Special report on overriding the pre-emptive subscription right under articles 308, 504 and 506 of the Capital Companies Act

Transcription

1 Banco de Sabadell, S.A. Special report on overriding the pre-emptive subscription right under articles 308, 504 and 506 of the Capital Companies Act 5 December 2011

2 Deloitte Deloitte S.L. Avda. Diagonal, Barcelona España Tel: Fax: SPECIAL REPORT ON OVERRIDING THE PRE-EMPTIVE SUBSCRIPTION RIGHT UNDER ARTICLES 308, 504 AND 506 OF THE Capital Companies Act To the Shareholders of Banco de Sabadell, S.A.: For the purposes of articles 308, 504 and 506 of the Capital Companies Act, and under an engagement received from Banco de Sabadell, S.A. (the "Company" or the "Bank") for which we were designated by the Barcelona Mercantile Register, we issue this special report on the capital increase for a nominal amount of forty-one million eight hundred and twelve thousand and five hundred ( ) euro, through the issuance of three hundred and thirty-four million and five hundred thousand (334,500,000) ordinary shares of the Company, with a par value of twelve point five euro cent (0.125 euro) each, overriding the pre-emptive subscription right, together with the report drafted by the Company's Board of Directors, included as Annex 1, which will be made available to the shareholders and disclosed to the first Shareholders' Meeting held after the decision to increase capital. The Company's Ordinary General Shareholders' Meeting on 14 April 2011 resolved under item three of the Agenda to delegate to the Board of Directors the power to increase capital in accordance with article b) of the Capital Companies Act.That delegation includes the power to completely or partially override the preemptive subscription right with respect to any or all issues that the Board resolves to perform by virtue of that authorisation, when it is in the interests of the Company and provided that the par value of the shares to be issued plus any issue premium match the fair value of the Company's shares as set out in a report drafted by the auditors designated by the Mercantile Register at the behest of the Directors. By virtue of that delegation, the members of the Company's Board of Directors have drafted a report, attached as Annex 1, which justifies in detail the proposal and the procedure for establishing the share issue price and the criteria for allotting the shares among the requests received, as well as the nature of the contributions. The legislation requires that shares for which the pre-emptive subscription right has been overridden be issued at fair value. The fair value can only be estimated or approximated since it depends largely on subjective evaluations of a wide range of aspects of the business. In accordance with article 504 of the Capital Companies Act, since Banco Sabadell is a listed company, fair value will be understood as the market value, unless justified otherwise, based on

3 its share price. Accordingly, the issue price proposed will be determined with respect to the arithmetic mean of the weighted average share price of Banco de Sabadell, S.A. in a period of ninety (90) calendar days (those preceding the deadline for acceptance of the Offering) so as to minimise the impact of sessions where there was considerable volatility due to exceptional circumstances that do not represent the fair value of the Bank's shares. The shares to be issued are intended to be offered in a primary public offering addressed to the holders of preference shares issued by the Bank and by companies in the consolidated group of which the Bank is the parent company: Sabadell International Equity Ltd. and Guipuzcoano Capital, S.A. Unipersonal ( the Preference Shares ).The Preference Shares to whose holders this offer is addressed are as follows: (i) Participaciones Preferentes Serie 1/2009, amounting to 500 million euro, issued by Banco de Sabadell, S.A.; (ii) Participaciones Preferentes Serie A, amounting to 250 million euro, issued by Sabadell International Equity Ltd., and guaranteed by Banco de Sabadell, S.A.; (iii) Participaciones Preferentes Serie III, amounting to 50 million euro, issued by Guipuzcoano Capital, S.A. Unipersonal, and guaranteed by Banco de Sabadell, S.A.; and (iv) Participaciones Preferentes Serie I, amounting to 50 million euro, issued by Guipuzcoano Capital, S.A. Unipersonal, and guaranteed by Banco de Sabadell, S.A. The proposed primary public offering will be implemented as the redemption of the Preference Shares by Banco de Sabadell for cash, and the simultaneous allocation by the accepting shareholders of the cash thus received to subscribe and pay for the Capital Increase, complemented by a secondary public offering to be instrumented via the sale of forty-eight million (48,000,000) own shares held by the Bank, also using the cash received in the redemption of the Preference Shares to pay for the Bank shares under the offering. The issue price of the new shares to be issued, which is also the price of the own shares to be sold, will be the greater of (i) 2 euro, and (ii) the arithmetic mean of the weighted average share price of Banco de Sabadell in the ninety (90) calendar days prior to the deadline for acceptance of the tender (the latter date inclusive).for this purpose, the term "weighted average price" will be deemed to be the one determined in accordance with Article 15 of Royal Decree 1416/1991, of 27 September, on special stock market transactions and on the off-market sale of listed securities and weighted average prices. Investors accepting the public offering and subscription will initially receive shares of the Company valued at the issue price referred to in the previous paragraph amounting to 90% of the nominal value of Preference Shares which they hold. The outstanding portion of the redemption price (the "Deferred Conditional Payment"),which will be 10% of the nominal value of the repurchased Preference Shares, plus 2% of the total nominal amount of the Preference Shares repurchased

