ-900, A.I.E. Services Madrid 25.00 - Aviones Sella CRJ-900, A.I.E. Services Madrid 25.00 - Banco del Bajío, S.A. Banking León (Mexico) 20.00 - BanSabadell Pensiones, E.G.F.P., S.A. Pension fund managers Sabadell 50.00 - BanSabadell Seguros Generales, S.A. de Seguros y Reaseguros Insurance Sant Cugat del Vallès 50.00 - BanSabadell Vida, S.A. de Seguros y Reaseguros Insurance Sabadell 50.00 - Biodiesel Aragón, S.L. Chemicals Altorricón - 37.51 Centro Financiero B.H.D., S.A. Financial services Santo Domingo 20.00 - Dexia Sabadell, S.A. Banking Madrid 40.00 - EMTE Grupo Empresarial y Corporativo, S.L. Holding company Esplugues de Llobregat - 20.00 Establecimientos Industriales y Servicios, S.L. Electricity utility Barcelona - 26.75 FS Colaboración y Asistencia, S.A. Services Barcelona - 35.00 Garnova, S.L. Food products Granollers - 25.00 Gaviel, S.A. Real estate investment Barcelona 50.00 - General de Biocarburantes, S.A. Chemicals Marina de Cudeyo - 25.00 Grafos, S.A. Arte sobre Papel Graphic artists Barcelona - 45.00 Intermas Nets, S.A. Chemicals Llinars del Vallès - 20.00 Parc Eòlic Veciana-Cabaro, S.L. Electricity utility Barcelona - 40.00 Parque Eólico la Peñuca, S.L. Electricity utility León - 40.00 Parque Eólico Magaz, S.L. Electricity utility Magaz de Pisuerga - 49.00 SBD Creixent, S.A. Real estate Sabadell 23.01 - Sociedad de Cartera del Vallés, S.I.C.A.V., S.A. Investment company Sant Cugat del Vallès 36.34 - Telstar, S.A. Services Terrassa - 20.00 Tolosa 161, S.L. Services Terrassa - 23.00

Total

Consolidation adjustments

Total



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€'000

Contribution



Dividends Total net consolidated consolidated for tax



Financiera Iberoamericana, S.A. 15,089 576 2,373 661 57,453 7,443 (371) 1,186 NoPlaxic Estelar 3 0 (7,492) 0 43,794 1 0 (3,372) NoSabadell BS Select Fund of Hedge Funds S.I.C.A.V., S.A. 27,817 1,055 (3,958) 0 25,106 9,900 377 (1,407) No

Total 661 17,344 6 (3,593)


Adelanta Corporación, S.A. (d) 300 18,288 (210) 0 21,889 37,202 0 669 NoAviación Regional Cántabra, A.I.E. (a) 29,606 (1,618) 403 40 131,003 7,824 546 116 NoAviones Alfambra CRJ-900, A.I.E. (a) 4,390 (854) (205) 0 30,913 1,060 (150) (56) NoAviones Cabriel CRJ-900, A.I.E. (a) 4,389 (854) (203) 0 30,941 1,060 (150) (55) NoAviones Gorgos CRJ-900, A.I.E. (a) 4,388 (858) (198) 0 31,023 1,060 (152) (54) NoAviones Sella CRJ-900, A.I.E. (a) 4,387 (855) (200) 0 31,050 1,060 (151) (54) NoBanco del Bajío, S.A. (a) 111,302 269,411 50,126 3,325 3,617,585 78,318 12,024 11,985 NoBanSabadell Pensiones, E.G.F.P., S.A. 7,813 16,694 6,304 9,324 35,196 9,378 3,441 3,152 NoBanSabadell Seguros Generales, S.A. de Seg. y Reas. 10,000 1,737 781 0 40,639 5,000 908 391 NoBanSabadell Vida, S.A. de Seguros y Reaseguros 43,858 142,242 22,645 0 5,206,839 27,106 65,829 11,323 NoBiodiesel Aragón, S.L. (a) 4,630 302 (642) 0 28,152 2,137 0 (263) NoCentro Financiero B.H.D., S.A. (a) 77,327 18,759 37,858 4,656 1,436,638 27,978 755 10,596 NoDexia Sabadell, S.A. (a) 237,061 50,732 34,837 0 15,084,403 101,226 20,556 15,824 NoEMTE Grupo Empresarial y Corporativo, S.L. (b) 15,000 112,008 992 0 244,985 26,177 876 1,400 NoEstablecimientos Industriales y Servicios, S.L. (a) 49 6,110 45 0 35,548 37,436 0 1,671 NoFS Colaboración y Asistencia, S.A. (b) 600 857 426 0 3,454 887 (388) 175 NoGarnova, S.L. (a) 52,303 8,293 17,560 0 101,057 42,814 0 4,017 NoGaviel, S.A. (a) 1,203 13 34 0 2,418 630 2 18 NoGeneral de Biocarburantes, S.A. (a) 4,960 (3,516) (284) 0 11,919 2,250 (131) 0 NoGrafos, S.A. Arte sobre Papel (b) 1,800 7,107 (1,458) 0 29,593 3,781 (351) (788) NoIntermas Nets, S.A. (b) 24,581 5,850 3,629 65 105,784 22,213 0 780 NoParc Eòlic Veciana-Cabaro, S.L. (a) 2,850 (571) (494) 0 25,821 1,320 0 (216) NoParque Eólico la Peñuca, S.L. (a) 3,333 2,838 2,312 0 42,581 1,339 1,056 1,000 NoParque Eólico Magaz, S.L. (a) 1,500 (28) (296) 0 14,820 4,390 0 (157) NoSBD Creixent, S.A. (a) 12,895 (284) (11) 0 20,906 2,968 (6) 0 NoSociedad de Cartera del Vallés, S.I.C.A.V., S.A. 4,818 4,779 (802) 127 5,961 422 2,090 (291) NoTelstar, S.A. (d) 700 25,637 (1,050) 0 91,145 6,110 697 100 NoTolosa 161, S.L. (a) 9 (2) (1) 0 6 2 0 0 No

