The proposed merger between BBVA and Banque Sabadell could transform the eurozone banking sector, increasing BBVA's assets to more than $1 trillion and potentially making it the eurozone's third-largest bank by market value. be.
advertisementOn April 30, Banco Bilbao Vizcaya Argentaria (BBVA) submitted a proposal to merge with Banco Sabadell, sparking a new debate on banking consolidation in Europe.
A potential merger between BBVA and Banque Sabadell would propel the former into the exclusive club of euro zone banks with total assets of over $1 trillion (€940 billion), joining BNP Paribas, Credit Agricole, Banco Santander, Société Générale SA and Germany. Bank AG.
Additionally, the deal will make BBVA the third-largest bank in the euro area, with a market capitalization estimated at around $65 billion (61 billion euros), behind BNP Paribas and Banco Santander.
Details of the potential deal remain secret, but Goldman Sachs equity analyst Chris Hallam said BBVA and Sabadell “consider the potential for revenue and cost synergies from overlapping operations in Spain.” “Then it will be based on sound industrial logic.” ”.
According to 2023 statistics, the merger could increase BBVA's revenue and net income by 17%, with loan volumes increasing by 40% and risk-weighted assets increasing by 22%.
Hallam noted that despite the attractive prospects, there are challenges to cross-border mergers within the euro area due to strict regulatory frameworks and the complexity of bank consolidation. This makes such large-scale mergers less likely and instead encourages consolidation within the market.
The merger talks come as a result of a broader trend since the start of the year in which smaller banks in the euro zone have significantly outperformed their larger counterparts in the market.
Banco Sabadell's stock price soared nearly 60% in the first four months of this year. Similarly, small Italian bank BPER Banca SpA also recorded a surge of 56%. Shares in Italy's once-beleaguered Banca Monte dei Paschi di Siena SpA have soared 40%. Banco BPM SpA and Unicaja Banco SA also mimicked this performance. It is noteworthy that none of these five banks have a market capitalization of more than 10 billion euros or total assets of more than 250 billion euros.
European bank M&A activity is expected to pick up in 2024
Bank M&A deals in 2023 were particularly lackluster, reaching at least a six-year low, making the fourth quarter of 2023 the weakest three months since pre-2018.
Looking ahead, European bank mergers and acquisitions (M&A) activity is expected to pick up in 2024, particularly in the fintech and advisory services sectors, due to lower inflation and lower valuations, according to S&P Global.
This activity has already begun in 2024, as evidenced by French lender Credit Agricole SA's acquisition of a 7% stake in Paris-based payments group Worldline SA in January.
Benoît Gerard, EY's EMEIA financial services strategy and transactions leader, said banks are likely to form joint ventures and partnerships with fintech companies in 2024 to improve their technological capabilities.
Mergers may trigger consolidation
The growing market share of North American investment banks in Europe is putting significant pressure on European banks. “That creates very difficult competitive dynamics. And in that environment, to be meaningful, it probably makes sense to scale up. There's considerable pressure to consolidate.” said Haider Jumaboj, Partner and Co-Head of EMEA Financial Services M&A. Law firm White & Case.
With the financial sector on the cusp of potential transformation, companies like Deutsche Bank linked to possible acquisitions of ABN AMRO and Commerzbank, despite CEO reluctance to push for mergers in 2024. Major banks are also paying attention.
In short, the possible merger of Banco Bilbao Vizcaya Argentaria (BBVA) and Banco Sabadell could indeed be a pivotal trigger for consolidation in the euro area banking sector.
The agreement not only reflects the growing need for scale in the European financial landscape, but also underlines a broader shift towards strategic realignment in response to competitive pressures and technological advances.