4 from each investor as compensation for the deferral of the Deferred Conditional Payment, will be paid during the second half of December 2012 once the Bank verifies compliance by investors of the condition that they hold all of the shares initially delivered to them from the time of delivery up until and including 14 December The cash under the Deferred Conditional Payment will be used by the investors, at the Bank's choice, either to subscribe for new shares under a new capital increase decision by the Board of Directors or to buy treasury shares. It is our responsibility to issue a professional opinion, as independent experts, on the fair value of the Company's shares, the theoretical value of the pre-emptive subscription rights which it is proposed to override, and the reasonableness of the data contained in the Directors' Report. Our work has been carried out in accordance with the technical rules on drafting the special report on overriding pre-emptive subscription rights as detailed in article of the Spanish Corporations Law, approved via a resolution of the Spanish Institute of Accounting and Auditing (ICAC) dated 16 June 2004 (the "Technical Standard"). The accounting information used in this report was obtained from the summarised half-yearly consolidated financial statements of Banco Sabadell Group for the sixmonth period ended 30 June 2011, which were audited by PricewaterhouseCoopers Auditores, S.L., which issued a favourable auditors' report on 26 July In accordance with the Technical Standard on drafting special reports, our work consisted of the following procedures: a) Obtaining the above-mentioned auditors' report on the summarised halfyearly consolidated financial statements of Banco de Sabadell, S.A. and dependent companies for the six-month period ended 30 June 2011, and the auditors report on the consolidated financial statements of Banco de Sabadell, S.A. and its dependent companies for the year ended 31 December b) Obtaining information from the Company's auditor on any significant events or factors affecting the economic situation of Banco Sabadell Group which came to light after the issuance of the most recent auditors' report provided to us. c) Drafting questions for the Company's Management on material events that might significantly affect the value of Banco Sabadell Group and verifying any such events. d) Studying the performance of the Company's share price and determining the average price of those shares in the last representative period of trading prior to the date of this Special Report (quarter ending on 2 December 2011) and the last share price available prior to that date (that of 2 December 2011), as indicative of the Company's fair value. Those values 1 Currently article 308 of the Capital Companies Act

5 were obtained via a certificate from the Governing Company of the Barcelona Stock Exchange, issued on 5 December 2011, a copy of which is attached to this Special Report as Annex II. e) Confirming that the issue price of the shares to be issued, which is proposed by the Company's Board of Directors, exceeds their consolidated net asset value as deduced from the summarised half-yearly consolidated financial statements as of 30 June 2011 of Banco de Sabadell, S.A. and its dependent companies, calculated in accordance with the rules contained in the Technical Standard. f) Estimating the fair value of the Company's shares and analysing whether the issue price proposed by the Directors matches the fair value of the Company's shares obtained on the basis of the information contained in the preceding items. g) Evaluating the reasonableness of the data contained in the report drafted by the Directors about overriding the pre-emptive subscription rights, which justifies the proposal and the issue price, including a review of the documentation justifying the valuation methodology and the basis for calculation. h) Determining the theoretical value of the pre-emptive subscription rights which it is proposed to override, calculated with reference to both the share price and the underlying book value of Banco Sabadell Group. i) Obtaining a statement from the Company's Managing Director indicating that we have been informed of all relevant assumptions, data and information. As indicated above, the Directors' report proposes that the issue price of the new shares to be issued for subscription by the holders of the preference shares who accept the primary public offering should be determined as the arithmetic mean of the weighted average price of the share of Banco de Sabadell in the ninety (90) calendar days prior to the deadline for acceptance of the primary public offering. That report also states that the issue price may not in any event be less than 2 euro per share. In view of this and in our professional opinion as independent experts: The data contained in the report drafted by the Board of Directors of the Company to justify its proposal to override the pre-emptive subscription rights are reasonable as they are adequately documented and expressed. In accordance with the engagement received from Banco de Sabadell, S.A. by designation from the Barcelona Mercantile Register, under which we were asked to express an opinion as to whether, by analogy to article b) of the Capital Companies Act, the conversion ratio between the preference shares and the ordinary shares to be issued is justified, we state as follows: The issuing prospectuses of the Preference Shares empower the issuer, after five years have elapsed from the date of issuance, and subject to obtaining prior approval from the Bank of Spain, to amortise the preference

