Everyone, and thank you very much for joining us today, especially on such short notice. We appreciate your flexibility and your interest in our latest updates. My name is Lucas Frank, and I'm pleased to welcome you to this special webcast to explain the sale of TSB. Presenting today is our CEO, César González Bueno, who will walk you through the details of the transaction. Joining him is our CFO, Sergio Palavecino, who will be able to support during the Q&A session at the end of the presentation. I will now hand over to our CEO, César, over to you.
Thank you, Luc, and good morning, everyone. I would like to start by explaining that this is a strategic opportunity that Banco Sabadell's Board of Directors has analyzed after receiving offers. The conclusion of this process is in the best interest of Banco Sabadell's shareholders. Therefore, over the next day, we will be calling an extraordinary general meeting to put it on shareholders' approval, as you know, that will be on the 6th of August. I will now walk you through the strategic rationale behind the sale of TSB, the value that this deal will unlock for our shareholders, and the expected timeline. To start with, I would like to briefly explain why we are selling TSB. Firstly, it unlocks significant value for our shareholders as we are selling TSB at multiples well above Group's valuation, the U.K. peers' and analysts' consensus. Secondly, it simplifies our equity story.
We are now a more focused Spanish player with a potential re-rating when compared against the multiples of other Spanish peers. Finally, we will distribute the capital generated to our shareholders through an extraordinary cash dividend payable to holders of Sabadell shares following the closing date. Moving to the next slide, Banco Sabadell has agreed to sell 100% of its equity stake in TSB to Santander for a total consideration of GBP 2.9 billion, which includes GBP 2.65 billion of initial price plus GBP 230 million of estimated tangible net asset value, increased between the 1st of April 2025 and the closing of the transaction. This transaction also involves the sale of GBP 1.5 billion in Infra Group 81, Tier 2, and Senior Non-Preferred Debt at fair value. These funding instruments were originally placed with the parent company to meet TSB's umbrella requirements.
Note that Banco Sabadell's U.K. branch is excluded from the perimeter, which will allow us to continue our corporate and investment banking business in the U.K. It does neither include the IT platform, so the continuity of the operations is guaranteed during and until the IT integration. The expected closing is in Q1 2026, once all necessary regulatory approvals are received. Given the ongoing tender offer process, the transaction will also need to be approved by our shareholders at an extraordinary shareholders' general meeting to comply with the duty of passivity. Banco Sabadell will deploy the proceeds with a focus on shareholder value creation. In this regard, we plan to distribute an extraordinary dividend of EUR 0.50 per share payable to holders of Sabadell shares following the closing date, which is equivalent to circa EUR 2.5 billion.
That will come on top of our recurrent shareholder remuneration policy, which consists of a 60% payout ratio and the distribution of any excess capital above 13% core tier 1. Next slide. Since the acquisition in 2015, TSB has successfully expanded its franchise. Over the past 10 years, it has accelerated the growth of its core mortgage business and narrowed the efficiency gap with its U.K. peers, driving the bank's profitability into double-digit territory. During this period, the loan book has grown at a compounded annual rate of approximately 4%. The efficiency has improved from 80% to 67%, and profitability has increased by more than 7 percentage points to reach its current level of 12%. At this point, the Board of Directors has unanimously concluded that it is a great opportunity to crystallize the value of this franchise.
This transaction will enable us to maximize the shareholder remuneration to our shareholders by distributing an extraordinary cash dividend of EUR 2.5 billion, exceeding the EUR 1.6 billion capital increase raised in 2015 to finance the acquisition of TSB. Moving to the next slide, we can see that the sale price is over 20% higher than the average valuation assigned by analysts to TSB. Moreover, the transaction multiples stand at 1.5 times its tangible book value and 10.5 times its expected 2025 earnings, again well above its U.K. peers and, more importantly, above Sabadell's multiples. On the next slide, we show how this transaction will generate more than 400 basis points of capital. Looking at the graph on the left-hand side of the slide, we can see the breakdown of the capital impacts. Firstly, the net capital gain will have a positive impact of 50 basis points on capital.
On top of that, we will have circa 60 basis points of other positive capital impacts related to lowering tangibles and fair value adjustments. The removal of TSB's assets from Group balance sheet will release more than EUR 13.7 billion of risk-weighted assets, increasing the core tier 1 ratio by 300 basis points. These three elements raise our proforma core tier 1 ratio by more than 400 basis points to 17.4%. In terms of capital generation, it represents EUR 2.7 billion. With that capital generation, we will pay EUR 0.50 per share. This is equivalent to close to EUR 2.5 billion, which represents approximately 18.5% of extraordinary dividend yield. That's quite impressive. We estimate that after this extraordinary dividend distribution our core tier 1 fully loaded will remain above 13.5%, allowing for potential additional distributions in the coming future.
