BBVA and Sabadell Put the Merger on Hold Due to Disagreement on Financial Terms

  • November 27, 2020 11:39 PM AEDT
  • Kunal Sawhney
    CEO Kunal Sawhney
    2294 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

BBVA and Sabadell Put the Merger on Hold Due to Disagreement on Financial Terms

Summary

  • The merger deal had it gone through as planned would have created the second-largest bank in Spain with €600 billion worth of assets under management.
  • Though why the merger failed is not clear, it is being speculated that BBVA was unwilling to pay €2.5 billion for the deal as demanded by Sabadell.
  • Following the failure of the talks, the shares prices of Sabadell fell by 5.4 per cent on Thursday, reducing its market valuation by €2.26 billion.

Spain’s Banco De Sabadell and BBVA have put their merger on hold following disagreements on the financial terms of the deal. It was one of the major deals in the banking sector in the EU this year. The markets have not taken this news well, following which Sabadell’s share prices came down by 5.4 per cent in Thursday’s trading on BME (Bolsa De Madrid) exchange, pulling down the market valuation of the company by €2.26 billion.

If the deal were finalized, it would have created the second largest banking organisation in Spain with around €600 billion worth of assets under management and would have helped Sabadell resolve many of the issues in its balance sheet. Though both parties have said that they would be focusing on other opportunities that would come their way, it is also highly likely that some internal talks may still be going on, which could bring to see the deal materialise.

Financials of BBVA

In the third quarter of 2020, the bank has reported a revenue of €1.14 billion, which was up by 79.5 per cent of what it had reported in the second quarter. The third quarter was the best quarter of the company this year. For the first nine months, the operating income of the company stood at €3.09 billion, while the net attributable profit for the company stood at €2.07 billion which is less by -36.6 per cent for the same period last year.

The bank currently has more than 32.8 million mobile customers, which is 14 per cent more than what it was in December 2019 and represents 57 per cent of the bank’s total customer base.

Financials of Sabadell

For the third quarter of 2020, the core revenue of the bank stood at €1.168 billion, which is 7.87 per cent lower than what it was in the same quarter previous year. For the first nine months of the year, the revenue of the bank stood at €203 million in comparison to the revenue of €783 million for the first nine months of 2019, which is a drop of 74.1 per cent.

The gross operating profit of the bank for the nine months was €3.636 billion, whereas, for the first nine months of 2019, the core operating income of the bank stood at €3.834 billion. (all the above figures include results from TSB)

European banking in post-pandemic market

The coronavirus pandemic has brought about significant hardship to the banking system in Europe, especially in Spain. The significant increase in bad loans has put most of the banks in a very weak position. To deal with this situation, banks are trying to go the M&A route and consolidate their position. BBVA and Banco De Sabadell had announced the talks on November 16, but now the deal has been officially called off, as agreement could not be established on the exchange ratio of both entities. Now the pressure is on Sabadell, which has said that it will be concentrating on a new plan with a focus on its domestic market.

 


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