The hostile takeover of Banco Sabadell that BBVA wants to carry out could once again change the financial map of Spain, which has experienced a significant degree of concentration over the past fifteen years. The Great Financial Recession of the last decade and the resulting debt crisis They showed that the second and third tiers of the banking system, those whose assets and markets were the least distributed, were unable to survive on their own. Thus, of the 55 entities – between banks and savings banks – that were in 2009, there are now only a dozen left, although below these main ones there are others, less important. A process in which the largest financial institutions, which were less exposed to defaults associated with the destructive bubble that characterized the real estate sector for many years, gradually acquired those that were more weakened.
This crisis has surprised Spanish and European institutions. Brussels was forced to force the state to accept financial assistance through the European Stability Mechanism (ESM), which provided more than $40 billion. FROB (Fund for Orderly Restructuring of Banks) also contributed more than $20 billion. A total of 64 billion euros of state aid must be returned by the entities, although according to calculations for 2020, about three quarters – 43,225 million – will be lost. Bankia (22,424 million), Caixa Catalunya (12,599), Caja de Ahorros del Mediterráneo (12,474), NovaCaixaGalicia (9,404) and Banco de Valencia (6,103) They were the main recipients of resources. The healthiest ones, such as BBVA, Santander, Kutxabank and Caixabank and others, did not require the use of these funds.
Then-Economy Minister Luis de Guindos justified more than $60 billion in bailouts for banks in 2017. “If the bank bailout had not been paid, Spain would have left the eurozone,” Guindos said., which in 2020 once again advocated new merger processes aimed at reducing enterprise operating costs and improving efficiency indicators. This argument has met with strong opposition among critics of these operations, who understand that it only results in the elimination of competition, the deprivation of opportunities for customers and the negative impact on employment through reductions and layoffs. Mergers aside, the financial market is in a stronger position than in the last decade, with less risk and higher returns, also due to the context of high interest rates.
Among the operations of the banking union, the most significant was the case of Caixabank and Bankia, materialized three years ago. Bankia brought together various organizations, including Caja Madrid and Bancaja, two of which had the most problems during the crisis. As a result of the merger, the company now has the largest number of assets in the Spanish financial market (more than 570 billion euros), although at a global level BBVA and Santander surpass it due to their greater external weight. Of course, after the alliance was completed, Caixabank management proposed ERE for more than 8,000 workers, as well as the closure of 1,600 branches and offices.
Another major operation was Unicaja with Liberbank. The latter was the result of the merger of Cajastur, Caja Castilla-La Mancha, Caja Cantabria and Caja Extremadura in 2011. Both companies have also taken a step towards merging their paths in 2021, with the strong weight of the Malaga company in management. Its assets amount to about 100 billion euros.
The precedent of Bilbao’s failed attempt to absorb Banesto
The Public Takeover Offer is a process that has rarely succeeded in the history of Spanish business. A good example is the one that the Bank of Bilbao, then headed by José Ángel Sánchez Asiain, presented in 1987 about Banesto. The transaction was not allowed to be processed, including due to the opposition of its then vice-president Mario Conde, who convinced the board of directors not to accept the proposal. A year later, Banco Bilbao and Banco Vizcaya joined forces to form BBV in a merger by mutual consent. Sabadell, for its part, bought Banco Guipuzcoano in 2010.
Also notable outside the financial spectrum are Gas Natural’s attempts at a hostile takeover of Iberdrola in 2003 and another attempt at a takeover of Endesa two years later, both unsuccessful. Others ended up being absorbed, such as the one that India’s Mittal Steel carried out in 2006 at Arcelor, which is home to the current Sestao and Etxebarri steel mills.
In most cases, these transactions were carried out due to improvements in initial conditions or through processes of competitive acquisitions and counter-acquisitions. There are also precedents for takeover bids and commercial transactions that have failed due to government or regulatory opposition, even with the acquired company’s approval, such as the bid that Unión Fenosa (now part of Naturgy) submitted in 2000. Hidrocantábrico (finally acquired by Portuguese EDP).
Following Thursday’s announcement, BBVA must submit to the CNMV a request for approval of a brochure detailing the terms of its offer, which it has already outlined this Thursday, and has a period of 30 days to do so. When the CNMV receives this brochure, it will have 7 days to review it. In addition to the CNMV, a study is being carried out by the ECB, which will analyze whether the merger process between these organizations will lead to the creation of a sustainable business model. In addition, the analysis also includes the National Commission of Markets and Competition (CNMC), which should look into possible competition issues.
In any case, BBVA and Santander also took part in this whole evolution. The first focused its activities on the financial sector of Catalonia. So, In 2012, it acquired Unnim Banc.which included the former Caixa Sabadell, Caixa Manlleu and Caixa Terrasa. And in 2014 he did the same with Catalunya Caixa., which combined the previous Caixa Catalunya, Caixa Tarragona and Caixa Manresa. For its part, Banco Santander took over Banco Popular in 2017 for one euro, which had serious problems due to its exposure to the real estate sector. Apart from the immediate post-housing crisis situation, the interest rate and inflation scenario has changed radically in recent years. In a scenario of rock-bottom or even negative interest rates, banks have returned to mergers in order to reach the size needed to improve their businesses. In fact, regulators encouraged these unions, even calling for supranational integration, which did not happen, to improve the profitability of the sector.
The mergers, caused by market concentration and a reduction in competition and therefore consumer options, have attracted criticism among user associations. “The fewer and larger the banks, the easier it is to behave uncompetitively and, therefore, to obtain monopoly or oligopoly rents,” emphasized Asufin President Patricia Suarez. For her part, the president of the Spanish Banking Association (AEB), Alejandra Kindelan, noted that the offer is “huge and very diverse,” with large, small and local banks competing “fiercely.”