Total 17,537 453,148 107,301 61,283

Consolidation adjustments (68,703)

Total 471,697 1,425,679 4,019,968 673,835






(b) Data shown for these undertakings under "Financial data" are correct as of 31 October 2008.

(c) Data shown for these undertakings under "Financial data" are correct as of 30 September 2008.

(d) Data shown for these undertakings under "Financial data" are correct as of 30 June 2008.


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Consolidated report of the directors for the year 2009

Macroeconomic environment

The early months of the year 2009 continued to be characterized by high degrees of financial market and economicuncertainty and instability. In the global markets financial institutions continued to struggle to gain access to wholesalefunding and share prices fell sharply. The economic downturn that had begun the previous year became deeper and morewidespread as the first quarter progressed, exacerbated by a sharp fallback in international trade. Meanwhile, fears of apossible deflationary spiral became more acute.

Against this worsening backdrop, economic policymakers continued to implement exceptional fiscal and monetarymeasures to boost expansion, including additional support for the financial system. Central banks continued to injectlarge amounts of liquidity into the system, encouraged by levels of inflation that remained subdued and in some casesnegative. With official interest rates at historically low levels, monetary authorities continued to pursue unorthodoxpolicies focused mainly on purchases of government and corporate bonds. In the euro area the European Central Bankmaintained its fixed-rate tender procedure with full allotment at maturities up to one year; it also launched a programmeto buy up euro zone issues of guaranteed and mortgage-backed covered bonds. The financial crisis spurred efforts tostrengthen the global financial system through new regulation and a more prominent role on the part of internationalfinancial institutions. In Spain, the government's policy of fiscal easing has been significant from an internationalperspective, and has favoured increases in spending as well as tax cuts. Of the various financial initiatives adopted inSpain, one of the most significant was the establishment of a Fund for Orderly Restructuring of the Banks (Spanishabbreviation: FROB) with the aim of guiding restructuring processes within the financial sector and boosting capitalresources in a number of banking consolidations.

The large-scale, exceptional economic policy measures taken throughout the world saw considerable progress beingmade in restoring financial stability and stimulating global economic recovery as the year progressed. Financial marketsimproved from the second quarter onwards as risk premia declined in the interbank and credit markets and financialmarkets gradually resumed normal functioning. Stock market prices rebounded strongly and there was a significantdecline in market volatility. This allowed the financial system to reduce its dependence on government supportprogrammes and a number of banks that had been saved by government intervention were able to reduce the proportionof their share capital in public ownership. Economic activity showed a general improvement in the second half of the year,having suffered the worst recession since World War II. Recovery was spearheaded by the emerging markets, especially inAsia. The speed and strength of recovery in countries like China and Brazil contrasted with a tardier and more sluggishrevival in Mexico and Eastern Europe. Developed countries benefited from the pick-up in world trade and some of themhave begun to see signs of stabilisation in their housing markets. In Spain domestic demand continued to slow, althoughexports recovered from the second quarter onwards. As a result the country's current account deficit narrowed sharply,while household savings rates reached historic highs, property prices fell further and unemployment reached its highestlevel since the inception of monetary union. On the inflation front, consumer price indices generally responded to theimproved economic climate as deflation fears subsided, although any inflationary pressures were kept at bay by largeamounts of spare capacity and raw material prices below 2008 levels.

In the fiscal domain, the expansionary policies pursued by governments and the automatic triggering of stabilizationmechanisms resulted in a severe and widespread worsening in public finances, with a number of countries showingdouble-digit government deficits by the end of the year. This meant that the risks taken on by financial institutions weretransferred to the public sector, and credit rating agencies responded by downgrading the credit ratings of the sovereigndebt of several economies, including a number of peripheral euro area countries.

Despite the improving economic and financial environment, economic policymakers have remained cautious on thetiming of any withdrawal of financial support measures. Underlying this reticence are doubts about the sustainability andstrength of economic recovery and the fact that a number of financial markets have still not recovered. Consequently, onlya few central banks have begun to be clearer about their exit strategies from unorthodox policies. One of these is theEuropean Central Bank, which announced the withdrawal of some of its loan facilities from the start of 2010. For similarreasons, governments are not anxious to move towards an active exit strategy until economic recovery has consolidated.Only certain countries with very large budget deficits have begun to take steps to contain their borrowing.


