Yahoo Finance ECB Open to BBVA-Sabadell Tie-Up, Easing Path to Potential Deal
(Bloomberg) -- The European Central Bank is supportive of a tie-up between Banco Bilbao Vizcaya Argentaria SA and Banco de Sabadell SA, potentially making necessary approvals easier if the deal comes to fruition.
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The euro area’s top banking regulator sees Sabadell’s focus on lending in Spain as a counterweight to BBVA’s tilt toward emerging markets such as Mexico and Turkey, people familiar with the matter said. A larger balance sheet in turn is seen as helping diversify Sabadell’s exposure to small and medium-sized enterprises, they said, asking not to be named discussing private information.
The ECB would have preferred a friendly deal but thinks the positive factors are still relevant even in a hostile transaction, the people said. The regulator isn’t actively trying to push the deal in either direction, they said.
Support from the ECB is helpful for BBVA because it would speed up necessary approvals if shareholders accept the offer. It might also smooth talks between the bank and the regulator about future capital requirements for a combined entity.
Representatives for the ECB, BBVA and Sabadell declined to comment.
BBVA under Chairman Carlos Torres last week bypassed Sabadell’s leadership and made a direct takeover offer to the smaller lender’s shareholders, in a move not seen among major Spanish banks since the 1980s. Torres faces a tricky pursuit as Sabadell’s management has rejected the bid, which values the bank at an 18% premium to its closing price before the offer.
The Spanish government has come out against BBVA’s bid as well, with Economy Minister Carlos Cuerpo saying it has the last word on the proposed merger.
Read More: Spain Says It Has Last Word to Approve BBVA Offer for Sabadell
Torres has suggested that the government may soften the stance after regional elections in Spain, which took place last weekend.
The chairman also said on an investor call last week that “the first opinion” on the proposed deal from the ECB was “on the favorable side.” That opinion was presumably given before BBVA unveiled its hostile bid.
The ECB has to authorize deals such as BBVA’s potential takeover of Sabadell, and it does so based on solvency and prudential principles, Vice President Luis de Guindos said last week.
BBVA’s most profitable region currently is Mexico, which produced twice as much profit in the first quarter than the lender’s Spanish operations. Close to half of the bank’s €800 billion ($867 billion) balance sheet sits outside its home market, with Mexico and Turkey accounting for almost a third of the total.
Its large operations in Mexico, Turkey and across South America expose BBVA to countries with some of the highest inflation rates in the world, a high degree of political risk and volatile currencies. The capital held at its foreign subsidiaries is also outside the ECB’s jurisdiction.
By contrast, almost three-quarters of Sabadell’s €236 billion of assets are in Spain, with much of the rest sitting in its UK unit TSB.
Small and medium-sized companies “are the crown jewel of Sabadell, it’s what we do best,” Sabadell Chief Executive Officer Cesar Gonzalez-Bueno said at a recent conference.
The ECB has previously said that one issue potentially arising in hostile takeover situations is that the buyer has limited access to information about the target. But this isn’t a reason for regulators to oppose such transactions for as long as the available information is considered sufficient, it has said.
--With assistance from Laura Noonan and Macarena Muñoz.
(Adds general ECB comment on hostile takeovers in final paragraph.)
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