The shares of Banco Sabadell, which celebrated the merger with BBVA before being announced, correct today on the stock market when the breakdown took place.

Sabadell has set a first price at 0.33 euros, which represented a fall of 18%. However, as the session progresses, these falls have moderated to around 10%, to 0.35 euros.

For its part, BBVA shares that started the day down, rose 2.6% to 3.86 euros and are the most bullish of the Spanish selective.

Opposite trend in the Stock Market: Sabadell plummets 10% and BBVA rises 2.5%.The banks have not reached any agreement for their merger

The rest of the sector shows a mixed trend. On the one hand, Bankinter and Bankia accompany Sabadell on the side of the falls – although in no case do they reach 1% – while Santander and CaixaBank advance positions.

The Sabadell share had already corrected since it touched 0.45 euros last week. Onur Genç’s statements indicating that they would not buy the Catalan entity at any price punished the price, which yesterday deepened the correction with a decrease of 5%.

Nothing to do with the meteoric rise on Monday 16. Although the negotiations were announced at the close of the market, the entity advanced 24.6%, followed by 6.75% the following day.

In the case of BBVA, the reaction was twofold, to the extent that on Monday the 16th the entity announced the sale of the subsidiary in the US for 9,700 million.

It rose 15.25% that day, but on the following day it corrected 4.4%. However, it has regained ground and closed on Wednesday at levels not recorded since February, when the pandemic began to sink the world stock markets.

The low taxation of the Community of Madrid on its transferred taxes has once again sparked controversy these days.

Many politicians accuse the autonomy governed by Isabel Díaz Ayuso of taking advantage of the capital effect to allow themselves to lower taxes, something that other communities cannot do because they lack sufficient muscle.

They are not, like Madrid, fiscally doped, say their detractors. The debate has jumped from downward tax competition to centralism and the centrifugal power of Madrid to attract wealth from other autonomies, which in turn has allowed it to have more resources and exploit its fiscal privileges to have a more lax tax policy, according to critics with the leader of the PP.

It is evident that the economic traction of Madrid is marked by the capital effect. Last year he gave the sorpasso to Catalonia as the first economic engine of Spain.

In recent years, it has shown more dynamism, has attracted more companies, created more jobs and has grown more than the rest. But does the Community of Madrid collect more for having the headquarters of large companies?

Does it affect your accounts that more than half a million government officials are concentrated in your territory, generally with high qualifications and better paid than the private sector average?

Nobody debates that the capital effect, the fact of bringing together the decision centers, gives Madrid an invigorating extra.

There is no economic statistic that does not appear first or, at least, on the podium of the territories with the best evolution.

The political tension in Catalonia has favored him to be better portrayed in the rankings. Although the pro-independence pulse has harmed Catalonia more than it benefited Madrid.

A study by Andrés Rodríguez-Pose and Daniel Hardy, researchers in Economic Geography at the London School of Economics concludes that “Madrid, although not without problems, has managed to create a more malleable society, which has allowed the creation of a more economically dynamic, more open and more internationally connected ”.

But one thing is the Madrid economy and another is its public finances. Ángel de la Fuente, one of the leading experts in Spain in economic financing , argues that the Madrid institution does not benefit from the capital effect.

“It is true that the fact of being the capital means that it has more company headquarters and more qualified jobs. But that does not give better financing to the autonomous community, nor more room to raise or lower taxes ”.

De la Fuente directs the Foundation for Applied Economics Studies (Fedea), from where he periodically publishes reports on community financing.

He explains that the fact that large companies settle in Madrid does not offer great advantages, because the corporate tax goes directly to the state coffers (something that does not happen in the provincial territories).

The personal income tax of its workers goes to the autonomy where they work. For example, employees of a large company based in Madrid, but assigned to factories or businesses throughout Spain, will pay personal income tax wherever they reside, regardless of the company’s registered office.

VAT and excise duties are distributed based on criteria that combine relevant consumption and equity.

This expert admits that large companies have better paid workers at their headquarters. A circumstance similar to what happens due to the fact that the central government, its ministries and all the large public bodies are in Madrid.

The highest paid public employees and civil servants are in the capital and on average earn more than the private sector. They pay more personal income tax, consume more (VAT) and develop more wealth.

“This does not guarantee better regional financing either,” says De la Fuente. The financing system is complex, not very transparent and generates inequalities, but it seeks to guarantee certain equity.

All the communities contribute 75% of their regulatory collection to the common stock market (calculated as if they did not affect taxes), and although they keep 25%, which could favor Madrid,

De la Fuente provides data: If 100 is the average financing per capita adjusted among all the communities —which take into account aspects such as the school-age population, the degree of aging of the population, geographic dispersion

Madrid would be the territory with the highest fiscal capacity with an index of 132.9, but the reality is that its final financing per adjusted inhabitant stood at 100.7, practically the average.

