The next bank merger in Spain is pending

Money houses in Spain

Unlike the competition, the BBVA is much more global. A merger with Sabadell would strengthen the position in the Spanish market.

(Photo: AFP)

Madrid The consolidation in Spain’s banking industry continues to gain momentum. The institutes gave on Monday evening BBVA and Sabadell Bank announced that they are currently negotiating a merger. A due diligence – an in-depth review, so to speak – is already running.

Just a few hours earlier, BBVA had announced that it would sell its US business to financial services provider PNC for € 9.7 billion. This gives the second largest institute in Spain the necessary financial leeway for acquisitions in other regions.

The negotiations between BBVA and Banco Sabadell are already the third possible merger of Spanish financial houses since the outbreak of the corona crisis. In September Bankia and Caixabank agreed to merge. The two small providers Unicaja and Liberbank are currently negotiating a merger – experts may expect an agreement this week.

At least in southern Europe, the consolidation of the industry, which supervisors have been assuming for some time, seems to be getting underway. They see mergers as one of the few ways banks can improve margins and profits in the face of persistently low interest rates.

The corona crisis and the resulting payment defaults are increasing the pressure on the banks. In Spain, the institutes’ return on equity was minus nine percent in the second quarter. Spanish banks are hardly active in investment banking, like the one during the crisis German bank helps. Their capital buffers are low compared to other European countries, and the Spanish economy is suffering more from the crisis than any other in Europe.

BBVA and Santander Unlike the other Spanish institutes, they are globally positioned and have a strong presence in emerging countries, especially in South America. BBVA generated 45 percent of its profits in Mexico and 19 percent in Turkey for the first nine months of this year. After the sale of the US business, which made up ten percent of profits last year, the bank is even more dependent on the politically and economically more unstable emerging markets. Experts therefore consider a strengthening in Spain to be logical. Spain is currently BBVA’s third largest market with 16 percent.

Look towards Santander

The industry has been speculating on a merger with BBVA for several weeks. So far, the low BBVA core capital ratio CET1 of 11.52 percent has been seen as a stumbling block. According to calculations by Morgan Stanley a capital increase of 2.5 to 3.5 billion euros is required to handle the takeover of Sabadell. But after the transaction in the USA, which is paid entirely in cash, the cash register is well filled – the core capital ratio rises to 14.5 percent.

Sabadell is particularly strong in doing business with small and medium-sized companies, to which the bank offers personalized advice. The current market value is 2.5 billion euros. The possible merger lets the share rise to 43 cents. At the beginning of the year the rate was still one euro.

With its global focus and a market capitalization of 23.5 billion euros, BBVA is significantly larger. Together they would have total assets of 988 billion euros. Among other things, savings can be made by closing branches. Experts assume that almost a third of the branches can be closed.

All eyes are now on Banco Santander, by far the largest Spanish bank. Santander boss Ana Botín last ruled out takeovers in Spain after the bank took over the ailing Banco Popular in 2017. If a deal between BBVA and Sabadell were to be reached, Santander would be significantly smaller in its home market than the two new giants Bankia / Caixabank and BBVA / Sabadell.

More: Spanish banks have so far withstood the pandemic, but the crisis is not over yet.

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