BBVA’s proposed merger with Banco Sabadell could transform the eurozone banking sector, potentially increasing BBVA’s assets to more than $1 trillion and making it the eurozone’s third-largest bank by equity value. market.
Last Tuesday, Banco Bilbao Vizcaya Argentaria, SA (BBVA) submitted a merger proposal to Sabadell Bank SA, which sparked new discussions about the bank consolidation in Europe.
The possible merger between BBVA and Banco Sabadell would catapult the former into the exclusive club of eurozone banks with more than 1 billion dollars (940,000 million euros) in total assetswhich would place it just behind sector giants such as BNP Paribas, Crédit Agricole, Banco Santander SA, Société Générale SA and Deutsche Bank AG.
Furthermore, this agreement would elevate BBVA to become the third largest bank of the eurozoneby market capitalizationestimated at approximately 65 billion dollars (61 billion euros), only behind BNP Paribas and Banco Santander.
Although the details of the possible operation remain unknown, Chris Hallam, equity analyst at Goldman Sachs, believes that BBVA/Sabadell “would be based on solid industrial logic, given the potential for revenue and cost synergies Due to the overlapping of your businesses in Spain“.
According to 2023 figures, this fusioncould increase revenue and net profit of BBVA in a 17%with a 40% increase in loans and a 22% increase in risk-weighted assets.
Despite the attractive prospects, Hallam pointed to the challenges posed by cross-border mergers within the eurozone, due to strict regulatory frameworks and the complexity of banking integration. This has made the large scale mergers be less likely and, instead, it has favored consolidations in the market.
The backdrop to this merger debate is that, since the beginning of the year, the smaller banks of the euro area have recorded a significantly superior performance to that of the greatest.
The Actions of the Sabadell Bank they have up almost 60% in the first four months of the year. Similarly, the small Italian bank BPER Banca SpA has recorded an increase of 56%. Once-troubled Italian bank Banca Monte dei Paschi di Siena SpA has seen its shares rise 40%. Banco BPM SpA and Unicaja Banco SA have also imitated this behavior. It should be noted that none of these five banks has a market capitalization of more than 10 billion euros or total assets of more than 250 billion euros.
European bank M&A activity expected to rebound in 2024
Bank M&A trading was particularly lackluster in 2023, reaching its lowest level in at least six yearsand the fourth quarter of 2023 was the weakest three-month period since before 2018.
Looking ahead, it is expected that the mergers and acquisitions activity (M&A) of European banks rebound in 2024driven by declining inflation and lower valuations, especially in financial technology and advisory services, according to S&P Global.
Activity It already started in 2024as evidenced by the fact that French lender Crédit Agricole SA acquired a 7% stake in Paris-based payments group Worldline SA in January.
According to Benoit Gérard, EY financial services strategy and transactions director for Europe, the Middle East, India and Africa, there are Good prospects that the banks form joint ventures and partnerships with financial technology companies in 2024, as its goal is to increase its technological capabilities.
Merger could be a trigger for consolidation
The growing market share of North American investment banks in Europe is putting significant pressure on European banks. “That creates a quite difficult competitive dynamics. And in that environment, to be meaningful, a larger scale probably makes sense. “There is quite a bit of pressure to consolidate,” said Hyder Jumabhoy, partner and co-head of financial services mergers and acquisitions for the Europe, Middle East and Africa region at law firm White & Case.
At a time when the financial sector is located in the cusp of possible transformative changesattention is also focused on larger banks, such as Deutsche Bank, which has been linked with possible acquisitions of ABN AMRO and Commerzbank, despite its CEO’s reservations about the possibility of mergers in 2024.
In summary, the possible merger between Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Sabadell could, in fact, serve as a fundamental trigger for the consolidation of the banking sector of the eurozone.
This agreement not only reflects the growing need to scale the European financial landscape, but also underlines a broader shift towards strategic realignments in response to the competitive pressures already the technological advances.
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