BBVA vs. Sabadell: A Battle of Valuations and Regulatory Realities

The rivalry between BBVA and Banco Sabadell has reached a pivotal moment, with BBVA's €15.6 billion hostile bid for Spain's sixth-largest bank clashing against Sabadell's strategic divestiture of TSB to Banco Santander. This clash underscores a broader question: Can BBVA's vision of creating Spain's second-largest banking giant justify its premium, or does Sabadell's TSB sale mark a defensive masterstroke that undermines the merger's logic?

Let's dissect the financial incentives, regulatory timelines, and competitive stakes shaping this high-stakes battle.

The TSB Sale: A Double-Edged Sword for Sabadell's Shareholders

Sabadell's decision to sell TSB to Santander for £2.65 billion ($3.64 billion) is both a defensive shield and a financial catalyst. The proceeds will fund an extraordinary dividend of €0.50/share (€2.5 billion) and ordinary dividends of €1.3 billion from 2025 earnings. This immediate return of capital to shareholders creates a critical counterweight to BBVA's all-stock offer, which currently trades at a 12% discount to Sabadell's market price.

The chart reveals Sabadell's shares trading at €3.25 versus BBVA's bid of €2.85, reflecting investor skepticism about the merger's regulatory risks and delayed synergies. BBVA's refusal to sweeten its offer amplifies this valuation gap, weakening its appeal to Sabadell's shareholders.

Regulatory Hurdles: The Three-Year Moratorium That Could Sink the Merger

Spain's 2023 banking law imposes a three-year operational separation on merged banks, delaying BBVA's projected €850 million in synergies until at least 2026. This moratorium strips BBVA of its primary argument for the deal—cost savings—while forcing the bank to navigate heightened regulatory scrutiny.

Sabadell's CET1 ratio is projected to rise above 13% post-TSB sale, a regulatory milestone that strengthens its independence. Conversely, BBVA's CET1 of 13.09% (Q1 2025) leaves little room for error if the merger's execution falters. The TSB sale's dividend payout also boosts Sabadell's ability to fund shareholder returns without relying on BBVA's offer.

Strategic Risks vs. Opportunities

For BBVA:
- Long-Term Upside: A merged entity would control 18% of Spain's mortgage market and 22% of SME lending, enabling scale efficiencies post-2026.
- Execution Risks: BBVA faces a €295 million TSB-related scandal (motor finance liabilities) and potential customer attrition from Santander's integration. These could divert resources from synergies.

For Sabadell:
- Defensive Strength: The TSB sale reduces cross-border complexity and redirects focus to its core Spanish market, where it boasts a 20% dividend yield advantage over peers.
- Shareholder Approval Hurdle: Sabadell's shareholders must vote on the TSB sale and dividend on August 6, 2025. Rejection could reignite merger talks, but approval solidifies its independence.

Investment Implications: Short-Term Volatility vs. Long-Term Gains

1. BBVA Shares (BAM.MC):
2. Risk: Overvaluation at current levels. BBVA's bid implies a 12% premium to Sabadell's shares, yet faces execution risks (regulatory delays, TSB liabilities).
3. Reward: A successful merger could unlock €850M in synergies by 2026, justifying a post-merger valuation.

4. Action: Avoid buying above €3.50/share unless BBVA revises its offer.

5. Sabadell Shares (SABE.MC):

6. Risk: The TSB sale's integration challenges and regulatory approvals could depress short-term valuations.
7. Reward: A shareholder-approved dividend payout creates an asymmetric bet. A dip below €3.00/share post-vote could offer a high-yield entry point.
8. Action: Monitor the August 6 vote closely. If approved, accumulate shares at €2.80–€3.20.

Conclusion: A High-Stakes Gamble on Regulatory Timing

BBVA's bid hinges on its ability to navigate Spain's three-year merger moratorium and execute synergies without overextending its balance sheet. Meanwhile, Sabadell's TSB sale has created a “dividend poison pill”—immediate shareholder value that complicates BBVA's case.

For investors, the August 6 shareholder vote is the linchpin:
- Approval of TSB sale → Sabadell gains independence, BBVA's bid loses momentum.
- Rejection → BBVA may resurface with a higher offer, but regulatory risks persist.

The data favors a wait-and-see approach until post-vote clarity. Sabadell's shares offer asymmetric upside at depressed levels, while BBVA's valuation already prices in merger success. Until then, the battlefield remains Spain's regulatory courts—and the boardrooms of Barcelona.

Final Recommendation: Short-term: Hold. Long-term: Watch Sabadell's post-vote valuation.

This analysis assumes no material changes to Spain's regulatory environment or macroeconomic conditions. Always consult a financial advisor before making investment decisions.