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Turning to market returns, long-term government bonds ended the year in negative territory on both sides of the Atlanticas yields picked up in the first half of the year. In the second half, however, yields remained relatively static despite animproving economic outlook, increasing levels of government bond issuance and risk appetite on a rising trend. Thesefactors were neutralized by a strong demand for bonds from financial institutions and central banks, official interest ratesthat remained at unusually low levels, and uncertainty over the sustainability of economic recovery. In the euro area, creditspreads on the debt of a number of countries over the German Bund at the beginning of the year reached their highestpoint since the inception of economic and monetary union. These spreads subsequently eased, although they remainedwell above their long-term averages. Meanwhile, the emerging markets continued to benefit from the support ofinternational financial institutions and, as the year progressed, from an increase in risk appetites globally. As a result,country risk premia for these markets have fallen back to levels similar to what they were before the Lehman Brotherscollapse.

In the currency markets the dollar continued to weaken against the euro. The US currency was weighed down by doubtsover the sustainability of the country's public finances and over the dollar's future as a reserve currency. A climate ofdeclining risk aversion and a negative interest rate gap for the US also contributed to this decline. Elsewhere, the yenbegan to appreciate against the dollar from the second quarter onwards, reaching levels not seen since 1995. The yenwas supported by Japan's balance of trade surplus and improving economic performance. However, the yen's upwardmovement saw a partial reversal in December as the Japanese authorities threatened to intervene on the currencymarkets to prevent the currency from rising too far. Sterling remained weak against the euro on the back of aggressivemonetary easing by the Bank of England.

The equity markets ended the year with sharp rises. Apart from the gradual recovery of economic and financial marketconditions, this strong performance was helped by positive corporate earnings surprises.

Balance Sheet

Total assets stood at €82,822.9 million at the end of 2009, a rise of 3.0% compared with the previous year. Gross loansand advances to customers reached a year-end figure of €65,012.8 million, up 0.5% on the previous year.

In a context of reduced lending activity throughout the financial services industry, mortgage loans nonetheless grew by3.0% over the year, reaching a figure of €32,022.0 million. Other forms of credit such as factoring and "confirming"increased by 9.6% overall.

On-balance sheet customer funds were €38,131.2 million, a year-on-year rise of 5.5% that was driven by the Bank'sfocus on increasing the supply of funds available for lending. Of particular significance was the growth of term deposits,which reached a year-end total of €22,149.9 million (€899.6 million up on the previous year's figure) and of currentaccounts, which grew by €97.5 million to reach a year-end total of €14,981.4 million.

Debt certificates and bonds increased to €22,812.4 million, up 3.6% compared with the end of the previous year.Assets held in Collective Investment Schemes (CIS's) totalled €9,150.7 million at the close of 2009, a fall of 3.0%

that was consistent with the economic and financial market conditions that prevailed throughout the year.Assets in pension funds sold by the group, on the other hand, increased by 14.2% on the year before, rising to

€2,788.0 million by the end of the year.Sales of insurance policies were up 31.7%, with end-year sales reaching €5,380.4 million compared with €4,086.2

million at the end of 2008.Overall, customer funds under management at the close of the year 2009 amounted to €82,247.1 million, up from

€80,414.9 million in 2008.


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Income and profit performance

In a business climate affected by adverse trading conditions, success in ensuring that average levels of lending anddeposits remained steady, plus the ability to effectively manage business margins and keep recurring costs firmly undercontrol, were critical to the attainment of a consolidated profit and loss account for 2009 that continued to show positivemargin growth across the group's core businesses.

In a year characterized by rates of interest at historic lows and fierce competition for funds to finance new lending, theinterest margin for 2009 totalled €1,600.6 million, an increase of 10.2% on the previous year's figure.

The contribution of equity-accounted undertakings to group profits for the year increased by 13.0% to €71.9 million,with significant contributions from Dexia Sabadell and the group's Bancassurance associates.

Net fee and commission income was €511.2 million. This was a fall of 8.4% on the previous year and reflected theprevailing economic and financial market situation, although there was a slight improvement in the latter months of 2009.

Net gains on financial assets and liabilities amounted to €248.2 million and included gains of €96.8 million onredemptions of preference shares, and net gains of €112.7 million on the disposal of financial assets available for sale.

Gross income totalled €2,505.0 million, up 12.5% on the figure for 2008.Operating costs in 2009 reached €1,036.8 million, including €86.6 million in severance payments. Recurring costs in

operating expenses for 2009 were down by 1.0% overall from the 2008 figure thanks to cost control initiatives andactions carried out as part of the group's programme to improve operating efficiency. The cost:income ratio, if non-recurring costs and the €96.8 million profit on the preference share buy-back are ignored, was 39.46%, a significantimprovement on the 43.12% achieved in 2008.

All this brought the consolidated operating profit for the year to €1,325.5 million, up 18.9% on the year before. Net loan loss provisions amounted to €192.1 million; this included an extraordinary provision for €391.5 million, which

was more than offset by released generic provisions of €756.6 million. The year 2009 also saw write-downs of financialand property assets totalling €645.6 million, including impairment provisions in respect of real estate assets and equityholdings in BCP and Metrovacesa.

The net profit for the year 2009 was €522.5 million, down from the previous year's €673.8 million, which had includeda profit of €418.4 million on the sale of 50% of the group's insurance business to Zurich. The group's Tier 1 capital ratiowas 9.10% and core capital was 7.66%.

