425: BBVA CEO Confident in Sabadell Merger, Ready to Walk Away if Value is Compromised

BBVA's CEO, Onur Gen, expressed confidence in the proposed merger with Banco Sabadell, emphasizing its value creation potential but also stating BBVA will withdraw if value is compromised.

Summary

• BBVA's CEO, Onur Gen, believes the merger with Banco Sabadell will create significant value for shareholders and society.
• The Spanish competition authority (CNMC) has commenced phase two of its analysis of the merger.
• BBVA is prepared to withdraw from the deal if it does not create value.
• The banking sector needs larger, more efficient players to increase investment capacity, especially in technology.
• BBVA believes the merger will create a strong, large-scale player.
• Europe needs financial champions to boost economic growth, and domestic champions are a first step.
• BBVA is optimistic about its future, supported by profitable growth and sound risk management.
• BBVA aims to maintain similar levels of profitability (ROTE) in 2025 as in 2024.
• BBVA's geographic diversification model helps it manage economic cycles.
• BBVA has seen sustained loan growth across its main markets, with market share in Spain close to 14% and in Mexico at 25%.
• BBVA has attracted 11 million new customers in each of the last three years.
• BBVA uses currency hedges to protect against exchange rate fluctuations and its credit quality indicators have remained stable.

Sentiment

Score: 7

Explanation: The document expresses confidence in the merger and BBVA's future performance, but also acknowledges risks and the possibility of withdrawing from the deal, resulting in a moderately positive sentiment.

Positives

• BBVA is confident in the value creation potential of the merger with Banco Sabadell.
• BBVA has a strong geographic diversification model.
• BBVA has seen sustained loan growth across its main markets.
• BBVA has a growing customer base, adding 11 million new customers annually for the past three years.
• BBVA's credit quality indicators have remained stable.
• BBVA is at the forefront of European banking in terms of profitability.

Negatives

• The merger is subject to regulatory approval, and there is a risk that it may not be approved or that value creation may be compromised.
• BBVA has the option to withdraw from the merger if it does not create value, indicating a potential risk to the deal.

Risks

• The merger is subject to regulatory approval, including from the Spanish National Securities Market Commission, the European Central Bank, and anti-trust authorities.
• There is a risk that the merger could disrupt management time from ongoing business operations.
• The merger could have adverse effects on the market price of BBVA shares.
• There is a risk that the merger could negatively impact the ability of BBVA or Banco Sabadell to retain customers and key personnel.
• Problems may arise in successfully integrating the businesses of the two companies.
• The combined company may not achieve expected synergies or it may take longer than expected to achieve them.

Future Outlook

BBVA is optimistic about its future, supported by its strategy of profitable growth and sound risk management, and aims to maintain similar levels of profitability in 2025 as in 2024.

Management Comments

• We expect the combination with Banco Sabadell to be approved with its full value creation potential.
• We will not hesitate to walk away if it will not create value.
• The banking sector needs players with greater scale and efficiency.
• We firmly believe in the value creation potential of this transaction because it will create a strong, large-scale player.
• We see very positive signs for the business, which could allow us to maintain similar levels of profitability (ROTE) in 2025 as this year.
• We are right at the forefront of European banking in terms of profitability, and we aim to stay there.
• What BBVA has in Mexico is genuinely unique.

Industry Context

The announcement highlights the trend of consolidation in the European banking sector, with a focus on creating larger, more efficient players to compete globally and support economic growth. The need for increased investment in technology is also a key theme.

Comparison to Industry Standards

• The document mentions that none of the world's top 25 banks by market capitalization are from the European Union, highlighting the need for European banks to gain scale.
• BBVA's market share of 14% in Spain and 25% in Mexico indicates a strong position in these markets compared to competitors.
• The document does not provide specific comparisons to other banks' profitability metrics, but it states that BBVA is at the forefront of European banking in terms of profitability.

Stakeholder Impact

• The merger is expected to create value for shareholders of both BBVA and Banco Sabadell.
• The merger is expected to benefit society in general.
• The merger could impact customers of both banks, potentially leading to changes in services or products.
• The merger could impact employees of both banks, potentially leading to job changes or restructuring.

Next Steps

• BBVA will continue to work closely with the authorities to finalize any commitments needed for the merger approval.
• BBVA will monitor the merger process and be prepared to withdraw if value creation is compromised.

Key Dates

Keywords

merger, BBVA, Banco Sabadell, banking, financial, profitability, regulatory approval, value creation, loan growth, market share