ECB encourages cross-border mergers in the midst of BBVA’s takeover bid for Sabadell

The European Central Bank (ECB) is showing no signs of rejecting BBVA’s takeover bid for Banc Sabadell and favors banking concentration in Europe, but admits the operation proposed in Spain is not its favourite. What he really enjoys is cross-border travel.

“We favor consolidation in Europe, but always with a very favorable vision of cross-border consolidation between banks of different nationalities,” central bank vice-president Luis de Guindos said yesterday when asked about BBVA’s takeover bid at a conference organized by IESE.

For CNMV to sanction a hostile takeover of Sabadell, the approval of the ECB and the CNMC competition authority is required. The first of these two organizations is mainly concerned with the solvency of banks and is susceptible to mergers. The second is trying to prevent excessive concentration, although its president Cani Fernandez warned this week from Alicante, where Sabadell is headquartered, that “more banking institutions do not necessarily mean more competition.”

Regulatory clearances now focus on takeover bid

The processing of a takeover bid is now marked by regulatory approvals. Yesterday, Economy Minister Carlos Bodi insisted on rejecting the merger proposed by BBVA and said the government had a “bigger vision” than the Bank of Spain, CNMV and CNMC to veto the operation.

BBVA President Carlos Torres assured last week at a press conference at which the takeover proposal was presented that he had already contacted regulators and supervisors and trusted their approval. The bank is expected to present a brochure on the transaction to CNMV next week.

In his speech yesterday, Gindos assured that the European Central Bank is not changing its criteria, despite the “context”, and insisted on its preference for movements between countries. He said it was “very good” that French President Emmanuel Macron had shown his receptiveness to cross-border transactions in an interview with Bloomberg a few days ago.

Banc Sabadell shares closed the week at 1.89 euros, almost 11% below the offer price.

When Macron was asked how he would take Santander’s hypothetical proposal for a Société Générale, he replied, despite everything, that we must be “open”. “Negotiating as Europeans means we have to consolidate as Europeans,” he even said, prompting commentary among industry analysts.

“The recent statements by the French President have certainly increased heart rates,” says Guy de Blaunay, fund manager at Jupiter AM. In his opinion, “the likelihood of mergers and acquisitions” between European banks is increasing.

The purchase of Banc Sabadell will reduce BBVA’s presence in Mexico and Turkey at the expense of a greater presence in the Spanish market. Two-thirds of the Catalan bank’s business is located in its home country, with the UK’s TSB having its most significant international exposure. A report from Barclays this week suggested BBVA could raise its offer by 10% if it were demerged after TSB.

Gindos also expressed regret yesterday over the lack of a single banking market at the European level, which “does not promote mutual understanding” on the part of investors. These inefficiencies complicate economies of scale as well as mergers at the European level.

Until now, cross-border concentration in the EU has been very small. Recent movements have been limited to the periphery and non-strategic enterprises. The Italian group UniCredit bought 9% of the Greek Alpha Bank and entered into alliances in Romania. BNP Paribas became part of the Belgian insurance company Ageas.

Regarding the Bank of Spain’s decision to activate the countercyclical buffer and require another 7.5 billion reserves from banks, the ECB vice president said it was “adequate.” It will not be activated until 2025 and will be progressive, but the impact on BBVA will be 1.217 million people. The measure could impact dividend distributions at a time when both BBVA and Banc Sabadell are competing to attract shareholders of the Catalan bank.

Gindos “for consolidation in Europe,” but it’s better if borders are crossed

Banc Sabadell shares closed the week up 1.6% to €1.89. This is 11% below the price of 2.12 euros at which BBVA valued them when announcing the takeover offer.