Branch network

Banco Sabadell ended the year with a total of 1,214 branches, 33 less than at the close of 2008. Of this total, 908branches were operating under the SabadellAtlántico name (including 52 specialist business banking branches and 2specialist corporate banking branches); 181 (including 4 business banking branches) were part of the Banco Herreronetwork in Asturias and León; 14 were part of the Banco Urquijo network; 85 were operating under the Solbank brand thatserves foreign residents in Spain's coastal areas, and the remaining 24 made up the group's international network. TwoActivoBank customer service centres completed the network.


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Commercial Banking

€'000

2009 2008 Change y.o.y. (%)

Interest margin 1,340,226 1,260,343 6.3


Gross income 1,813,866 1,787,260 1.5



Impairment losses (579,638) (462,501) 25.3

Profit or loss before tax 373,206 462,163 (19.2)

Ratios (%):

ROE 11.0% 12.6% Cost:income ratio 45.7% 46.5% Loan loss ratio 4.2% 2.4% Doubtful debt coverage ratio 69.2% 104.4%


Loans and advances 50,384 51,996 (3.1)Customer accounts 41,328 39,452 4.8 Securities 6,886 7,505 (8.2)

Other information:

Employees 6,505 7,454 (12.7)Branches in Spain 1,172 1,208 (3.0)

Commercial Banking is the largest of the group's business lines. It focuses on providing financial products and servicesto large and medium-sized businesses, SMEs, retailers and individuals – including private banking, personal banking andmass market services – and to non-residents and professional groupings. A strong focus on market specializationensures that customers receive a personalized service to suit their needs, whether from expert staff assigned tobranches operating under the various group brands, or via other channels that support the customer relationship andprovide access to remote banking services.

In 2009 the interest margin attributable to the Commercial Banking division totalled €1,340.2 million, an annual riseof 6.3%. It's pre-tax profit was €373.2 million. The ROE for the division was 11.0% and the cost:income ratio was 45.7%,an improvement of 0.8 percentage points compared with the previous year. Loans and advances totalled €50,384 millionand customer funds stood at €41.328 million.

Corporate Banking and Global Businesses

Corporate Banking and Global Businesses offers a range of products and services to large corporates and financialinstitutions in Spain and abroad, and covers the following business areas: International Trade, Consumer Finance,Development Capital, Treasury and Capital Markets, Corporate Finance and Structured Finance.


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Corporate Banking

The Bank's major clients are served by a team of expert managers located in Madrid, Barcelona, London, Paris andMiami. The division's business model is based on an offering of specialized financing services and a comprehensiverange of solutions from transaction banking to more sophisticated, tailor-made solutions in such areas as financing,treasury services and corporate finance.

The year 2009 was made particularly difficult by market liquidity problems and a generally worsening economicenvironment. These adverse conditions were key to establishing the division's priorities for the year: close monitoring ofdebtor performance; extreme caution in the acceptance and pricing of new loans; and ensuring that the good levels offunding achieved the previous year were maintained.

As in 2008, there was an noticeable reduction in business activity by some financial institutions which had previouslybeen active players in corporate banking. Banco Sabadell, however, continued to serve this market actively, taking oversome of the business of banks that had reduced their market presence and thus strengthening its position and boostingits image among larger corporates.

€'000

2009 2008 Change y.o.y. (%)

Interest margin 140,322 124,569 12.6

Fees and commissions (net) 40,835 34,850 17.2 Other income 8,245 9,040 (8.8)

Gross income 189,402 168,459 12.4



Impairment losses (91,642) (64,447) 42.2 Other gains/losses 0 (16) (100.0)


Ratios (%):



Loans and advances 10,712 9,450 13.4 Customer accounts 4,175 4,306 (3.0)Securities 1,363 2,657 (48.7)

Other information:

Employees 95 110 (13.6)Branches in Spain 2 2 0.0 Branches abroad 2 2 0.0

The division's performance during the year was very positive, with lending growing by 13.4% and customer depositsfalling by 3.0%; this, combined with rigorous pricing and cost controls, helped to bring about a 19.6% increase in operatingprofit. Default rates, thanks to constant monitoring throughout the year, remained practically unchanged compared with2008.

Sales and promotional activity remained at a high level during the year, with business growth in both working capitalproducts and long and medium-term investment products. Fee and commission income was another priority area in 2009(up 17.2%), the aim being to maximize returns on credit exposures from the point of view of their associated capital cost.


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Banco Urquijo

Banco Urquijo SBP

€'000

2009 2008 Change y.o.y. (%)

Interest margin 26,146 31,810 (17.8)


Gross income 50,589 58,273 (13.2)



Provisioning expense (net) 923 (167) --Impairment losses (1,664) (7,209) (76.9)Other gains/losses (148) (294) (49.7)

Profit or loss before tax 13,340 12,234 9.0

Ratios (%):


Business volumes (€Mn):

Loans and advances 1,078 1,247 (13.6)Customer accounts 3,818 4,064 (6.1)Securities 3,303 4,003 (17.5)

Other information:

Employees 240 275 (12.7)Branches in Spain 14 15 (6.7)

Banco Urquijo is one of the most highly regarded and well-established names in the Spanish banking market, and islooking to consolidate its position as Spain's best private banking organization thanks to the ability to adapt constantly toa changing financial environment that it has shown throughout its 130-year history.