6 shares for their nominal value plus any accrued coupon. Accordingly, the redemption for cash proposed by the Bank is established for the nominal value plus the corresponding accrued coupon, on the understanding that there is an analogy between redemption and early amortisation. Solely and exclusively in those terms, and without consideration for current market conditions, can the conversion ratio between the preference shares and any ordinary share to be issued, as referred to by the Directors in their attached report (referring to the minimum issuance price of 2 euro) be considered to be justified. The issue price proposed by the Directors will be the arithmetic mean of the weighted average share price of Banco de Sabadell in the ninety (90) calendar days prior to the deadline for acceptance of the primary offering, and it will be at least 2 euro. Consequently, the proposed issue price will at least match the fair value of the shares of the Company estimated from the aforementioned information. As stated above, the fair value of a listed company is considered to be the market value, unless justified otherwise, based on its share price. The share price in the period between 4 September 2011 and 2 December 2011, both inclusive, and on 2 December 2011, according to the certificate issued by the Managing Company of the Barcelona Stock Exchange, is as follows: Euro Closing price on 2 December Arithmetic mean of weighted average price between September 2011 and 2 December 2011 The net asset value, calculated based on the Company s consolidated equity according to the half-yearly summarised consolidated financial statements of Banco de Sabadell, S.A. and its dependent companies as of 30 June 2011, which were audited by PricewaterhouseCoopers Auditores, S.L., is 4.76 euro per share (i.e. higher than the aforementioned share prices and the minimum issue price, which is 2 euro). Since the final issue price of the capital increase will depend on the arithmetic mean of the weighted average price of the Company s shares in the ninety (90) calendar days prior to the deadline for acceptance of the primary public offering, which will occur prior to the date of issuance of this report, as described above, we cannot calculate the theoretical value of the pre-emptive subscription rights which are to be overridden with respect to the effective issue price. Nevertheless, in accordance with section 13 of the Technical Standard, below is presented the theoretical value of the pre-emptive subscription rights which it is proposed to override, compared with the minimum issue price (2 euro) proposed by the Board of Directors with reference, respectively, to the closing price of the Company shares on 2 December 2011 and the net asset value of the Banco de Sabadell Group on the basis of

7 the summarised half-year consolidated financial statements for the six months ended 30 June The proposed minimum issue price (the higher of 2 euro or the arithmetic mean of the weighted average share price of Banco de Sabadell S.A. in the period from 4 September 2011 to 2 December 2011) does not have a dilutive effect on the share price in the period of 90 days ended 2 December The theoretical value of the pre-emptive subscription rights is presented under two scenarios: (i) if the maximum proposed number of new shares issued (i.e. 334,500,000), assuming that 100% of the holders of the Preference Shares accept the primary public offering, and (ii) if 143,250,000 new shares are issued, assuming 50% acceptance of the primary public offering by holders of the preference shares. Dilution per outstanding share, expressed in euro per share: Euro Theoretical value of the preemptive subscription rights Assuming 100% acceptance Assuming 50% acceptance Share price: - Three-month period ended 2 December Based on the share price on 2 December Based on audited net asset value as of 30 June The following formula was used to determine the theoretical value of the pre-emptive subscription rights: D=(A-C)/(R+1) Where: D: Theoretical value of the subscription right per share A: Value with respect to which the theoretical value of the pre-emptive subscription right per share is to be calculated (i.e. share price or net asset value) C: Value per share proposed by the directors for the issuance of the new shares 2. R: Ratio of old shares to new shares, i.e. no. of pre-existing outstanding shares divided by the number of new shares to be issued. As described above, the primary and secondary public offerings made by the Company may lead to the performance of an additional capital increase 2 Section 13 of the Technical Standard states as follows: "In the particular case where the Directors of the Company set a maximum and a minimum price for the issuance of new shares, the auditors must base their conclusions on the minimum issue price since it is the one that may lead to greatest dilution of the shares outstanding prior to the proposed issue."

8 twelve months after the granting of the capital increase instrument, for at most an amount equivalent to the Deferred Conditional Payment, which may lead to additional dilution of the stock that cannot be determined at the date of this report. This Special Report fulfils the provisions of article 308 of the Capital Companies Act regarding the auditors' report. This report may not be used for any other purpose. DELOITTE, S.L. Registered in the Official Register of Account Auditors (ROAC) with number S0692 (illegible signature) Francisco Ignacio Ambrós 5 December 2011

9 Annex I - Directors' Report REPORT BY THE BOARD OF DIRECTORS IN CONNECTION WITH THE PROPOSED CAPITAL INCREASE

10 REPORT ISSUED BY THE BOARD OF DIRECTORS OF BANCO DE SABADELL, S.A. ON THE MOTION FOR A CAPITAL INCREASE FOR MONETARY CONTRIBUTIONS THROUGH THE ISSUANCE OF NEW SHARES TO BE OFFERED IN A PRIMARY PUBLIC OFFERING, OVERRIDING THE PRE- EMPTIVE SUBSCRIPTION RIGHT, UNDER THE AUTHORISATION CONFERRED BY THE ORDINARY SHAREHOLDERS' MEETING HELD ON 14 APRIL 2011, UNDER ITEM THREE ON THE AGENDA 1. PURPOSE OF THE REPORT AND DESCRIPTION OF THE TRANSACTION This report has been drafted in connection with the motion to increase capital for monetary contributions, overriding pre-emptive subscription rights, through the issuance of new shares (the "New Shares") with a nominal value of euro each (the "Capital Increase"), the New Shares being intended to be offered in a primary public offering (the "Primary Public Offering") aimed at the holders of preference shares (the "Preference Shares") issued by Banco de Sabadell, S.A. ("Banco de Sabadell" or the "Bank"), by Sabadell International Equity Ltd. with the guarantee of Banco de Sabadell, or by Guipuzcoano Capital, S.A. Unipersonal with the guarantee of Banco Guipuzcoano, S.A., as described below, to be submitted for consideration to the Board of Directors of the Bank at its meeting on 2 December The Capital Increase will be performed by virtue of the resolution of the Shareholders' Meeting of Banco de Sabadell on 14 April 2011 by which it empowered the Board of Directors of the Bank so that, in conformity with the provisions in article b) of the Consolidated Text of the Capital Companies Act, approved by Legislative Royal Decree 1/2012 (the "Capital Companies Act"), to increase capital at one or more times and in the amount and dates and under the conditions and other circumstances as decided by the Board of Directors, with the power to sub-delegate to the Executive Committee or to the people it considers appropriate, up to the amount and within the maximum deadline as envisaged by that Act, and to override the pre-emptive subscription rights when it is in the interests of the Bank in the conditions envisaged in article 506 of the Capital Companies Act.