Very importantly, in the next slide, we show that this extraordinary dividend does not condition our recurrent shareholder remuneration policy. The extraordinary dividend comes on top of our recurrent shareholder remuneration of 60% payout plus the distribution of excess capital over 13% core tier 1. What we are presenting in the slide is the expected timeline for distributions that the Sabadell shareholder can expect for the next nine to ten months. Starting with the upper part of the table, you can see the expected time and nature of our recurrent distributions. We are planning on distributing an interim dividend at the end of August. This will be followed by a second interim dividend at the end of December.
In the months of March-April 2026, on the back of the annual general shareholders' meeting, we will be distributing both the final dividend on the back of 2025 results as well as any potential excess capital. On the bottom part of the chart, you can see how, very close in time, in those months of March-April, we expect to distribute the extraordinary cash dividend of EUR 0.50 per share we have just presented. Allow me to highlight that the combination of our recurrent shareholder remuneration, EUR 1.3 billion, plus the EUR 2.5 billion of extraordinary dividend announced today represent an aggregate of EUR 3.8 billion, or what is the same, more than 28% of our current market cap, assuming the share price as of the end of June. To wrap up the presentation, I would also like to briefly point out the expected timeline of this transaction.
As announced, we have signed a share purchase agreement with Santander. The next milestone will be the Extraordinary General Meeting on the 6th of August to get the approval of our shareholders to ensure compliance with the duty of passivity. The next step will be to obtain all requisite regulatory approvals, all the required regulatory approvals. Finally, the closing of the transaction is expected to be at some point in time in Q1 next year, that is in 2026. Once completed, we will distribute the aforementioned extraordinary cash dividend of EUR 0.50 payable to holders of Sabadell shares following the closing date.
Before moving to the Q&A question, I would like to remind you that we have recently announced the date of our Capital Markets Day, which will take place at the same time as the first half results presentation on the 24th of July, when we will share more color on Banco Sabadell's strategy for the next three years. With this, let me hand over back to Luc for the Q&A.
Thank you, César. Please remember to press Star 9 to submit a question and then Star 6 to unmute and ask the question directly. I would kindly ask you to limit the number of questions to no more than two. Operator, could we open the line for the first question, please?
First question is coming from Francisco Riquel from Alantra. Please go ahead, pressing star six.
Yes, good morning and congratulations for the transaction. I have two questions. The first one is I wonder if you can share with us the book value of the TSB IT platform, the servicing costs that you expect to receive from Santander until they shut down, any write-down that we should expect from the IT platform after the migration or if it can be sold to a third party, and whether that write-down is included in the CT1 impact from the transaction that you have shared with us or not. My second question is you're announcing a quick and large dividend to shareholders after the TSB sale, so you are trying to dispel reinvestment risk. I wonder if you can update on your M&A ambitions with regional banks in Spain that you have mentioned in the past.
Second, why not another share buyback instead of returning capital through cash dividends? Thank you.
Thank you, Paco. Let me take César, the first one. Regarding the IT platform, as it has been explained, it is not in the perimeter of the transaction, so we remain with the ownership of the platform. However, we have got into an operating service agreement with Santander to ensure full operational ability of the operations of TSB going forward. Regarding the value of the platform in our books, it is roughly EUR 250 million of intangibles, which are already deducted from capital. For the number of years that we have committed the usage of the platform, we will be recovering more than 60% of that value. We expect a write-off on the first day of less than EUR 100 million that, yes, it has been taken into account in the capital impacts. Actually, it does not play in the capital impacts because it is already a deduction.
I think the next one was connected with, yeah, let me take the next one. Why a quick and large cash dividend? I think we debated a lot at the board, but we thought it was the right thing to do. We continue to generate capital in a very strong manner, and we can deal with our need for growth without any issue. On the contrary, we will continue generating. That is our projection for the future, and we will show more of that on the 24th of July. Furthermore, when we executed, when we bought TSB, we made a capital increase of EUR 1.6 billion to fund it. Returning it to shareholders seemed also the right thing to do. We are committed to distribute the bulk of capital generated through this transaction, and that is why we are doing exactly what we are doing.
In terms of, I mean, the opportunities in M&A at this point in time have no visibility in Spain. I've said this ad nauseam. Furthermore, it does not imply that we have more or less possibilities of doing it because of this large share buyback. Therefore, we think that it is the right thing to do at this point in time. As I mentioned, it gives us still the ability to generate capital, to grow, to distribute, to make share buybacks in the future, and to remain open to possible alternatives, which I insist for, I think, I do not know how many times, that have no visibility at this point in time in the Spanish market. All right, thank you, Paco. Could we move on to the next question, please?