For the second year in succession, Banco Urquijo was selected by the authoritative business publication Euromoney forits Best Spanish Private Bank award and given top ranking in ten categories of the award. The magazine also includedBanco Urquijo in its list of the top 25 most highly valued specialist private banks. This accolade is a clear confirmation ofBanco Urquijo's leading position and its commitment to excellence in service delivery, professionalism, value creation –through its prime objective of maximizing customer returns – and innovation. Along with the Euromoney award, BancoUrquijo earned recognition from other sources such as the business daily Expansión, which awarded Banco Urquijo itsprize for best manager of conservatively managed funds for 2009.

These differentiating factors were recognized in a research study of the private banking market by consultantsPricewaterhouseCoopers, which identified the strength of its customer relationships as being well above the industryaverage and one of Banco Urquijo's outstanding features.

Banco Urquijo currently has a network of 14 branches located in all the country's main financial centres and a team of240 highly qualified people who are committed to working with the customer, rather than just for the customer.

A 360-degree relationship model, together with a fully comprehensive product and service package, ensure the highestdegree of personalization across all services: asset management through Urquijo Gestión, S.G.I.I.C. – the first assetmanager to register with Spain's securities market regulator, the CNMV; financial planning; wealth and tax planning; andresearch.

These services go hand in hand with an ongoing commitment to innovation and new technology, ensuring that BancoUrquijo customers can be served via a variety of channels, including telephone and online banking; mobile phoneservices and email communication; and specialist publications catering for different interests: Urquijo Diario, UrquijoOpinión and Urquijo Notas Jurídicas, all regarded as authoritative sources by the financial services industry.


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Despite tough economic and financial conditions in Spain and abroad, Banco Urquijo was able to report top linerevenue of €8,199 million, with funds under management and customer deposits totalling €7,121 million and loans andadvances to customers of €1,078 million, together with stringent measures to keep costs and loan defaults to aminimum.

Pre-tax profits were €13.3 million, up 9% on the previous year. In its asset management operations, Banco Urquijo was offering a total of 157 OEICs managed by Urquijo Gestión,

S.G.I.I.C., with assets under management of €1,146 million, making it Spain's third largest asset manager in terms ofOEIC assets. In 2009 Banco Urquijo was one of the most successful banks in terms of asset inflows, attracting a total of€130 million of investment in new OEICs or increased shareholdings in existing ones and continuing to build andstrengthen customer relationships in this way.

Through its policy of combining profitability with social responsibility, Banco Urquijo confirmed its continuing aim ofshowing its commitment to the environment and to society. For this reason, it has entered into a partnership with theFundación Empresa y Sociedad (Foundation for Business and Society) and the Fundación Lealtad (Loyalty Foundation)which gives it access to advice on all matters related to ethical and socially responsible investment as well as oncommunity-based activities to complement those already being carried on by Banco Sabadell.

Banco Urquijo was the first bank to launch a socially responsible OEIC on the Spanish market and currently holds aleading position among financial institutions offering socially responsible products. It has two ethical and socially awareCollective Investment Schemes: Urquijo Cooperación SICAV and Urquijo Inversión Solidaria FI.

These corporate social responsibility programmes are managed by an Ethics Committee, which in 2009 set up the firsthighly successful volunteer programmes among the bank's employees in partnership with two charitable organizations,Junior Achievement España and the Theodora Foundation.

Asset Management

Banco Sabadell has a team of highly skilled people to perform the roles of directing and managing investments forcustomers, selecting saving and investment solutions, analysing, making and publishing investment recommendationsand generally operating the business of managing collective investment schemes.

Asset Management

€'000

2009 2008 Change y.o.y. (%)

Gross income 34,779 41,192 (15.6)

Operating expenses (18,130) (17,509) 3.5


Other gains/losses 0 1,401 --


Ratios (%):

ROE 30.5% 45.9% Cost:income ratio 52.2% 42.5%


Assets under management in CIS's 8,239 8,548 (3.6)Total assets in CIS's including schemes sold but not managed 9,151 9,436 (3.0)

Other information:

Employees 144 148 (2.7)Branches in Spain -- -- --

The group's Asset Management business, which is part of its investment management operations, combines assetmanagement with the selling and operation of collective investment schemes (CISs); it also manages investments forother Banco Sabadell businesses that hold portfolios of assets.

At the close of 2009 total assets under management by the Spanish-domiciled mutual fund industry, including realestate investment funds, were €169,031.7 million after the industry had seen a cumulative net outflow of €11,640.1million.


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The Banco Sabadell group, with mutual fund assets under management amounting to €6,633.6 million at the close ofthe year, did slightly better than the industry as a whole, outperforming it by 0.1%. A €184.9 million overall increase in thevalue of its funds offset the 45.3% of value lost through net redemptions. Guaranteed return funds suffered the highestnet outflows during the year, with redemptions amounting to €392.6 million.

The group's offering of guaranteed return funds was maintained during the year and return guarantees were issued inrespect of five guaranteed funds totalling €439 million at 31 December 2009. Assets in guaranteed return fundsamounted to €2,005.5 million at the end of the year.

Sabadell BS Inmobiliario, FII, launched in early 2004, with a total of 12,991 fundholders and assets of €1,024.1million in 2009, had firmly established its position as the Spanish market's leading real estate investment vehicle.