11 The proposed Primary Public Offering will be executed by means of an initial cash tender offer by Banco de Sabadell for the Preference Shares indicated below (the "Tender Offer") with the simultaneous allocation of the cash received as consideration to subscribe and pay for the Capital Increase. The transactions will be complemented by a secondary public offering, which will be executed through the sale by Banco de Sabadell of own shares (which, together with the "New Shares", will be denominated the "Shares") to the holders of the Preference Shares, the cash received for them being applied to pay for the secondary offering of shares (the "Secondary Public Offering", which, together with the "Tender Offer" and the "Primary Public Offering", is termed the "Offering"). The Offer is proposed to the holders of the following issues of Preference Shares: (i) (ii) ParticipacionesPreferentesSerie I/2009, in the amount of 500,000,000 euro, issued by Banco de Sabadell: ParticipacionesPreferentesSerie A, in the amount of 250,000,000 euro, issued by Sabadell International Equity Ltd.; (iii) ParticipacionesPreferentesSerie III, in the amount of 50,000,000 euro, issued by Guipuzcoano Capital, S.A. Unipersonal, and guaranteed by Banco Guipuzcoano, S.A.; and (iv) ParticipacionesPreferentesSerie I, in the amount of 50,000,000 euro, issued by Guipuzcoano Capital, S.A. Unipersonal, and guaranteed by Banco Guipuzcoano, S.A. For exclusively operational reasons, and with a view to providing the best coordination in accordance with the mechanisms and systems of the AIAF Fixed Income Market, the Sistema de InterconexiónBursátil, and Iberclear (Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A. Unipersonal) of the procedures required for the settlement of the Offer (i.e. on the one hand, registration, in the name of the tenderers under the Tender Offer, of the New Shares subscribed and paid for in the Primary Public Offering, and, on the other, the settlement of the purchase and sale of Shares sold in the Secondary Public Offering), so that all tenderers under the Offer receive and can trade their Shares on the same date, while also guaranteeing equality in the treatment of holders of Preference Shares,

12 the Secondary Public Offering will be aimed solely at the holders of Preference Shares whose securities are deposited with the Bank or with any other entity of the consolidated group of which Banco de Sabadell is the parent company. The payment of the amount of the tender for the Preference Shares acquired by Banco de Sabadell to the tenderers under the Offer will be executed in two separate phases. First, the tenderers under the Offer will receive an initial payment of the price of the tender equivalent to 90% of the nominal value of the redeemed Preference Shares plus the interest accrued but not paid since the date of the last interest payment for each of the Preference Shares until the day prior to the date of the execution of the Capital Increase instrument, rounding up or down to the closest euro cent(the "Accrued Coupon" which, together with the amount equivalent to 90% of the nominal value of the redeemed Preference Shares, is the "Initial Payment"), will be allocated simultaneously (less the Accrued Coupon) to the purchase of own shares of the Bank or to the payment for New Shares of the Bank. The part of the price of the tender pending payment (the "Deferred Conditional Payment"), which will be 10% of the nominal value of the tendered Preference Shares, increased by 2% of the total nominal value delivered by each investor as compensation for the deferral of the Deferred Conditional Payment, will be paid in the second half of December 2012 once the Bank has confirmed that the investors have fulfilled their commitment to hold without interruption until 14 December 2012, inclusive, all of the shares initially delivered, as referred to in section 2 below. 2 The Deferred Conditional Payment shall also be allocated equally by the holders of the Preference Shares, at the same time as settlement, at the Bank's election, either for the delivery of new shares under another resolution to increase capital approved by the Board of Directors, or for the delivery of own shares. Accordingly, to cater for tenders under the Offer, the Bank must perform a Capital Increase for monetary contributions, overriding the pre-emptive subscription rights of shareholders of the Bank; to this end, this report is issued in compliance with the provisions of article 308 (applicable by reference from article 504) and 506 of the Capital Companies Act.