Next question is coming from Ignacio Ulargui from BNP Paribas. Please go ahead, pressing star 6.
Thank you for taking my questions. I have just one question. What is the rationale behind leaving the capital ratio at 13.5% and not going to 13% rate, which is the level that you are targeting as a goal to distribute in excess? Thank you.
Thank you, Ignacio, for the question. For this transaction, we are distributing all of it. I think we think that that's absolutely consistent with the message that we've been conveying to the market, where we are committed to distribute everything above 13%. We keep generating capital. We have the payout ratio at 60%. On top of that, we keep generating capital. Because of that, at the end of the first quarter of this year, CT1 ratio ended at 13.3%. At a proforma basis, by distributing EUR 2.5 billion, which is virtually all the capital that we're generating, we add 16 basis points additional on a proforma basis. We keep with our policy of distributing everything above 13%. This will be done on due time. For that, we will have the flexibility of potentially considering share buybacks. I think it's just a question of time.
Okay, thank you, Ignacio, for your question. Shall we move to the next question, please?
Next question is coming from Britta Schmidt from Autonomous. Please go ahead, pressing Star 6.
Yeah, hi, good morning. Two questions from my side, please. With regards to the final for the dividend at the EGM on the 6th of August, is there a legal certainty that this can be done under the participatory rules? The second question would be, what size of interest income do you expect to receive from Santander on the EUR 1.5 billion internal MREL that you will maintain? Thank you.
I'll take the first one. There's absolutely no doubt that we are absolutely entitled to do that because it's not the management that is taking the decision of approving this extraordinary dividend. It will be the shareholders' meeting. The passivity rule is very, very, very clear. The same applies to every element as a principle. Whatever the shareholders' meeting decides, because the shareholders' meeting is the ultimate owner of the bank, is perfectly allowed. How could you allow them to accept a hostile takeover and not to accept a dividend and so forth? That's exactly what happens. The timing is of the essence. What the rule says is that the approval of the EGM has to happen before the end of the tender in the case of a hostile takeover, and this is guaranteed.
From all aspects, the passivity rule and the calendar are perfectly aligned, and the execution risk of this dividend is nil. For the second, yeah, for the second, I think, Britta, you were asking about the MREL. As you know, we have been downstreaming the MREL securities to TSB. In the agreement, Santander will buy all TSB MREL. We have agreed that the trade will be done at fair market values. By fair market values, we have agreed on credit spreads. That is what we have agreed at signing. The pricing of the bonds will be finally done at closing, taking into account interest rates and the remaining life of the bonds at that time. We are expecting a small capital gain, but it is going to be small, mainly because the time left to maturity of those bonds is going to be a short one.
We ourselves then raise that MREL into the market. We will have to raise less MREL. Actually, the impact that we expect going forward is zero. It is neutral as both securities are mirroring when we raise in the market and when we downstream to TSB. Thank you. Okay, operator, could we have the next question, please?
The next question is coming from Carlos Peixoto from CaixaBank. Please go ahead, pressing Star 6.
Hi, good morning. Just a question on my side as well. Regarding the impacts that this disposal has on the group's return on tangible equity, you mentioned that.
Sorry, can you start again?
Okay, okay. Please continue.
Sorry, perhaps the latter. As I was saying, regarding the impacts on profitability for the group of this disposal, considering that you're temporarily aiming for a 13.5% CT1 ratio, but you did mention that overall goal over the long run is to operate the bank at 13%. I was wondering how this impacts your expectations on return on tangible equity for 2026 and then possibly beyond that. Do you still see the 14% threshold as achievable? Basically, how does this affect your outlook on return on tangible equity?
I will leave this one to Sergio, but in general, estimations of going beyond, we will take very good care of all of them on the 24th of July. Please, Sergio. Oh.
Exactly. Thank you very much, Carlos, for your question. As the sale will actually close next year in 2026, for this year, we fully maintain our financial targets. TSB will be within the perimeter, and then we will get paid for the returned earnings. For the coming years, as César already mentioned, we will be providing full color in our capital markets day, which, by the way, is quite close. Thank you.
Okay, so that was the last question we had. With Carlos Peixoto's question, that concludes our Q&A session today. Thank you, César, Sergio. As always, the investor relations team is at your disposal, and we will be happy to take any further questions you may have. Thank you, everyone, for participating and for joining us today. Have a nice day.
Have a nice day. Bye.
Thank you. Thank you all.