The year saw Banco Sabadell mutual funds once again being awarded accolades and distinctions. Sabadell BSFondtesoro Largo Plazo, F.I. was selected by independent investment analysts Morningstar and business daily La Gacetade los Negocios for the Best Fund prize in the three-year euro short-term fixed-income category. Fidefondo F.I. was chosenby Interactive Data, a world leader in the provision of financial information, and the business daily Expansión as the bestmutual fund in the euro short-term fixed-income category. Urquijo Patrimonio Privado 2, F.I. received an award from Lipper,a leading provider of mutual fund research, analytical tools and comment, as Best Fund in the euro three-year globalbalanced fund category. Sabadell BS Renta Fija Mixta España, F.I., a balanced fixed-income fund, and Sabadell BS RentaVariable Mixta España, F.I. a balanced Spanish equity fund, were awarded AA ratings indicating management of very highquality, by rating agency and mutual fund analyst Standard & Poor's. The agency also reviewed and confirmed its “veryhigh” and “high” quality ratings for 11 mutual funds which had already been quality rated. BanSabadell Inversión onceagain took the lead as the fund manager with the highest number of quality rated funds and achieved 52% of the qualityratings awarded by Standard & Poor's to Spanish-domiciled mutual funds overall.

The year 2009 saw the completion of 20 mergers in which a total of 22 funds and three investment companies(OEICs) were merged into other funds or OEICs with the same investment objectives in the best interests of investors; inaddition, three new mutual funds were launched. At the close of the year the group's Spanish-domiciled collectiveinvestment schemes had reached a total of 256, with management split between BanSabadell Inversión, S.A., S.G.I.I.C.(97) and Urquijo Gestión, S.A. S.G.I.I.C. (159).

Research and development

The year 2009, like the one before, was overshadowed by the global financial crisis, the fall in business activity, risingdefault rates and tightening credit markets. Against this background, efforts on the information systems front werefocused on two main areas: first, providing innovative tools to break new ground in offering new products and services tocustomers; and second, optimizing or eliminating processes and replacing them with new services made possible by thenew technologies.

These initiatives were directed mainly at minimizing risk, improving competitiveness and exploiting innovation to bringBanco Sabadell closer to its customers, more effectively and at a lower cost. Innovation was thus harnessed to furtherbusiness aims, by providing multi-channel solutions to enhance the customer experience in an affordable way.

Key IT projects in 2009 included the following:

• The Portal Móvil application: this has been developed for mobile devices to allow the user to access a range of on-line banking facilities and services combined, in some cases, with a phone call function to speak to an accountmanager or to manage SMS alerts, find the location of the nearest ATM or branch, find places on the map, top up amobile phone, view and manage direct debits and generally access a whole range of mobile services that letcustomers do their banking while on the move.

• Completion of the Workflow Manager project: this is part of the "Plan Óptima" programme and is improvingoperational efficiency by incorporating new workflows into the document manager. The Workflow Manager aims tominimize branch level workloads by re-allocating work to Regional Administrative Centres, thus achieving optimallevels of efficiency and process control.

• Active Risk Management: This initiative will enable the Bank to actively manage credit risk as part of the sellingprocess as well as during the approval, arrangement and management stages. The introduction of new riskmanagement algorithms will allow a proactive approach and early action to be taken to prevent or anticipatepossible situations of default.

• A new communications network covering all Central Services buildings and all branches. The system will havesufficient bandwidth to support a multimedia, real time working environment and will include VoIP telephony. Thenetwork will provide the required degree of redundancy over critical sections to fully support contingency plans.


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• Mainframe platform upgrade: this will deliver increased power with a reduction in energy use and lower costs, andwill support Central Services processes and new transaction synchronization technology to guarantee continuousoperation of the two data processing centres in the event of a contingency occurring at one of them.

• A pilot test of branch office virtualization: this means that computers in branches are replaced with Thin Clientsystems offering a number of advantages: lower energy consumption, reduced noise, shorter log-on times, higherdata security and savings in system maintenance and management costs. The project will be extended to allbranches in the course of 2010.

Outlook

Banco Sabadell will continue the “Plan Óptima” programme that it launched in 2008, which is well suited to the currenteconomic climate.

In an environment of higher loan delinquency, tight liquidity and slower lending growth, the Bank will continue to focuson improving performance in sales productivity and operating efficiency, balance sheet and capital management, riskcontrol and ever stricter cost management.

Plan Óptima, as its name suggests, is all about business optimization. It has two main aims: to maintain performancestability in an extremely difficult economic climate, and to strengthen and consolidate Banco Sabadell's franchise as aleading provider of banking services to businesses and individuals through to the post-crisis period.

Risk management

A full description of risk management policy in the Banco Sabadell group can be found in Note 35.

Customer Service Department

The Customer Service Department is part of the control function within the Banco Sabadell group. The head of theDepartment is appointed by the Board of Directors and reports directly to the Comptroller General. The Department isresponsible for looking into and resolving claims or complaints from customers and other users of the group's financialservices that relate to their legal rights and interests under contracts or arising from disclosure requirements, customerprotection regulations and financial services industry best practice.