13 2. CONTEXT AND JUSTIFICATION OF THE PROPOSAL To enable an adequate assessment of the resolution proposed to the Board of Directors, there follows a brief description of the context in which the proposal is made. On 26 October 2011, following the meeting of the European Council the preceding day, the European Banking Authority ("EBA" or the "Authority") issued a communiqué in support of the decision adopted regarding EU-wide measures to restore confidence in the financial system and the banking industry. In that communiqué, the EBA set out specific measures for strengthening the capital structure of banks it considers to be systemic, including the requirement to fulfil a Tier 1 capital ratio (capital of the highest quality, according to the most-recently approved regulation by Basel Committee on Banking Supervision in the area of capital adequacy requirements for credit entities, known as Basel III) of at least 9%. The decisions adopted by the European Council and the EBA's communiqué mark a new stage in the process of strengthening the European and Spanish financial systems that has been ongoing since 2009, a process that has led to numerous changes and new developments in legislation (in Spain, the recent Royal Decree 2/2011, of 18 February, on strengthening the financial system, Act 6/2011, of 11 April, amending Act 13/1985, of 25 May, on investment ratios, own funds and reporting obligations of financial intermediaries) which led to the establishment of a number of measures, including notably an increase in the capital adequacy and own funds requirements imposed on credit institutions. Even though Banco de Sabadell was not one of the banks designated as "systemic" by the EBA, it is considered appropriate, based on the conviction that the industry will converge on the fulfilment of more stringent capital requirements, to ask the Bank's Board of Directors to perform a transaction to strengthen its capital structure and increase its own funds of the highest quality. In this regard, in view of the fact that the preference share issues do not count as "principal capital" nor do they count as computable own funds for the minimum capital required by the EBA, and, moreover, they are expected to no longer count as basic own funds in the future under the most recent regulation from the Basel Committee on Banking Supervision on

14 capital adequacy requirements for credit institutions, the Bank has decided to strengthen its capital structure through the Primary and Secondary Offerings described. Accordingly, since the shares that will be delivered as consideration for the cash from the tender of Preference Shares do count towards the above-mentioned own funds and capital adequacy ratios, Banco de Sabadell will be able to strengthen its capital structure by increasing own funds of the highest quality, which will enable it to address the current and future financial situation from a stronger position. With a view to illustrating the impact of the Capital Increase on the bank's structure and own funds, section of this report includes the principal financial ratios at 30 September 2011 and the impact that the Primary Public Offering would have on them under several acceptance scenarios Moreover, with a view to minimising the negative effect that a massive sell-off of the new shares of the Bank following execution of the Offer might have on the share price of Banco de Sabadell, it is proposed to defer the payment of part of the tender price to the tenderers under the Offer. Thus, initially they will receive payment equivalent to 90% of the nominal value of the redeemed Preference Shares (plus the Accrued Coupon), which will simultaneously be allocated, in the amount corresponding to 90% of the nominal value of the delivered Preference Shares (less the Accrued Coupon), to the subscription of the Capital Increase; the remainder will be paid after confirming that the new shares were held without interruption during the period from the date of the Initial Payment until 14 December 2012, inclusive. The amount not paid initially, increased by 2% of the total nominal value of the Preference Shares tendered by each investor under the Offer, as compensation for the Deferred Conditional Payment, will be completed during the second half of December 2011 and investors will use the cash received to purchase, at the Bank's election, either existing or newly-issued shares, which, in the case of the latter, will be issued under another resolution to increase capital approved by the Board of Directors, valued at the Issue Price at that time in accordance with section below (the "Issue Price"), and provided that those investors continued to hold the shares initially received without interruption from the moment of their

15 delivery through 14 December 2012, inclusive. The necessary capital increase, if any, to fulfil the subscription and payment by the tenderers of New Shares of the Bank through the application, simultaneously with receipt of any cash corresponding to the Deferred Conditional Payment, will be the subject of another resolution to be adopted by the Board of Directors under the capital delegation authorised by the Shareholders' Meeting of 14 April 2011, or the delegation replacing it. 3. REPORT BY THE BOARD OF DIRECTORS FOR THE PURPOSES OF ARTICLES 308 (APPLICABLE BY REFERENCE FROM ARTICLE 504) AND 506 OF THE CAPITAL COMPANIES ACT The execution of the Primary Public Offering that is submitted for consideration to the Board of Directors of the Bank refers to a capital increase for monetary contributions consisting of the allocation of the cash obtained from the redemption by Banco de Sabadell of the Preference Shares from the tenderers under the Offer. As a result, that capital increase requires that the pre-emptive subscription rights of current shareholders of Banco de Sabadell be overridden. In accordance with the applicable legislation for overriding pre-emptive subscription rights in an issue of new shares, the directors of the Bank must draft a report with a detailed justification of the proposal, specifying the value of the shares of the Bank and the consideration to be paid for the new shares, and indicating the persons to which the offer applies. This report must be placed at the disposal of the shareholders and reported to the first Shareholders' Meeting held after the Offer in the event that it is finally decided to execute it, together with the report required under article 308 of the Capital Companies Act, issued by Deloitte, S.L., as an auditor appointed by the Barcelona Mercantile Register that is not the auditor of the financial statements of Banco de Sabadell, on the fair value of the shares, the theoretical value of the pre-emptive subscription rights which are proposed to be overridden or limited, and on the reasonableness of the data contained in this report, which will also be available if approved by the Board of Directors.

