Analysis & Comment

Spain's BBVA and Sabadell end tie-up talks, TSB left in limbo

MADRID (Reuters) – BBVA and Sabadell called off merger talks on Friday after failing to agree on financial terms, in a blow to banking consolidation in Spain which also leaves the future of Sabadell’s British lender TSB unclear.

FILE PHOTO: Spanish bank BBVA’s Chief Executive Onur Genc speaks during the annual results presentation at the company’s headquarters in Madrid, Spain, February 1, 2019. REUTERS/Sergio Perez/File Photo

The collapse piles pressure on Sabadell, which was seen as the weaker partner. The smaller Spanish bank said it would announce a new business plan, with a focus on its home market, in the first quarter of 2021.

European banks are struggling with ultra low interest rates and the fallout from the COVID-19 pandemic is forcing them to focus on cutting costs, either alone or through tie-ups.

Before entering formal talks with BBVA in mid-November, Sabadell was focused on an efficiency plan for Spain and TSB. It said it will now analyse “strategic alternatives” for its international assets, including TSB, which it bought in 2015.

BBVA and Sabadell had been looking to create Spain’s second-biggest domestic bank with almost 600 billion euros ($715 billion) in assets. But two days after announcing talks, BBVA Chief Executive Onur Genc said the bank had other options, such as a sizeable share buyback programme.

The banks confirmed talks were over in separate statements.

(Graphic: Spanish bank merger halted )

Spanish bank consolidation had gathered pace again in September after Caixabank agreed to buy Bankia for 4.3 billion euros ($5.1 billion).

The sector has already shrunk from 55 lenders to 12 since the 2008 financial crisis and further consolidation is expected to reduce this to half a dozen, putting Spain on a par with Britain, two banking sources have told Reuters.

While regulators including the European Central Bank have been pushing for cross-border and domestic deals, the failure of a BBVA merger with Sabadell shows how complex they can be.

But other potential deals remain possible in Spain, with Unicaja and Liberbank in talks

SABADELL SUFFERS

Sabadell shares fell 13% to 0.3500 euros after rising almost 20% since news on Nov. 16 of the sale of BBVA’s U.S. business triggered an announcement that BBVA could use part of the $11.6 billion proceeds to buy its rival.

Sabadell’s market value fell to around 2 billion euros from 2.26 billion on Thursday, while BBVA shares rose 2.5%.

“We see this as negative for Sabadell, as BBVA has other options across various geographies where it operates,” JB Capital said in a note to clients.

“Even though Sabadell has a standalone efficiency plan to improve its profitability, the failed negotiations would reduce the M&A premium currently in the price,” it said.

No details of the financial disagreement were disclosed by the banks. El Economista reported on Thursday that while BBVA was willing to pay in cash, it would not consider a substantial increase on a potential offer of close to 2.5 billion euros.

($1 = 0.8388 euros)

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