The dawn of 26-27 November 2020 might be remembered as the day when Banco Sabadell was reborn. The Catalan bank, which is nearly 139 years old, has decided to break off merging negotiations with BBVA. The merger would have meant the practical disappearance of Banco Sabadell - the fourth largest company in Catalonia in terms of turnover -, and this would have had a strong impact in workplaces, both in the branches and in the central services.
The two banks have announced early this morning that they have concluded the talks that were taking place without reaching an agreement, as both institutions have informed the Comisión Nacional del Mercado de Valores ("National Securities Market Commission"). In its communication to the supervisor, the Sabadell bank states that the reason for the disagreement was the equation of the share exchanges between both institutions. This operation determines the importance of each bank in the resulting company. Financial sources pointed out that BBVA wanted to mark its dominance in both the value of shares, and in the assignation of future leadership positions: "They have Turkey and the Villarejo case", said these voices.
The merger would have generated the second financial group in Spain with more than 950,000 million euros in assets, and a size close to that of the union of CaixaBank and Bankia. Talks about the merge began on November 16th.
Both entities had agreed that, if the negotiations for the merger were successful, the executive chairmanship of the future group would be in the hands of Carlos Torres, who already holds this position at BBVA, and Josep Oliu - the chairman of Sabadell - would have been the non-executive vice-chairman. According to analysts, the merger of BBVA and Sabadell would have generated saving around 700 million euros in costs.
However, it is precisely these savings that would have reduced the current size of Banco Sabadell: more than 5,000 workers were expected to be fired between both banks, and a good part of these cuts were to take place in Catalunya, where there were more duplicate positions due to the strong presence of BBVA.
Bad negotiation atmosphere
Different financial sources had warned in the last days that the negotiations were not going smoothly. "They don't seem to be going down the aisle happy", some voices said. Sources familiar with the negotiations point to the decisive statements made by BBVA's CEO - Onur Genç - a few days ago. The Turkish executive said that the operation would only be carried out if BBVA won and went so far as to say that it was a takeover that competed with two other possibilities. These words generated a strong unease in the Catalan bank.
Other voices point out that, as occurs in all negotiations of this kind, there had been discontent with the way in which the BBVA proposed the future leadership: "If the plan fails, it will be for personal reasons", they said. Oliu's continuity as vice-president was BBVA's only gesture towards the Catalan bank, but it had an added complication: the involvement of the Biscayan bank in the Villarejo case opened the door to Oliu becoming president in the event that Carlos Torres was indicted -a fact that has always been seen as a real possibility in the financial sector.
To add pressure to the situation, the recent sale of the bank in the United States left Javier Rodríguez, former CEO of the subsidiary and Torres' right-hand man, in limbo. In recent days, various directors of the Catalan bank had expressed their wishes in conversations with this newspaper: "I hope this doesn't happen".
Differences in price and refusal to exchange shares
There was another key aspect for the negotiations to stop: the BBVA wanted to pay in cash for the operation, and not in exchange of shares. The BBVA, aware of the losses that its shareholders have had to endure recently, refused this possibility.
Despite the negotiation classes, many assumed that there would be an agreement for the simple reason that Sabadell, on its own, could not withstand the recent stock market punishment. Aware of this, and as ARA has learned, BBVA was already working on different maps of how the bank's branch network would look after the takeover of the Catalan bank based in Alicante.
Sabadell will sell TSB as well as the Mexican subsidiary
Banco Sabadell, after announcing that it had broken off negotiation talks with BBVA, explained that it would prioritise the domestic market as a formula for increasing efficiency in the use of capital and group resources, thereby increasing profitability and creating value for shareholders.
This means, above all, two things: that it will continue to cut staff numbers to save costs, and that it will sell its troubled British subsidiary, TSB, which it acquired in 2015. Sabadell's Mexican subsidiary could follow the same path.
The big question now is whether the Catalan bank will resist the pressure of the markets. At around 10.30am this Friday, Sabadell had lost 12% of its value and the share was at 35 cents. Before the negotiations with BBVA were announced, the shares were worth 32 cents - and had risen to over 40 cents.