425: CNMC Approves BBVA's Acquisition of Banco Sabadell with Conditions

The Spanish National Markets and Competition Commission (CNMC) has approved BBVA's acquisition of Banco Sabadell, subject to remedies aimed at ensuring financial inclusion, territorial cohesion, and lending to SMEs and the self-employed.

Summary

• The CNMC has approved BBVA's voluntary tender offer for Banco Sabadell, subject to certain conditions.
• The approval comes after an 11-month analysis and is conditional on BBVA complying with commitments to ensure financial inclusion, territorial cohesion, and lending to SMEs.
• BBVA has committed to not closing branches in areas where there are limited alternatives, specifically within 300 meters of another branch, in low-income postal codes (below €10,000 per capita), in municipalities with fewer than 5,000 residents, or where there are fewer than three competitors.
• BBVA will maintain commercial terms for retail customers, the self-employed, and SMEs in postal codes with limited competition.
• A special account for vulnerable customers will be created, offering no fees and a free debit card.
• BBVA will maintain working capital credit lines for SMEs banking with Banco Sabadell for three years, potentially extendable by two more years.
• The total credit volume for SMEs with significant exposure to both BBVA and Banco Sabadell will be maintained.
• In Catalonia and the Balearic Islands, where the combined entity's SME lending share will be higher, this remedy will apply to SMEs with at least 50% credit exposure to both banks.
• New credit prices for SMEs and the self-employed in areas with limited competition will not exceed the national average.
• BBVA will maintain the terms of acquiring services (POS) for SMEs and self-employed customers.
• BBVA has committed to divest certain levels of stakes in payment processing companies.
• The Ministry of Economy has 15 business days to decide whether to refer the concentration to the Council of Ministers, which then has one month to decide based on public interest criteria.
• The remedies will last for three years, unless otherwise indicated, and the CNMC will assess their effectiveness after three years, with a possible two-year extension.

Sentiment

Score: 7

Explanation: The sentiment is cautiously positive. The CNMC approval is a major step forward for BBVA, but the extensive remedies could limit the benefits of the acquisition. The focus on financial inclusion and SME lending is viewed favorably, but the potential for further regulatory scrutiny remains a concern.

Positives

• The CNMC's approval allows BBVA to proceed with the acquisition of Banco Sabadell, creating the second-largest Spanish financial institution in terms of credit volume.
• The remedies favor financial inclusion, territorial cohesion, credit for SMEs and the self-employed, and preserve competitiveness.
• BBVA's commitment to maintain lending capacity to businesses and households by an additional €5 billion per year.

Negatives

• The approval is subject to significant remedies that could limit BBVA's ability to streamline operations and reduce costs.
• The requirement to maintain certain branches and commercial terms could reduce the potential synergies from the merger.
• The divestment of shareholdings in payment management companies could reduce BBVA's influence in the payments sector.

Risks

• The Ministry of Economy could refer the concentration to the Council of Ministers, potentially delaying or blocking the transaction.
• The integration of the two banks could face challenges, leading to higher-than-expected costs and disruption.
• Failure to comply with the remedies could result in penalties from the CNMC.
• The CNMC could extend the remedies for an additional two years, further limiting BBVA's flexibility.

Future Outlook

Following the CNMC authorization, the Ministry of Economy has fifteen working days to decide whether to refer the concentration to the Council of Ministers, which then has one month to assess the transaction based on public interest criteria.

Management Comments

• BBVA Chair Carlos Torres Vila stated that the union with Banco Sabadell is a project of growth that will increase lending capacity.
• Carlos Torres Vila also noted that the remedies favor financial inclusion, territorial cohesion, credit for SMEs and the self-employed, and preserve competitiveness.

Industry Context

This announcement reflects the ongoing consolidation in the Spanish banking sector, with BBVA's acquisition of Banco Sabadell following CaixaBank's acquisition of Bankia. The CNMC's remedies aim to mitigate the potential negative effects of reduced competition in certain markets.

Comparison to Industry Standards

• The remedies imposed by the CNMC are unprecedented in the Spanish financial sector, suggesting a higher level of scrutiny compared to previous mergers.
• The commitment to maintain physical presence in specific areas is more stringent than typical requirements in other European banking mergers, reflecting concerns about financial inclusion in rural areas.
• The requirement to maintain commercial terms for existing customers is similar to measures taken in other mergers to protect consumers, but the specific focus on postal codes with limited competition is unique.
• The divestment of shareholdings in payment management companies is a common remedy to prevent anti-competitive behavior in the payments sector, similar to requirements in other European mergers.

Stakeholder Impact

• Shareholders of BBVA and Banco Sabadell will be impacted by the merger and the potential synergies and costs associated with it.
• Customers of both banks will be affected by changes in products, services, and branch networks, although the remedies aim to minimize negative impacts.
• Employees of both banks may face uncertainty due to potential restructuring and job losses, although the remedies aim to maintain employment in certain areas.
• SMEs and the self-employed will be impacted by changes in lending terms and conditions, with the remedies aiming to ensure continued access to credit.

Next Steps

• The Ministry of Economy will decide whether to refer the concentration to the Council of Ministers within 15 business days.
• The Council of Ministers will assess the transaction based on public interest criteria within one month if referred.
• BBVA will need to implement the remedies outlined by the CNMC.
• BBVA will need to submit various reports to the CNMC to demonstrate compliance with the remedies.

Key Dates

Keywords

BBVA, Banco Sabadell, CNMC, Acquisition, Merger, Competition, Remedies, Financial Inclusion, SMEs, Lending, Branches, Postal Codes