DBRS sees more pros than cons in BBVA’s takeover bid for Banco Sabadell

According to the DBRS report, BBVA’s takeover bid for Banco Sabadell has more upsides than downsides from a credit standpoint, which could have a positive impact on both companies’ ratings.

Credit rating agency Morningstar DBRS published a detailed report on the hostile takeover bid that BBVA filed for Banco Sabadell. In this Morningstar report, DBRS evaluates the deal and emphasizes that, in its view, it has “more upsides than downsides” from the perspective of both companies’ credit profiles.

If the takeover goes through, the deal would be a net positive for both companies from a credit perspective, according to the firm’s analysts. Morningstar DBRS notes that the transaction will particularly benefit Banco Sabadell, whose long-term credit rating will be higher if it becomes part of a larger, diversified banking group backed by BBVA.

The rating agency highlights Sabadell’s solid reputation, international diversification and ability to generate stable earnings as key factors supporting its current rating.

In addition, the merger will allow Banco Sabadell to access capital markets in a more diversified and cost-effective manner, both for capital and financing needs, which could be beneficial for the Catalan enterprise.

However, Morningstar DBRS also warns of certain problems and risks associated with operation. On the one hand, it states that Sabadell will have limitations in making strategic decisions until the acquisition process is completed.

The merger will significantly increase the weight of Spanish operations in the combined results of both banks, which could create additional challenges from a management and operational perspective.

The complexity of the merger, given the scale and diversification of both companies, represents significant execution risk. Morningstar DBRS emphasizes that the integration process can be much more complex than other bank operations.

In a hypothetical scenario in which BBVA acquires Sabadell but the merger is not sanctioned by the Spanish government, Morningstar DBRS warns that BBVA may have difficulty realizing expected cost synergies, which could temporarily impact its earnings.