In addition to this primary function, the Department provides assistance and information to customers and users onmatters that do not amount to complaints within the meaning of the Spanish Economics Ministry's Order 734/2004 of11 March and the group's own Regulations for the Protection of Customers and Users. A total of 954 cases of this typewere handled by the Department in 2009, down from 1,237 in 2008.

Average response times in dealing with claims and complaints were 39.30 days in highly complex cases (30.92 daysin 2008); 16.63 days for cases of medium complexity (7.95 days in 2008); and 9.85 days in cases of low complexity(6.73 days in 2008). This compares with the 60-day maximum response time under the Economics Ministry's Order andthe group's own Regulations for the Protection of Customers and Users.

According to the annual report published by the Bank of Spain's Complaints Department for the year 2008, BancoSabadell continued to show the lowest ratio (number of complaints/turnover in €Mn.) of complaints handled by the Bankof Spain.

Cases handled

In 2009 the Customer Service Department received 3,064 cases (2,318 in 2008), of which 2,991 (2,267 in 2008) werelooked into according to the procedure established by the Economics Ministry's Order 734/2004 of 11 March. A total of3,006 cases were resolved or otherwise dealt with (2,116 in 2008), of which 58% were complaints and 42% were claims(same percentages in 2008). At the end of the year 224 cases remained unresolved (243 in 2008).

Of the total number of cases examined by the Customer Service Department, 25% resulted in a decision favourable tothe customer or user (same percentage in 2008); 1% were settled by agreement with the customer or user (3% in2008%), and 9% were resolved partly in the customer or user's favour (8% in 2008). The remaining 65% of cases resultedin a decision favourable to the group (64% in 2008).


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Customer and Stakeholder Ombudsman

The group has a Customer and Stakeholder Ombudsman, a role which is performed by Esteban María Faus Mompart.The Ombudsman deals with claims or complaints referred to him by customers or users of the Banco Sabadell group,

either directly or on appeal from a prior procedure. He also adjudicates on cases referred to him by the Customer ServiceDepartment.

A total of 401 cases were received by the Ombudsman directly (301 in 2008) and another 48 were referred to him bythe Customer Service Department (34 in 2008). Of the 449 claims received (335 in 2008), 441 were looked into andresolved by the Ombudsman (298 in 2008), with 55% being decided in the group's favour (62% in 2008) and 21% in thecustomer's favour (23% in 2008). Of the other cases where a decision or other settlement was reached, the Bankaccepted the claim or complaint in 3% of cases (same percentage in 2008) and 17% resulted in decisions only partlyfavourable to the group (7% in 2008%). In 2% of cases (same percentage in 2008), the Ombudsman declared the matterto be beyond his competence (without prejudice to the claimant's right to take his claim elsewhere) and a further 2% weresettled by agreement with the customer or user (7% in 2008).

Complaints to Supervisory Authorities

Under Spanish law customers and other users of financial services are entitled to submit complaints or claims to theBank of Spain's complaints department, to the stock market regulator (CNMV), or to the Directorate-General for Insuranceand Pension Plans. To do so, however, they must first have sought a resolution of the issue by raising it directly with thebank or other institution involved.


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As required by Article 116 of the Stock Market Law, the Banco Sabadell group has prepared an Annual Report onCorporate Governance for the year 2009, which forms part of this Report of the Directors and has been provided with thisvolume in CD format. The information provided in the report is that required by Ministerial Order ECO 3722/2003 of 26December and CNMV Circular 4/2007 of 27 December and includes a section setting out the procedures put in hand bythe Bank to verify compliance with the recommendations on corporate governance that currently exist in Spain.

All information required by Article 117 of the Stock Market Law as redrafted by Law 26/2003 of 17 July and by OrderECO 3722/2003 of 26 December can be found on the Banco Sabadell website www.bancsabadell.com, under"Corporate Governance".

Additional Information for listed companies

Capital structure

Details of the group's capital structure can be found in note 26 of this Report, including details of any classes or series ofshares, the rights and obligations attaching to those classes or series and the proportion of the share capital theyrepresent.

Transferability restrictions and associative agreements

Under Article 30 of the Bank's Articles of Association shares are freely transferable.On 27 July 2006 an associative agreement was entered into by a number of shareholders, the purpose of which was to

regulate certain limitations on the transferability of shares in the Bank held by them directly or indirectly. Clause 2.2 of theassociative agreement reads as follows: “Without prejudice to the relevant articles of the Articles of Association or to theprovisions of Clause 2.1 hereof on transfers of shares, and with the binding force inherent in any agreement, we herebyagree and bind ourselves to abstain from selling, transferring, assigning, surrendering up or otherwise dealing with orcharging the rights in the shares or any voting or dividend rights attaching thereto without granting a preferential right ofpurchase to the others in respect of any shares to be so transferred.”

The agreement will remain in force for ten years, after which the agreement (unless expressly terminated) will berenewed automatically for successive periods of five years.

Significant shareholdings and restrictions on voting rights

Significant shareholdings in Banco Sabadell and restrictions on voting rights are set out in note 26 to these annualaccounts.

Appointment and removal of directors

Under the Bank's Articles of Association, the Board of Directors must consist of not more than 13 or less than 11members, made up of shareholders appointed by the General Meeting, who hold office for five years and may bereelected; directors are not required to furnish any guarantee except as required by article 54 of the Articles ofAssociation, and are bound to perform their duties faithfully and with all due care and diligence; they are prohibited fromdisclosing any confidential information of which they become aware in the course of their duties, notwithstanding that theyhave ceased to hold office as directors.