16 3.1 Fair value of the shares of Banco de Sabadell Overriding the pre-emptive subscription rights requires that the nominal value of the new shares plus the issue premium match the fair value; in accordance with the provisions of article 504 of the Capital Companies Act, in the case of listed companies, fair value will be understood as the market value, which, unless otherwise justified, shall be deemed to be established by reference to the share price. So that the valuation of the shares of Banco de Sabadell to be issued as part of the Primary Public Offering adequately reflects the fair value of the Banco de Sabadell share, it is proposed that the Issue Price be the arithmetic mean of the weighted average prices of the Banco de Sabadell share during the 90 calendar days prior to the end date of the period for accepting the Offer (inclusive). Since the issue of new shares will be performed under the capital delegation conferred on the Board of Directors by the Shareholders' Meeting on 14 April 2011, which requires that the two capital increases needed to fulfil the Initial Payment and the Deferred Conditional Payment do not together exceed half of the Bank's capital at the time of their authorisation, with a view to ensure that, because of the aforementioned formula, a decline in the Banco de Sabadell share price does not reduce the Issue Price to such an amount that, having regard to the above-mentioned 50% limitation, does not allow for the issuance of enough shares to fully cover the redemption of 850,000,000 euro of nominal value of the Preference Shares to whose holders the Tender Offer is aimed, increased by 2% as interest for the Deferred Conditional Payment (from which it follows that a total cash amount of 867,000,000 euro is needed),it is proposed to set a minimum Issue Price of 2 euro in the event that the application of the aforementioned formula leads to a smaller amount. In the event that the Deferred Conditional Payment is paid with newly-issued shares in accordance with another resolution of the Board of Directors, the Issue Price shall be determined using the above-mentioned formula, taking as reference period the 90 days prior to 14 December 2012, inclusive.

17 3.2 Justification of overriding the pre-emptive subscription right The Board of Directors of Banco de Sabadell considers that the decision to override the preemptive subscription rights of shareholders fully complies with the requirements established under the law and, in particular, with those related to the Bank's interests. This is because (i) it allows for a transaction that is highly appropriate for the Bank's interests; (ii) the operation is appropriate for attaining the goal being pursued;and (iii) there is adequate proportionality between the objective and the means, as detailed below Appropriateness of the operation in terms of the Bank's interests (A) Strengthening the capital structure of the Bank and improving the quality of its own funds The objective of the proposed Primary Public Offering is to strengthen and optimise the capital structure and own funds of Banco de Sabadell, putting the Bank in a better position to address the challenges of the current situation of financial turbulence and to meet the requirements of the new banking regulation in Europe (to be set out in the Fourth Capital Requirements Directive, CRD IV, and requirements imposed by the EBA) and worldwide (included in the new rules drafted by the Basel Committee on Banking Supervision with regard to capital adequacy requirements for credit institutions, commonly referred to as "Basel III").Since preference share issues do not count as "principal capital" or as computable own funds for the EBA's minimum capital requirements, and it is expected that they will not count as core capital in the future under the most recent regulation drafted by the Basel Committee on Banking Supervision with regard to capital adequacy requirements for credit institutions, the Primary Public Offering will strengthen the bank's capital structure by allowing for better management of the consolidated balance sheet by increasing own funds of the highest quality, i.e. the shares that will be delivered in exchange for the cash from the tender offer for Preference Shares do count towards the above-mentioned own funds and capital ratios, enabling the bank to weather the current and future financial situation in better conditions.

18 To illustrate this statement, below is data on the Bank's "principal capital" ratio at 30 September 2011 and after the Primary Public Offering, assuming acceptance rates by the holders of the Preference Shares of 100% and 50%: Pre-offering Post-offering 100% Acceptance 50% Acceptance Core capital 9.10% 10.66% 9.88% "Principal capital" (Royal Decree-Act 2/2011) 8.70% 10.26% 9.48% Tier I 9.95% 9.97% 9.96% Tier II 1.04% 1.04% 1.04% BIS ratio 10.99% 11.01% 11.00% (B) Maintenance of credit ratings In the current situation of economic crisis, restricted lending and volatility in the financial and capital markets, the main rating agencies have been reviewing, with increasing frequency, the ratings of issuers of fixed-income securities, especially financial institutions, with a view to reflecting the impact of the economic situation in which those entities operate, as well as the risks and challenges they face. Accordingly, it is essential to maintain a high level of own funds and, therefore, of capital adequacy in order to maintain favourable credit ratings and be able to obtain a rating upgrade, which is vital for gaining access to sources of funding in favourable conditions. As the Primary Public Offering will allow the bank to improve its core capital and "principal capital" ratios and the quality of its own funds by reducing the amount of outstanding instruments classified as Lower Tier 1, and increasing capital of the highest quality, namely shares, either own shares or newly-issued ones, this should enable Banco de Sabadell to preserve and strengthen its current credit ratings, which will directly affect borrowing costs and the Bank's competitiveness and, as a result, will may provide greater benefits for shareholders of the Bank.

