BBVA's Sabadell Bid: Navigating Competition Concerns and Mexican Expansion

BBVA's hostile bid for Sabadell, valued at around €12 billion, faces scrutiny from Spanish regulators and the government due to competition concerns. The deal, which would create one of the largest lenders in the eurozone, has been moved to a more thorough assessment phase by the Spanish National Markets and Competition Commission (CNMC). Meanwhile, the Spanish government, led by the Socialist Party, has raised concerns about the deal's impact on competition, employment, financial stability, and territorial cohesion.

The CNMC's Phase 2 review will likely scrutinize BBVA's proposed takeover of Sabadell, focusing on potential market dominance in Catalonia and SME lending. The combined entity would have a 34% loan share in Catalonia, exceeding the 30% EU threshold. The CNMC may require BBVA to divest parts of Sabadell's SME business to maintain competition. This could impact BBVA's expected synergies but is crucial for preserving market diversity.

Sabadell's insurance business also plays a role in the competition concerns. The CNMC is considering whether this business should be divested as part of the deal, indicating a focus on maintaining competition in the market. If the CNMC imposes conditions or divestments, BBVA may need to reconsider the strategic value of the deal, particularly in light of its international operations.

BBVA's significant international presence, particularly in Mexico, could influence the government's assessment of the deal. As of December 2023, Spain represented nearly 60% of BBVA's total assets, while Mexico accounted for around 14%. A successful merger with Sabadell would strengthen BBVA's global scale, potentially enhancing its competitive position in Mexico and other international markets.

However, the Spanish government may view this enhanced international presence as a risk, as it could lead to a more dominant BBVA reducing its focus on the domestic market. This could result in reduced competition, impacting Spanish businesses and consumers. Moreover, the deal's potential impact on employment and financial stability in Spain could be a concern for the government.

The CNMC's decision on BBVA's bid for Sabadell could significantly impact BBVA's strategic plans for expansion in Mexico and other international markets. If approved, the merger would create one of the largest lenders in the eurozone, with over 100 million customers and assets exceeding one trillion euros. This increased scale would allow BBVA to dilute fixed costs associated with technology investments, unlocking greater efficiencies and enhancing its competitive edge in Europe and globally. However, if the CNMC imposes conditions or rejects the bid, BBVA's expansion plans could be hindered, potentially affecting its ability to compete internationally.

In conclusion, BBVA's international operations, particularly in Mexico, could both enhance the deal's appeal and raise concerns for the Spanish government. While the deal could strengthen BBVA's global competitiveness, it may also lead to reduced domestic competition, impacting the Spanish market and potentially influencing the government's decision on the merger. The CNMC's Phase 2 review and the government's assessment of the deal's benefits and risks will ultimately determine the fate of BBVA's bid for Sabadell.