Spanish banks Banco de Sabadell SA (Sabadell) and Banco Bilbao Vizcaya Argentaria SA (BBVA) were unable to see eye to eye as they ended their short-lived merger talks due to a struggle to compromise on the pricing of the deal.
Sabadell has been keen on merging with another Spanish bank for some time now. BBVA, worth $30 billion, confirmed that it was in talks with Sabadell, worth $2.5 billion, only two weeks ago. This merger would have created Spain’s second-largest domestic lender. However, when the parties attempted to work out the transaction details, the smaller bank was firm in its position, whereby it considered BBVA’s proposed price to be much too low.
The breakdown of the merger talks with Sabadell is unlikely to cause too much of a dent in BBVA’s operations as BBVA received a large amount of capital after selling its U.S. business to PNC for $11.6 billion last month. Further, BBVA’s share price has been rising after the bank mentioned that this deal was just one of many options. Sabadell, on the other hand, is under increasing pressure to boost its profitability. While Sabadell pledged to release a new business plan next year, this was evidently not enough to convince investors as its shares plummeted after only having just ridden a wave of optimism surrounding a COVID-19 vaccine.
Lately, there has been a flurry of M&A activities in the Spanish banking sector. Most notably, CaixaBank announced its purchase of Bankia earlier this year in September, making the resulting entity the biggest lender in Spain. This spate of M&A transactions is likely in pursuit of consolidation in a banking market that bore a huge brunt of the blow delivered by the COVID-19 pandemic. Recession-squeezed customers have been missing loan repayments, and even the loans which are being repaid are not as profitable as they were due to the extremely low-interest rates.
Consolidation of the Spanish banking sector could strengthen the resilience and longevity of domestic lenders while also being a step towards cross-border M&A activity. The BBVA-Sabadell merger talks having fallen through is a blow to this effort. Spanish banks copiously rely on mortgage lending and are on the lookout for ways to decrease costs. Consolidation would allow for banks to combine their revenues and cut duplicate costs. Before the discussion of this deal was announced, Sabadell was already in the middle of negotiating about 2,000 job cuts. Therefore, it would not be too surprising if Sabadell continues to seek out other merger partners.
