BBVA, Spain’s second-largest lender by assets, and smaller Banco de Sabadell have ended their merger talks due to disagreement over pricing. Despite numerous calls for consolidation, the Spanish example underlines that consolidation in Europe’s fragmented banking system will be complicated.
BBVA and Sabadell abandon merger
The banks disclosed the talks two weeks ago. BBVA said on November 16 that it was conducting due diligence on Sabadell after agreeing to sell its operations in the U. to PNC Financial Services Group for $11.6 billion.
European banks have faced intensifying pressure to merge as they struggle to make money in a negative-rates environment and as the pandemic flattens the economy. Shares of most of the region’s lenders have fallen sharply this year, with Sabadell – with its exposure to corporates and small businesses in Spain – declining more than 60%.
Sabadell said that its board unanimously agreed to end talks with BBVA given the lenders didn’t reach an agreement on the exchange ratio of their shares. It said it would launch a strategic plan early next year focusing on its domestic business. The bank added that it would analyse alternatives for its UK unit, TSB Banking Group.
BBVA also said the talks were off. The bank said earlier this month that it could buy back shares with the proceeds of its US sale and still have plenty to grow in its key markets, which include Mexico and Turkey.
Another duo of Spanish lenders, CaixaBank and Bankia did agreed a merge in September. In Italy, Intesa Sanpaolo is buying smaller rival UBI Banca. A small Italian cooperative bank, Credito Valtellinese, is currently considering an acquisition offer from France’s Credit Agricole, which has operations in the country. Regulators are hopeful for more deals, which would provide the scale banks need to be profitable in a sector where costs remain high.
Spanish banks were hit hard during the sovereign-debt crisis of the last decade because of their exposure to a troubled construction sector. Since then, most have sold off large portfolios of souring loans, cleaning up their balance sheets more than those in Italy or Portugal.
Spain’s largest bank, Banco Santander, which has big operations abroad, has stayed away from mergers so far. In 2017, it bought a collapsing lender in the country with considerable operations.
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