At the gates of the summer holidays in August, no bank wanted to appear as the first to be publicly willing to merge with another entity. But the harsh economic reality that autumn is revealing has left a trail of announcements that will completely change the financial sector in Spain.
If the disappearance of entities was already overwhelming in the economic crisis of a decade ago, the concentration in just three large banking groups, plus some medium-sized entities, will make up the new map.
The announcement of the negotiation between BBVA and Sabadell, for the former to absorb the latter, joins the announcement of the integration of CaixaBank and Bankia, announced after the holidays; and the new attempt between Unicaja and Liberbank to join. Santander remains on the sidelines – it already acquired Popular in 2017 and is still digesting it. And the rest of the groups (Kutxabank, Ibercaja or Bankinter) are oblivious to these movements. They insist that they can endure their path alone –except Abanca, which has already tried to buy Liberbank without success–, but financial sources no longer put their hand in the fire for that option of banking autonomy. All are likely to star in an integration. Even more so when the cruising speed that the sector has taken is unparalleled and behind these mergers are the recommendations – and the shadow – of the supervisors.
For now, the millions of clients of those entities engaged in negotiations remain expectant. A new integration implies changes in the products. Another way to interact in the office. The turn of the screw to the use of the internet. Fewer branches. And more job adjustments.
Can such a market have competition? A report by Analistas Financieros Internacionales (AFI) estimates that the three main entities (CaixaBank / Bankia, BBVA / Sabadell and Santander) would increase their market share by 20 percentage points, to 70.6% . If the positions of Unicaja / Liberbank and Bankiner are added, they would exceed 80%.
Santiago Simón del Burgo, professor in the Department of Economics, Finance and Accounting at ESADE, points out that “competition is not going to disappear.” He explains “the competition is not Spanish, but European.” “Here a German bank can operate without problem,” he says. In addition, it is a sector in which entities (many former savings banks) linked to territories or sectors are still active, which diversifies the offer.
Much interest in lending
Juan Abellán, co-director of the IEB’s Master of Finance and Digital Banking, maintains the same position: “I don’t think there are already people who don’t check the internet for a better offer than the one their bank has made in the office,” he explains. For this expert “the competition is fierce”. And it indicates that “even if there were only two banks left in Spain, they would be dying to attract customers,” he says. Remember that when the Supreme Court forced the bank to assume mortgage expenses, society believed that it would cause an increase in prices and “the opposite” has happened, it indicates: cheaper loans.
To understand how a market with fewer banks can be more competitive, you have to look at the new entities. Many ‘fintech’ companies (Google, Amazon and other platforms such as Revolut, which has requested a bank card in Spain) are getting into finance, the financial companies of the businesses themselves (supermarkets, automobiles) have their credits; and there are already companies that have created their own banks, such as Orange, and Renault this week. “Today what predominates is electronic banking,” says Santiago Simón del Burgo. “Before there were as many branches as there were bars, because it was the only way to reach the customer – he agrees – but today it is not like that”.
What will change will be the map of branches. Since the previous crisis, 50% of the entire banking network has disappeared. There has not been a single year in which the entities have not closed. And now they will do it again, with even more emphasis. Because much of the secret of the ‘success’ of the announced mergers lies in adjusting their networks and the costs involved. For example, BBVA and Sabadell would have to close one out of every four branches. Banks like Santander, without a merger in sight, expect to close a third of its 3,100 branches.
Join together to survive
What the bank seeks with these operations is to face a future that does not look rosy at all. The European Central Bank and the Bank of Spain had been advising integrations, even more so with the coronavirus crisis on the table. The pandemic has accelerated the entire process and has overcome the resistance that some entities had until now to carry out integrations. “They need to do them to prepare for the curves that come in the first and second quarter of next year,” recalls Germán López Espinosa, a professor at IESE. It points out that banks have a “very low” stock market price, which generates negative goodwill (the valuation of their intangibles, of the brand itself). And that the mergers will partially offset the increase in provisions “that will have to be made in the coming years” due to the increase in non-performing loans.
Given the generation of increasingly larger entities, Professor López Espinosa considers that it will be “very important to supervise them continuously and very precisely.” The impact of a crisis and the fall of one of them in the future would reverberate much more over the economy as a whole than if it is a small entity.
The process seems to have no end. Pending the resolution of the ongoing negotiations, industry sources no longer rule out any carambola among executives who are already in talks or other options are incorporated. Santiago Simón del Burgo recalls that “in the end the big fish eats the small one, even if it doesn’t want to, as it ended up happening to the Popular one.” It is a real warning to sailors.