19 (C) High maximum amount of the Capital Increase without the need for new contributions in cash The total outstanding nominal balance of Preference Shares to whose holders the Primary Public Offering is aimed amounts to 850,000,000 euro, and the maximum number of shares in the Primary Public Offering accounts for approximately 21.71% of the Bank's capital following that offering (assuming complete subscription of the Capital Increase and using an Issue Price of 2 euro per share). An increase of this size in the current economic context of high volatility in the secondary fixed-income markets, lending restrictions and high risk aversion by investors would be difficult to implement successfully and would require a laborious placement process with the corresponding additional associated expenses (fees for the placement syndicate and underwriter), which could be very high. In view of this, the Primary Public Offering has the notable advantage of not requiring that the persons to which it is aimed make additional contributions in cash, since the new shares will be subscribed for by simultaneously allocating cash obtained from the tender for Preference Shares; the Board of Directors considers that this should be viewed positively and lead to a higher level of acceptance among the persons at which it is aimed, while improving the subscription levels of the Capital Increase, which levels would be difficult to attain if the Capital Increase were directed at the market in general in the form of a request for additional funds Advisability of the proposed transaction. Advantages of the Primary Public Offering over other possible alternatives for attaining the objective (A) Capital increase with payment in cash (rights issue/abo) The Bank's capital structure could be strengthened by means other than the Primary Public Offering, for example through the execution of a capital increase with monetary contributions in cash, with shareholders having pre-emptive subscription rights or otherwise, through a standard market placement lasting 2 or 3 weeks, or through an accelerated bookbuilding offer (ABO).

20 Compared with those methods, which could be described as "standard" approaches to raising funds and improving the capital structure of a listed company, the Primary Public Offering has significant advantages which are detailed below and, in the opinion of this Board of Directors, make it advisable to opt for the method proposed: (i) Maximisation of the Issue Price Successful placement of new shares in the equities market would require that the issue be made at a discount with respect to the market value, which is usually much higher in rights issues than in those where the pre-emptive right is overridden, with the consequent dilution in the value of the issuer's shares and of the capital ratios which this Board of Directors is seeking to strengthen. The discount that would be necessary for the success of the operation is not based solely on the circumstances of the issuer (e.g. the market's perception of the quality of the capital issued, evaluations from analysts and credit rating agencies, etc.) and of the operation (the greater the volume, the greater the expected discount), but also on factors out of the Bank's control, such as the strength of the sector in the domestic market where it operates, the secondary markets where the issuer's shares trade, etc. In recent years, the Spanish Stock Exchanges have experienced significant volatility in share prices and trading volumes; that volatility would have to be taken into account in the issue in the form of a greater discount with respect to the market price of the shares. However, that problem would not arise in the case of the proposed Primary Public Offering, since the issue would be performed at the market price of the shares of the Bank at the time of subscription, with no discount, which would raise funds while maximising the Issue Price, avoiding or minimising dilution of the value of the shares. Moreover, under the proposed structure, the Issue Price is established on the basis of a period of time that is sufficiently long (90 days prior to the deadline for accepting the Offer) so as to minimise the effects on the issue of highly volatile sessions due to exceptional circumstances that do not reflect the fair value of the Bank's shares. (ii) Placement efficiency. Cost savings

21 Since the Primary Public Offering is aimed exclusively at the holders of Preference Shares, which were placed by the Sabadell group's own network and most of which are deposited at credit institutions belonging to that group, it will not be necessary to place the new shares by means of an underwriting and placement syndicate, whose placement and underwriting fees could notably increase the cost of the operation. Instead, the Offering may be performed almost entirely through the Bank's own network of offices and branches, enabling the Bank to exercise greater control on the process, which will most likely increase its chances of success while also enhancing the customers' loyalty and strengthening relations with them. (iii) Reduction in market risk In order for a capital increase, either through an ordinary placement process or through an ABO, to succeed, it must take advantage of favourable windows in the financial and capital markets; this requires very precise calculation of the operation's execution times, and any unforeseen circumstance that has an unexpected effect on the secondary market for equities could cause the operation to fail, which would be especially significant in the current situation, marked by changing circumstances of the financial markets which is leading to greater volatility. These risks are reduced in the Primary Public Offering because of the nature of its structure, the securities at which it is aimed (perpetual Preference Shares) and the Issue Price (fair value based on an average of market prices), which, though not totally eliminating market risks, does substantially reduce them. (iv) Limited impact on the share price The Board of Directors considers that the Primary Public Offering will enable the Bank to raise capital with a small impact on the market and a minimal impact on the price of Banco de Sabadell shares, since (i) the shares will be offered at market prices, with no need to offer a discount on that price, and (ii) the pre-emptive subscription right will be overridden, with the effect that there will not be a market in the warrants (something which always affects the share price to a certain extent). (v) Offering the holders of Preference Shares an alternative to their investment

