Mega bank merger alert: BBVA and Banco Sabadell merger gets a huge boost from European Central Bank

In a significant move set to reshape Spain’s banking landscape, the European Central Bank (ECB) has given its much-anticipated approval to Banco Bilbao Vizcaya Argentaria’s (BBVA) takeover bid for Banco Sabadell. This green light from the ECB removes a significant regulatory hurdle, clearing the way for one of the largest mergers in the European banking sector this year. The deal, valued at over 12 billion euros ($13.3 billion), positions BBVA to become a more dominant force not only in Spain but also across other strategic markets.

BBVA had originally proposed the takeover of Banco Sabadell earlier in 2024, triggering an extensive process of negotiations, shareholder meetings, and regulatory checks. After Banco Sabadell initially rejected BBVA’s all-share offer in May 2024, BBVA made a hostile bid to acquire its smaller rival, Spain’s fourth-largest lender. The strategic move was framed as a necessity to strengthen its foothold in Spain and to leverage Banco Sabadell’s presence in international markets such as the United Kingdom, the United States, and France.

Key benefits expected for stakeholders

BBVA’s management has been vocal about the benefits this merger would bring to shareholders, customers, and employees. BBVA Chair Carlos Torres stated that the Sabadell-BBVA combination would create a stronger, more profitable bank that is expected to lend an additional 5 billion euros annually to families and businesses. For BBVA shareholders, the merger promises high returns on investment with limited capital consumption, a significant selling point for institutional investors wary of the risks associated with mergers and acquisitions in the banking sector.

Banco Sabadell shareholders also stand to gain significantly from this deal. They are set to receive a premium of around 50% based on the weighted average stock prices in the months leading up to the merger announcement. Moreover, Banco Sabadell shareholders will gain a 16% stake in the merged entity, benefiting from BBVA’s shareholder distribution policy, which includes payouts of between 40% and 50% of profits.

BBVA also highlighted that customers will have access to an expanded range of financial products and services, thanks to the combined expertise and reach of both banks. Employees are expected to see new opportunities for professional growth in a larger, more diversified institution. Additionally, the new bank aims to contribute more significantly to the Spanish economy by increasing lending and paying higher taxes.

Remaining challenges and future steps

Although the ECB’s approval is a significant step forward, BBVA’s takeover of Banco Sabadell is not yet finalized. The deal must still secure approval from Spain’s financial market regulator, the Comisión Nacional del Mercado de Valores (CNMV), and acceptance from Banco Sabadell shareholders representing a majority of its share capital. Additionally, the Spanish Market and Competition Commission (CNMC) must approve the merger to ensure it does not result in reduced competition in the banking sector.

BBVA is confident that all required approvals will be received within the estimated timeframe, allowing it to move forward with merging the two entities into a single, more formidable bank. This new financial institution would combine BBVA’s robust digital banking capabilities and Banco Sabadell’s local market expertise, providing a unique blend of strengths that could set a new benchmark in European banking.

Expert opinions highlight merger’s impact on European banking

Financial experts have mixed opinions about the potential impact of this merger on the European banking sector. Some analysts see it as a necessary move for BBVA to maintain competitiveness in an increasingly consolidated European market. The combination of BBVA and Banco Sabadell could lead to improved profitability and a more substantial market share, but integration challenges and cultural alignment will be critical to its success.

Others warn that the risks of such a large-scale integration should not be underestimated. Historical data on similar mergers suggest that potential disruptions in customer service, cultural clashes, and technology integration issues could pose significant challenges. The success of this merger will depend heavily on how well BBVA manages the integration process and aligns both banks’ operational cultures.