425: BBVA Proposes Unprecedented Measures to Secure Sabadell Merger Approval

BBVA has presented a series of unprecedented measures to the Spanish regulator CNMC to ensure financial inclusion, lending to SMEs, and competitiveness, particularly in Catalonia and the Valencian Community, to facilitate the merger with Banco Sabadell.

Summary

• BBVA has submitted a proposal to the Spanish National Markets and Competition authority (CNMC) with measures to ensure financial inclusion and maintain lending to SMEs.
• These measures are designed to mitigate risks identified by the CNMC, particularly in certain territories.
• BBVA commits to not closing branches in areas where there are no nearby alternatives, maintaining commercial terms for individuals and SMEs in areas with fewer than four financial institutions, and maintaining working capital lines for SMEs for 18 months.
• The bank will also maintain the current total credit volume for SMEs that work exclusively with BBVA and Banco Sabadell.
• These commitments exceed those made in previous Spanish financial sector mergers.
• The CNMC has moved to the second phase of review, consulting with market participants to assess the effectiveness of BBVA's commitments.
• The commitments include not closing branches within 300 meters of another branch, in postal codes with per capita income below 10,000, or in municipalities with fewer than three competitors.
• BBVA will also maintain teller services, create fee-free accounts for vulnerable customers, and ensure pricing of new loans for SMEs does not exceed the national average in certain postal codes.
• Access to Banco Sabadell's ATMs will be maintained for Euro 6000 network customers for 18 months or until the merger.
• BBVA has also proposed divestments of excess stakes in payment companies.

Sentiment

Score: 7

Explanation: The document presents a proactive approach by BBVA to address regulatory concerns and ensure a smooth merger process. The commitments made are positive, but the ongoing regulatory review introduces some uncertainty.

Positives

• BBVA's commitments are designed to ensure financial inclusion and maintain lending to SMEs, particularly in areas with limited banking options.
• The measures exceed those agreed upon in previous Spanish financial sector mergers, indicating a strong commitment to addressing regulatory concerns.
• The bank is committed to maintaining working capital lines and credit volumes for SMEs, providing stability during the merger process.
• BBVA is ensuring access to banking services for vulnerable customers through fee-free accounts and other measures.
• The bank is maintaining access to ATMs for customers of the Euro 6000 network, ensuring continuity of service.

Negatives

• The CNMC has moved to the second phase of review, indicating that there are still concerns about the merger.
• The commitments are subject to a three-year duration, except where otherwise noted, which may create uncertainty beyond that period.
• The maintenance of working capital lines for SMEs is only guaranteed for 18 months, except in case of financial deterioration, which could create uncertainty for some businesses.
• The commitments are specifically focused on certain territories, suggesting that other areas may not receive the same level of protection.

Risks

• The merger is still subject to regulatory approval, and there is no guarantee that the CNMC will approve the transaction.
• The integration of the two banks could present challenges, potentially impacting customer service and operational efficiency.
• There is a risk that the combined entity may not achieve the expected synergies or that it takes longer than expected.
• The commitments are subject to a three-year duration, except where otherwise noted, which may create uncertainty beyond that period.
• The maintenance of working capital lines for SMEs is only guaranteed for 18 months, except in case of financial deterioration, which could create uncertainty for some businesses.

Future Outlook

BBVA will continue to collaborate closely with the CNMC to finalize the commitment agreement and the authorization of the transaction as soon as possible. The bank is also focused on ensuring a smooth integration of the two banks if the merger is approved.

Management Comments

• These are unprecedented measures to boost lending to SMEs, a key segment where we want to continue growing, and ensure access to banking services in all territories, said BBVA CEO Onur Gen.

Industry Context

This announcement is significant in the Spanish financial sector, as it involves a major merger that could reshape the competitive landscape. The commitments made by BBVA are aimed at addressing regulatory concerns and ensuring that the merger does not negatively impact financial inclusion and lending to SMEs. This is a key focus for regulators in the current environment.

Comparison to Industry Standards

• The commitments made by BBVA exceed those agreed upon in previous operations in the Spanish financial sector, indicating a proactive approach to addressing regulatory concerns.
• The specific measures, such as maintaining branch presence in underserved areas and guaranteeing working capital lines for SMEs, are more extensive than what has been seen in similar mergers in the past.
• For example, previous mergers in the Spanish banking sector have often resulted in significant branch closures and reduced lending to SMEs, which BBVA is explicitly trying to avoid.
• The commitment to maintain ATM access for Euro 6000 network customers is also a notable step, as it ensures continuity of service for a broader customer base.

Stakeholder Impact

• Shareholders of both BBVA and Banco Sabadell will be impacted by the merger, with potential changes in share value and ownership.
• Employees of both banks may experience changes in their roles and responsibilities as the two entities integrate.
• Customers of both banks will be affected by the merger, with potential changes in services, branch locations, and fees.
• SMEs will be impacted by the commitments made by BBVA to maintain lending and working capital lines.
• Suppliers and creditors of both banks will also be affected by the merger, with potential changes in business relationships.

Next Steps

• BBVA will continue to collaborate with the CNMC to finalize the commitment agreement.
• The CNMC will continue its second phase review, consulting with market participants.
• BBVA will work towards obtaining the necessary regulatory approvals for the merger.

Key Dates

Keywords

merger, BBVA, Banco Sabadell, CNMC, financial inclusion, SMEs, lending, competition, regulatory approval, branch closures