22 The Preference Shares to which the Primary Public Offering is aimed are scheduled to start trading in January 2012 on the SEND (SistemaElectrónico de Negociación de Deuda) platform, established by the AIAF market for retail debt securities. That modification to the system for trading the Preference Shares will likely increase their liquidity, although it may also have a negative effect on the value of the Preference Shares, leading them to trade below their nominal value. Accordingly, it is also considered advisable to offer the holders of the Preference Shares, almost all of which are customers of Banco de Sabadell or of entities that are currently part of the group, the possibility of liquidating their position in the Preference Shares (the Offer may only be accepted by redeeming all of the Preference Shares held in each issue; partial acceptance is not permitted) by tendering them (analogous to voluntary amortisation) and using the cash to subscribe for shares of Banco de Sabadell, which is expected to create a positive impression of the Bank's commercial policy and be favourably perceived by its customers. (vi) Expansion of the free float As a result of the Primary Public Offering, the Bank's shareholder structure will grow and the free float will increase; in the medium term, this should provide the share with greater liquidity. (B) Other possible alternatives Among the alternative structures assessed for strengthening the Bank's own funds is the possibility of a tender for hybrid capital instruments issued by the Bank, by means of a debt/equity swap. However, after analysing this alternative, it became clear that the holders of securities of that kind are generally more active investors who are less inclined to invest in longer-term securities, so the acceptance level for a tender for those instruments could be expected to be substantially lower than for a Primary Public Offering aimed at the holders of perpetual securities such as the Preference Shares, and the potential generation of capital is much less since it would be confined to the discount offered with respect to the nominal value of the redeemed instruments.

23 Another operation that would enable the Bank to strengthen own funds would be asset disposal, which could be an interesting alternative as long as the market valued such assets above their carrying value. However, this option has significant disadvantages in terms of execution at this time, since, without prejudice to the internal analysis by the Bank of the assets that might be susceptible to disposal, their valuation and the gains to be obtained from disposing of them right now or holding them for appreciation in the future and to generate cash flows for the Bank, asset sales in general require considerably more time than the execution of a Primary Public Offering,since the standard pre-requisites (due diligence, negotiation of the sales contract, etc.) would have to be fulfilled, whereas one of the Bank's main objectives in this case is speed of execution Proportionality between the objective pursued and the means chosen The Board of Directors aims to show that overriding the pre-emptive subscription rights amply complies with the required proportionality between the advantages for the Bank and the drawbacks that may arise for those shareholders whose expectations are diminished as a result of the dilution that necessarily arises in any capital increase where the pre-emptive subscription rights are overridden. This statement is amply supported by the benefits resulting for the Bank, as referred to in the preceding section. Any drawbacks that might arise for individual shareholders are negligible. On the one hand, shareholders will not experience any dilution since, in any event, the shares will be issued at the market price at the time of issuance, with the result that the theoretical value of the pre-emptive subscription rights which it is proposed to override should be zero or very close to zero. On the other hand, overriding the pre-emptive subscription rights will not alter or perturb the strategic position of any significant shareholder or significant group of shareholders since most of the significant shareholders of the Bank who might suffer impairment of their political rights are represented, in one form or another, on the Board of Directors which is to decide on overriding the preemptive subscription rights. Moreover, shareholders who wish to do so may reconstruct their holding by acquiring shares in the market at a price that should be

24 similar to that at which the recipients of the Primary Public Offering will subscribe for the shares. 3.3 Consideration to be paid for the New Shares The consideration for the Capital Increase will be a monetary contribution consisting of the cash obtained by the tenderers from the Bank for their Preference Shares, which they will immediately allocate to subscribing and paying for the Capital Increase. For the purposes of redemption, the Preference Shares will be valued at 100% of the nominal value plus the Accrued Coupon and 2% of the nominal value of the Preference Shares which are tendered, as a Deferred Conditional Payment. Therefore, the maximum unit amount that the tenderers in the Offer would allocate to the acquisition of shares of the Bank as a result of the sale of their Preference Shares (i.e. discounting the Accrued Coupon corresponding to each Preference Share, which will not be applied to such acquisition), will be: (i) ParticipacionesPreferentesSerie 1/2009, issued by Banco de Sabadell: 1,020 euro (900 euro corresponding to the Initial Payment and 120 euro the to the Deferred Conditional Payment). (ii) ParticipacionesPreferentesSerie A issued by Sabadell International Equity Ltd.: 510 euro (450 euro corresponding to the Initial Payment and 60 euro the to the Deferred Conditional Payment). (iii) ParticipacionesPreferentesSerieIII, issued by Guipuzcoano Capital, S.A. Unipersonal: 102 euro (90 euro corresponding to the Initial Payment and 12 euro the to the Deferred Conditional Payment). (iv) ParticipacionesPreferentesSerieI, issued by Guipuzcoano Capital, S.A. Unipersonal: 102 euro (90 euro corresponding to the Initial Payment and 12 euro the to the Deferred Conditional Payment). 3.4 Persons to whom the New Shares are to be allotted The persons who will subscribe for the New Shares of the Bank will be the holders of the Preference Shares that tendered them during the period established for this purpose.