BBVA And Sabadell Break Their Merger Accomodations

11 days after BBVA and Sabadell announced that they were opening official talks to merge, the two entities have broken the negotiations that were held until the early hours of this Friday.

The reaction of the Stock Exchange has been clear at the opening of the day: the Sabadell has set a first price at 0.33 euros, which represents a fall of 18% while it was inhibited from trading. After starting to fluctuate , it was down 12% .

For their part, BBVA shares started falling, but soon turned green with a rise of 2% , to 3.84 euros.

Without reaching the end of the technical analysis ( due diligence) , Sabadell considered that the price that BBVA was willing to pay did not value the potential of its business and the loss of independence that the sale entailed.

“Banco Sabadell has decided to end these talks as the parties have not reached an agreement on the eventual exchange ratio of the shares of both entities,” as the bank notified the National Securities Market Commission (CNMV) this Friday .

For its part, BBVA has also informed the CNMV that “the talks related to a potential merger operation with Banco Sabadell have concluded without an agreement having been reached”, without giving further details.

After these two announcements, which will have deeply displeased supervisors who see mergers as a way to strengthen banks in the face of the crisis, now the key is the reaction of the markets.

The Sabadell has risen 32% since the announcement of the talks, although it started from very low prices. BBVA has risen 19% in this same period.

The valuation differences between the two banks were very relevant. BBVA had planned to make the payment through an exchange of shares, so it is likely that the president of Sabadell, Josep Oliu, would have demanded a vice-presidency and Carlos Torres, the head of BBVA, would have refused.

Financial sources commented this Thursday afternoon on the serious differences and mutual distrust that had arisen in the talks, to the point that they could end in rupture.

Regarding the vice-presidency of Oliu, these sources indicated that Torres did not want to introduce the rival executive due to the uncertainty that exists over the BBVA-Villarejo case . If Torres were to be imputed by the National Court and had to give up the presidency, it could end up in the hands of Oliu.

Sabadell assumes the rupture saying that the bank “will develop a new business plan that will prioritize the domestic market as a formula to increase efficiency in the use of the Group’s capital and resources, thus increasing profitability and creating value for shareholders. ”.

As for BBVA, if Sabadell’s plan did not come out, analysts believe that it could carry out a buyback of its own shares to boost the price, as well as expand its presence in the capital of Garanti, its Turkish subsidiary, of which it controls 40 %. However, this option would increase risk in a very geopolitically unstable region.

The Bank of Spain warned of this danger a few weeks ago, which is why it was more in favor of the merger with Sabadell. It should not be forgotten that the CEO, Onur Genç, is Turkish and held this position at Garanti.

In this return to the origins, Sabadell insists in the note that “without prejudice to the fact that the main axes and objectives of the plan will be made public during the first quarter of 2021, Banco de Sabadell is in a position to anticipate that it will contemplate.

Among other measures, the expansion of the efficiency and transformation program in the retail market ( retail banking) in Spain ―with a neutral impact on capital― and will analyze with its advisors strategic alternatives for creating value with respect to the Group’s international assets, including TSB “.

In an act of realism, Sabadell admits the poor future of TSB, which has had serious computer problems that led to the temporary blocking of accounts. Additionally, UK regulatory requirements have delayed the bank’s return to profits. The market values ​​this entity at zero.

Finally, Sabadell claims to have “a solid franchise in Spain and is the leader in the customer satisfaction index in the SME segment”.

The Catalan entity announces that it will focus “on these segments with the highest added value and profitability” and that it will implement its new plan “improving both its efficiency and the organic generation of capital”. The market will be the one to judge the consequences of this divorce.