BBVA faces damages of 1,200 million due to additional capital requirements in the midst of Sabadell takeover bid | Companies

BBVA faces new pressure on its capital levels in the midst of its takeover bid for Sabadell. The Bank of Spain has decided to activate the counter-cyclical capital buffer, which represents an additional capital requirement of 1%, which will reduce the level of liquidity available for spending by approximately €1.2 billion until 2026.

To complete a merger, banks need additional capital to finance it because…

BBVA faces new pressure on its capital levels in the midst of its takeover bid for Sabadell. The Bank of Spain has decided to activate the counter-cyclical capital buffer, which represents an additional capital requirement of 1%, which will reduce the level of liquidity available for spending by approximately €1.2 billion until 2026.

To carry out a merger, banks need additional capital to finance it because once the two companies merge, they need to undertake restructuring, which usually entails costs due to staff reductions, office closures or the termination of commercial agreements. BBVA has excess liquidity of about 3.1 billion euros, but this may not be enough to carry out such a large operation with which it wants to create the tenth largest European bank.

Currently, the company’s capital ratio is 12.8%. His goal is to place this figure between 11.5% and 12%, so that it has 80 additional basis points (in cash terms, the aforementioned €3.1 billion). But at least it will have two big consequences.

On the one hand, BBVA estimates that the merger will entail associated costs of EUR 1,450 million, resulting in a 30 basis point deduction in post-merger capital. In addition, the company acknowledged that those costs would be higher because it had not calculated how much money it would mean to end the commercial agreements Sabadell has with Amundi in the asset management business and with BNP Paribas in the custody business.

On the other hand, the activation of the countercyclical buffer by the Bank of Spain will mean that it will have to allocate more capital to the treasury to protect itself from future crises. The Spanish supervisor will raise capital requirements to 0.5% in 2025 and a further 0.5% in 2026 for risk-weighted assets (RWA) in Spain. According to current data (BBVA has about 122 billion per annum in the country), this means about 1,200 million euros. Analysts at Goldman Sachs estimate that BBVA’s capital will suffer a 32 basis point increase in overall requirements as a result of the measure, and they forecast its ratio to be 12.4% in 2026, up from the current 12.8%. , leaving less room to improve the offer to Sabadell shareholders.

BBVA President Carlos Torres Vila himself said last week at a press conference to explain the takeover bid that the bank had presented its best offer and that it had no option to increase the premium it offered to Sabadell shareholders or pay part of the transaction in cash, according to some analysts. This newspaper has already explained that in this case the bank faces an increase in capital. “The offer is extremely attractive, and the letter makes it very clear: there is no room for more. We had run out of space, given that we were offering an offer at a 30 percent premium, so it made sense to start negotiations in mid-April. But (Sabadell) has performed incredibly well in the stock market and we have decided to offer a 50% premium over what we offered in mid-April. He Feedback It is clear from investors that this is a good operation, but there is no possibility of increasing the supply or changing it. There is no reserve,” Torres said.

BBVA is offering Sabadell shareholders a share exchange: for every 4.83 shares of the Catalan company, they will receive one from BBVA. A month ago that meant it was up 50%, but Sabadell shares have seen significant gains in recent weeks while BBVA shares have fallen several times, leaving the premium at just 10% at current prices.

BBVA has had a lot of money in recent years. At the end of 2020, the bank decided to sell its business in the United States for 9.8 billion euros. This transaction generated a capital gain of $580 million. Moreover, in recent years, the bank has more than exceeded its historical profit level (it made 8.019 million in profit in 2023, compared to 6.420 million in 2022 and 4.653 million in 2021), which contributed to the annual increase in its piggy bank. However, BBVA’s policy in recent years has been to distribute this surplus to shareholders.

After failing to merge with Sabadell in 2020 and facing no new consolidation opportunities, the bank has bet on using excess cash to implement share buyback programs. BBVA has purchased $5.3 billion of its own securities since 2021, representing one of the most ambitious programs in European banking and leaving it with less room to improve its offering until it convinces Sabadell shareholders.

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