BBVA-Sabadell potential merger: A sign of things to come within eurozone banking?

Banco Sabadell
Banco Sabadell Copyright Banco Sabadell
Copyright Banco Sabadell
By Piero Cingari
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BBVA's merger proposal to Banco Sabadell could transform the eurozone banking sector, potentially boosting BBVA's assets to more than $1 trillion and making it the third-largest eurozone bank according to market value.


On April 30, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) put forth a merger proposal to Banco Sabadell SA, sparking renewed discussions on banking consolidation within Europe.

The potential merger between BBVA and Banco Sabadell would catapult the former into the exclusive club of eurozone banks with more than $1 trillion (€940bn) in total assets, positioning it just behind industry giants such as BNP Paribas, Crédit Agricole, Banco Santander SA, Société Générale SA, and Deutsche Bank AG.

Furthermore, this deal would elevate BBVA to become the third-largest bank in the eurozone by market capitalisation, estimated at approximately $65 billion (€61 billion), trailing only behind BNP Paribas and Banco Santander.

While the specifics of the potential deal remain under wraps, Chris Hallam, a Goldman Sachs equity analyst, believes that the BBVA/Sabadell "would be based on solid industrial logic, given the potential for revenue and cost synergies due to their business overlap in Spain".

According to 2023 figures, this merger could potentially increase BBVA's revenues and net profit by 17%, with a 40% boost in loans and a 22% rise in risk-weighted assets.

Despite the appealing prospects, Hallam pointed out challenges in cross-border mergers within the eurozone, due to stringent regulatory frameworks and the complexities of bank integration. This has made such large-scale mergers less likely, favouring in-market consolidations instead.

The backdrop for this merger discussion is a sparking a broader trend of significant market outperformance by eurozone smaller banks compared to larger ones since the start of the year.

Shares of Banco Sabadell have surged by nearly 60% in the first four months of the year. Similarly, Italian small bank BPER Banca SpA has experienced a 56% surge. The once-troubled Italian Banca Monte dei Paschi di Siena SpA has seen its shares rally by 40%. Banco BPM SpA and Unicaja Banco SA have also mimicked this performance. Notably, none of these five banks has a market cap above €10 billion or total assets exceeding €250 billion.

European banking M&A activity expected to pick up in 2024

Dealmaking in bank M&A was particularly lacklustre in 2023, reaching its lowest level in at least six years, with the fourth quarter of 2023 being the weakest three-month period since before 2018.

Looking forward, the European bank mergers and acquisitions (M&A) activity is expected to pick up in 2024, driven by decreased inflation and lower valuations, particularly in fintech and advisory services., according to S&P Global.

The activity has already commenced in 2024, evidenced by French lender Crédit Agricole SA acquiring a 7% stake in Paris-based payments group Worldline SA in January.

There are strong prospects for banks to form joint ventures and partnerships with fintech companies in 2024 as they aim to boost their technological capabilities, per Benoit Gérard, EMEIA financial services strategy and transactions leader at EY.

Merger could be a trigger for consolidation

The increasing market share of North American investment banks in Europe is putting significant pressure on European banks. "That creates quite a difficult competitive dynamic. And in that environment, to be meaningful, it's likely that greater scale makes sense. There is quite some pressure to consolidate," noted Hyder Jumabhoy, partner and co-head of EMEA financial services M&A at law firm White & Case.

As the financial sector stands at the cusp of potentially transformative changes, the focus is also on larger banks like Deutsche Bank, which has been linked with possible acquisitions of ABN AMRO and Commerzbank, despite their CEO's reservations about pursuing mergers in 2024.

Bottom line, the potential merger between Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Sabadell could indeed serve as a pivotal trigger for consolidation in the eurozone banking sector.

This deal not only reflects the increasing necessity for scale in the European financial landscape but also underscores a broader shift towards strategic realignments in response to competitive pressures and technological advancements.

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