Supervisor pressure, key to accelerating the BBVA-Sabadell merger

During the last one, the presidents of BBVA, Carlos Torres, and Banco Sabadell, Josep Oliu, had held meetings to define what would be the third announcement of bank mergers after the summer. The conversations with the political and economic authorities during the August holidays were key to understanding the integration of CaixaBank and Bankia. And the messages that supervisors have been repeating since September, secretly at public events and discreetly in offices, explain the succession of events until BBVA and Sabadell confirmed the start of negotiations on Monday. Without the gaze of the European Central Bank (ECB), this announcement of the one that aspires to become the first bank in Spain cannot be understood.

This is explained by financial sources familiar with the conversations between BBVA and Sabadell. It is not that they did not want to undertake an operation of this magnitude, but the definitive impulse has come from the community institutions or the Bank of Spain. The economic vice president, Nadia Calviño, on Tuesday avoided commenting on the operation itself, but did emphasize that supervisors have been advising this route to reinforce solvency. His position has been firm in this regard: “They can contribute to a greater strength of the financial systems,” he indicated this Tuesday after the Council of Ministers.

The vice president of the European institution, and former economic minister with the PP, Luis de Guindos, welcomed the economic course in September with a wake-up call to the sector: he saw mergers as desirable and recalled that it is “important to improve the efficiency” of European banks because this will lead to higher profitability. He insisted that there is excess capacity and that “consolidation can be an element to reduce costs.” Three days later, CaixaBank and Bankia announced official talks to join.

Also the governor of the Bank of Spain, Pablo Hernández de Cos, left his grain of sand in this regard. In early October, he noted that there was still “room” for more mergers. The national ones – he recalled – are more focused on reducing costs. And they are viable as long as they do not compromise the profitability of the entities, in their opinion.

The terms of the integration of Sabadell into BBVA will take time. The CEO of the entity of Catalan origin, Jaume Guardiola, referred this Tuesday to say that “we are at the beginning of the talks, there are no decisions made, we are in ‘due diligence’ and let’s say that in the coming weeks we will know a little What’s the score”. He indicated this at the XXVII Meeting of the Financial Sector organized by Deloitte, ABC and Sociedad de Valuation. At the same event, the head of BBVA in Spain, Peio Belausteguigoitia, limited himself to clarifying that “to date there is no decision made.”

Torres and the sharing of power

In the absence of knowing the terms of this negotiation, the distribution of power will be one of the issues that, as in this type of operation, they will have to face. All the sources coincide in pointing out that BBVA will take the lead, due to its stock market size, up to ten times greater than that of Sabadell, the absorbed bank. And, therefore, sources in the sector suggest that it will be the current president of BBVA, Carlos Torres, who will take the reins of the future integrated entity. This position will mean that Sabadell, and specifically Oliu, will have a more honorary position within the future corporate structure.

The titles of both corporations began to draw alternative paths. Sabadell shares rose 6.7% after gaining nearly 25% on Monday. It is the small entity and the one that most needs to be integrated. BBVA securities already yielded 4.4% this Tuesday, after gaining 15% the day before, in a sample of investment restraint while waiting for the results of the negotiation. The analysts maintain the benefits of the operation, which will allow BBVA to generate value through the synergies that the Sabadell business will provide, especially in that of small and medium-sized companies.

Santander now remains on the sidelines of mergers and doubts those of European scope

The CEO of Banco Santander, José Antonio Álvarez, publicly expressed his doubt on Tuesday that bank mergers at the European level serve to improve the profitability of entities, something that he considers is easier to achieve with consolidation processes within a same country. The executive explained at the XXVII Meeting of the Financial Sector organized by Deloitte, ABC and Sociedad de Valuation that historical experience has shown that in bank mergers there are significant cost savings, which are around 40% of those of the smallest entity, from what makes sense to these operations.

For now, Santander remains on the sidelines in this second wave of integrations. The bank chaired by Ana Botín is shown at this time oblivious to these operations and without any pressure due to what is happening around them. Financial sources insist that the entity is still finishing digesting the acquisition of Banco Popular, which took place in mid-2017.

In addition, Banco Santander is currently immersed in the negotiations of another Employment Regulation File (ERE) to adapt its network to the new uses of customers, especially after the coronavirus crisis, which has driven the digital strategy. It would be the third ERE in three years. The corporation has asked the unions to leave about 4,000 employees, which represents almost 15% of its workforce in Spain; as well as the possibility of relocating another thousand employees in other companies of the financial group.

Apart from the mergers, Álvarez has ventured a future for the financial sector marked by digitization, a process that has accelerated for several years with the crisis, and the management of some imbalances such as the increased indebtedness of companies.

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