This expert recalls that the figures are calculated with a model that measures the income that communities would receive without having legislated to lower or raise taxes.

But whenever a territorial debate is opened, different sensitivities and disparity of criteria arise. Francisco Pérez, director of the Valencian Institute for Economic Research (IVIE), thinks the opposite of De la Fuente.

“There is undoubtedly a capital effect from which Madrid benefits,” he explains by phone. Pérez uses a recent study published by the IVIE entitled Madrid: capital, knowledge economy and tax competition to defend his position.

The 196-page document analyzes in detail “the advantages that Madrid obtains in its economic development due to its status as the country’s capital and how these can act to the detriment of equality between regions”.

Pérez insists that the dynamism of Madrid, the leading role of its private sector and the role that the public sector has played in the last decade allow the region to play with a certain advantage.

Remember the importance of the General State Administration being concentrated in Madrid, unlike what happens in Germany or the EU. He gives as an example that more than 60% of State contracts are for Madrid companies, which makes the State Administration a magnet to attract firms to the capital.

The authors of this study, led by Francisco Pérez, analyze the effect of tax competition that, in their opinion, the Community has developed in recent years.

“Madrid stands out as the autonomy that has most used its regulatory capacity in certain taxes to introduce tax benefits, especially in personal income tax, wealth tax and inheritance and gift tax, especially in the last two taxes,” the document states , which calculates in more than 4,100 million the resources that this autonomy has stopped collecting last year due to the tax cuts.

“These tax cuts are easier to assimilate by regional budgets thanks to the dynamism and levels of income and wealth in Madrid,” explains Pérez.

This tax strategy involves “tax competition for the tax bases of other communities, by influencing tax bases such as property, which are more mobile, especially those of taxpayers with higher levels of income and assets.”

Diego Martínez, professor of Economics at the Pablo de Olavide University in Seville, does not see a clear answer to this debate.

“There is not enough academic evidence to clearly determine that the Community of Madrid has better financing than the rest due to the capital effect,” he says. And remember that in the work on fiscal balances, the incidence method (the one advocated by most academics, but which is reviled in Catalonia) barely shows a positive balance for Madrid

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BBVA and Banco Sabadell announced earlier this Friday the breakdown of the negotiations started 11 days ago to merge the two entities . Investors have responded to the news with the massive sale of Sabadell shares, after learning that BBVA’s offer was lower than expected by the Catalan bank.

However, the economic world does not consider the operation lost: the president of the CEOE employer, Antonio Garamendi, trusts that the negotiations will return to good course: “There are courtships that are later resumed,” he said in an interview on TVE.

“It has surprised us all”, recognized the leader of the entrepreneurs. “We were entering the church and we had no wedding. But there are courtships that are later resumed ”, he added.

Garamendi recalled that for the economic world and financial institutions “these mergers are on the right track”, referring to the numerous calls from national and European institutions to reduce the overcapacity of the banking system to create more solid entities.

In October, the president of the European Central Bank, Christine Lagarde, insisted that “greater digitization and consolidation, national or cross-border, would strengthen the banks in the euro zone.”

Weeks before, after knowing the merger negotiations between Bankia and CaixaBank, the Governor of the Bank of Spain, Pablo Hernández de Cos, emphasized the need to reduce the number of entities to face the low profitability of the sector.

The CEOE chairman has avoided speculating on the reasons for the breakdown between Sabadell and BBVA, but he has recalled the importance that shareholders play in these merger processes.

“It seems that it has been due to a problem in the exchange and in the valuation of the shareholders. It is true that, regardless of management, the shareholders are in the bank and they have to be watched over ”.

But the most anticipated response of the day was that of the markets, which inflated the price of the two entities after the start of the negotiations. The Sabadell, which had seen its stock market value skyrocket by 32% in recent days, dropped 18% this Friday after the opening of the Ibex, a fall that moderated throughout the morning until falling around 13 %.

However, BBVA, which had recorded 19% in the same period , has responded well to the news of the suspension of the talks, gaining 2.6% on the Stock Market, ranking as the second fastest growing value in the world. Spanish index.

The Minister of Industry, Tourism and Trade, Reyes Maroto, has also spoken, who has indicated that “he could not say” if the breakdown of the talks between BBVA and Sabadell for their merger is “good or bad news”.

But he has insisted on the need for Spain to have a solvent financial system, unlike what happened in the 2008 crisis. “Anything that strengthens the financial system is good.

The more robust the financial system, the better it will be for Spain ”, he told RNE. In any case, Maroto has stressed that the Spanish financial system is “one of the best in the world” and has valued the response and “great responsibility” that banking has shown in the health crisis, by putting itself at the service of society and help save businesses and jobs.

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.