On reaching the age of 70, a director may serve out the term for which he was appointed, but is not eligible forreelection.

Any vacancies arising on the Board of Directors are filled by the General Meeting unless the Board of Directors, in theinterests of the Company, avails itself of its power to co-opt under article 138, paragraph 2 of the SA Companies Act [Leyde Sociedades Anónimas].

The holders of any shares that are combined in the manner and subject to the requirements set out in Article 137 ofthe SA Companies Act may appoint directors in respect of those shares.

A director may be removed from office by the General Meeting at any time.Holding office as a director is compatible with the holding of any other office or situation in or under the Company.The Board of Directors may submit nominations for honorary directors to the General Meeting in respect of any

directors who have retired by reason of age or have declined to offer themselves for reelection.Honorary directors may attend meetings of the Board if invited to do so, and may speak but not vote at such meetings.The appointment of a director will take effect on acceptance by the appointee.


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Amendments to the Articles of Association

Amendments to the Articles of Association require a resolution of the General Meeting and the following rules apply:

a) The directors or, if applicable, shareholders proposing the amendment must prepare a written statement givingreasons for the amendment.

b) The proposed amendments must be clearly set out in the notice calling the General Meeting.c) The notice calling the General Meeting must include a clear statement of the right of any shareholder to examine, at

the Company office, the full text of the proposed amendment and the written statement of reasons for theamendment, and to have these documents delivered or sent to him free of charge on request.

d) A resolution to amend the Articles of Association must be adopted by the General Meeting in accordance witharticles 41 or 44 of the Articles of Association.

Any amendment to the Articles of Association that would impose new obligations on shareholders is subject to theshareholders concerned being willing to accept the amendment.

Powers of the Board of Directors, including powers relating to the issue or repurchase of shares

Article 58 of the Bank's Articles of Association states that, with the exception of those matters that require a resolution ofthe General Meeting, the Board of Directors is the highest organ of governance of the Company and is responsible underthe law and the Articles of Association for managing the Company and acting on its behalf.

Subject to the Articles of Association and to any resolution of the General Meeting, the Board of Directors acts onbehalf of the Company and its decisions are binding on the Company. The Board of Directors has the power to take suchaction as may be necessary for the realization of the objects of the Company in accordance with the Articles ofAssociation.

Without prejudice to the aforesaid powers, the basic function of the Board of Directors is to act as an instrument ofsupervision and control and to delegate responsibility for the ordinary business of the Company to the executive functionsand to senior management.

No powers which, by law or by these Articles of Association, are required to be exercised directly by the Board or arenecessary for the responsible exercise of its overall supervisory function may be delegated as aforesaid.

Accordingly, to ensure that the Board's overall supervisory function is performed in a proper and diligent manner, theBoard shall by directly responsible for:

a) Approving the overall strategy of the Company.b) Appointing and removing the most senior executives of the Company and of other companies forming part of the

consolidated group.c) Appointing and removing directors of subsidiary companies.d) Identifying the main risks to which the Company is exposed and implementing and supervising suitable internal

controls and reporting systems.e) Establishing policies for reporting to and communicating with shareholders, markets and the general public.f) Deciding on policy with regard to the holding of treasury shares in accordance with any guidelines laid down by the

General Meeting.g) Authorizing any transactions between the Company and directors or significant shareholders that could result in a

conflict of interest.h) Generally deciding on any business or financial transaction of particular significance to the Company.

Agreements between the Company and persons in managerial or executive posts involving the payment of compensation

on termination of their employment

Contracts have been entered into with members of the senior management group that contain guarantee or protectionclauses in the event of dismissal or of a change in the control of the Company, and provide for the payment of two years'basic salary plus any compensation payable under the terms of the collective agreement for the banking industry and theWorkers' Statute (consolidated text).

Other information

For information on purchases of the Bank's own shares and post-balance sheet events, see notes 26 and 42respectively.


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—BancoSabadellgroup contactdetails—————


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—Banco Sabadell

Plaza Sant Roc, 2008201 SabadellBarcelona

www.bancosabadell.com

—General enquiries

+34 902 323 [email protected]

—Shareholder Relations


—Investor Relations


—Communication and

Institutional Relations


—Compliance, CSR and



—Regional divisions

—BarcelonaAv. Diagonal, 407 bis08008 Barcelona+34 934 033 268

—CataloniaPlaza de Catalunya, 108201 Sabadell+34 902 030 255

—Madrid, Castile and GaliciaPríncipe de Vergara, 12528002 Madrid+34 913 217 159

—Northern RegionErcilla, 2448011 Bilbao+34 944 232 100

—Southern Region and Canary IslandsPl. de la Malagueta, 129016 Málaga+34 952 122 350

—Valencia, Murcia and Balearic IslandsColón, 7646004 València+34 963 984 055

—Banco HerreroFruela, 1133007 Oviedo +34 985 968 020


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—Credits for this Annual Report

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—Creative Director

Mario Eskenazi——Photography

Maria Espeus——Translation

InterSpanish, London

National Book Catalogue No. B-10375-2010


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