The BBVA-Sabadell Merger: Navigating Regulatory and Political Crosscurrents in Spain's Banking Landscape

The proposed merger between BBVA and Banco Sabadell has reached a pivotal juncture, with Spain’s government now opening a public consultation to weigh its societal implications. Prime Minister Pedro Sánchez’s announcement underscores the delicate balance between regulatory approvals and political oversight in one of Europe’s most consequential banking consolidations. This article dissects the deal’s progress, remaining hurdles, and its potential impact on Spain’s financial landscape.

The Merger’s Regulatory Milestones

The BBVA-Sabadell transaction has already navigated significant regulatory hurdles. The National Commission on Markets and Competition (CNMC), Spain’s antitrust authority, approved the merger in late 2024 but imposed strict conditions to address competition concerns. These include:
- Branch network preservation: A pledge to maintain Sabadell’s 300 branches in underserved regions like Catalonia and Valencia until Q2 2025, after which BBVA must divest the remaining 213 branches.
- SME lending protections: A three-year guarantee to retain competitive terms for small businesses and self-employed clients in high-concentration markets.

The European Central Bank (ECB) and the UK’s Prudential Regulation Authority (PRA) also cleared the deal, signaling approval from key regulators. However, the Spanish government’s public consultation—mandated by law—adds a final layer of scrutiny, with Prime Minister Sánchez explicitly opposing the merger on grounds of reduced competition and regional banking access risks.

The Government’s Role: A Delicate Dance

While the Spanish government cannot legally block BBVA’s hostile takeover bid outright, it retains authority to impose additional conditions or delay the merger’s final approval. Under Spanish law, the economy ministry has 15 business days to escalate the case to the cabinet, which then has 30 days to decide. Key considerations include:
1. Competition concerns: The merged entity would control 29% of SME lending in Catalonia and Valencia, raising the Herfindahl Index—a measure of market concentration—to 0.133, already near thresholds deemed problematic.
2. Regional sensitivities: Opposition from Catalonia’s government and employers’ groups like Foment del Treball, which argue the deal could reduce SME credit availability by €70 billion (46% of current levels).

The merger would create Spain’s second-largest bank (€1.0 trillion in assets), surpassing CaixaBank but still trailing Santander. This consolidation could streamline operations but risks stifling competition in regional markets.

Shareholder Dynamics: Premium vs. Uncertainty

Sabadell shareholders face a stark choice: accept BBVA’s offer of 1 share for every 5.0196 Sabadell shares plus €0.29 cash (adjusted for dividends) or reject it. The bid represents a 30% premium over April 2024 prices, a compelling incentive. Yet, Sabadell’s board and retail investors have criticized the offer as undervalued, citing its standalone potential and recent shareholder remuneration plans.

BBVA’s shares have risen 18% year-to-date amid merger optimism, while Sabadell’s stock has stagnated at €2.6 billion—far below its peak—reflecting market skepticism about the deal’s fairness.

Key Risks and Remaining Challenges

1. TSB Disposal: BBVA aims to offload Sabadell’s UK subsidiary, TSB, to focus on core markets. However, TSB’s limited market share (4.1%) and regulatory constraints in the post-Brexit UK complicate a sale.
2. Branch Sales Deadline: BBVA must divest 213 branches by Q2 2025. Failure could trigger penalties or jeopardize the merger’s approval.
3. Political Timeline: The government’s consultation period, coupled with the cabinet’s 30-day review, could delay a decision beyond mid-2025, increasing uncertainty.

Conclusion: A High-Stakes Gamble with Mixed Outcomes

The BBVA-Sabadell merger hangs in the balance, with regulatory, political, and shareholder forces pulling in opposing directions. If approved, the deal would unlock €850 million in synergies by 2026, boosting EPS by 27% for Sabadell shareholders and 3.5% for BBVA’s. However, risks abound:

• Competition Risks: A merged entity controlling 30% of Spain’s SME lending could stifle innovation and raise prices in key regions.
• Execution Risks: The TSB sale and branch divestiture deadlines remain unproven, with operational integration costs potentially exceeding savings.

The Spanish government’s consultation—and its eventual decision—will be pivotal. While markets currently price in a mid-2025 approval, Prime Minister Sánchez’s opposition and regional pressures could force concessions, such as stricter branch retention rules or asset sales. Investors must weigh the merger’s efficiency gains against its concentration risks. For now, the stakes are clear: the deal could redefine Spain’s banking sector—or trigger prolonged legal and political battles.

In conclusion, the BBVA-Sabadell merger is a high-stakes test of regulatory and political will. With synergies of €850 million on the table but competition concerns elevated, the outcome will shape Spain’s financial landscape for decades. Investors would be wise to monitor the government’s timeline closely and prepare for volatility as this complex saga unfolds.