Spain's Banking Power Play: The BBVA-Sabadell Merger Hinges on Regulatory and Market Tests

The proposed merger between Spain’s BBVA and Banco Sabadell has reached a pivotal juncture. With the National Commission on Markets and Competition (CNMC) expected to issue its final decision by early May 2025, the outcome will determine whether Europe’s second-largest banking consolidation since the financial crisis proceeds—or unravels.

Regulatory Crossroads: Approval with Strings Attached

The CNMC has signaled its intent to greenlight the merger, but with critical conditions to address antitrust concerns. A key focus is the merged entity’s dominance in regions like Catalonia and Valencia, where its retail banking market share exceeds 30%. To mitigate this, the regulator has proposed behavioral remedies, including:
- Three-year credit protections for SMEs and self-employed clients in high-concentration areas.
- Branch network preservation in rural zones and adherence to interbank cash machine agreements.

These terms, while less onerous than structural divestitures, have drawn opposition from Sabadell’s board, which argues that the €0.29 cash plus 1 BBVA share per 5.0196 Sabadell shares offer undervalues the bank. Sabadell shareholders, particularly retail investors, remain unconvinced, with the bank’s market cap dipping to €2.6 billion in April 2025—down sharply from its peak.

Shareholder Dynamics: A Vote of Confidence Pending

Even if the CNMC approves, the merger hinges on shareholder approval, likely set for late 2025. Sabadell’s resistance centers on the 30% premium offered, which has narrowed as its stock outperformed BBVA’s in recent months. Analysts note that BBVA may need to sweeten terms further to secure the 50%+1 vote required.

The stakes are high: Synergies of €500–700 million annually by 2026 are projected, translating to a 27% boost in EPS for Sabadell shareholders and 3.5–20% ROIIC gains for BBVA. Yet, these gains depend on seamless integration and regulatory compliance.

Operational Risks: Branch Sales and Integration Challenges

A critical deadline looms: BBVA must finalize the sale of 213 remaining branches by Q2 2025. This follows the earlier divestiture of 300 branches to CaixaBank, a move aimed at curbing market dominance. Failure to meet this deadline could trigger penalties—or even invalidate the merger.

Beyond branches, the banks face integration hurdles: consolidating IT systems, reducing redundancies, and maintaining liquidity. BBVA’s reliance on emerging markets (e.g., Mexico, Turkey) contrasts with Sabadell’s domestic SME focus, creating operational complexity.

Political and Market Sentiment Factors

Spain’s government, while not directly blocking the deal, has amplified scrutiny under the EU’s Foreign Subsidies Regulation (FSR). Though cleared in late 2024, the FSR’s broadened scope post-Brexit adds uncertainty.

Investor sentiment remains divided. BBVA’s stock has risen 18% year-to-date amid merger optimism, but its valuation at €18.4 billion (up 12% since the deal’s announcement) still lags pre-crisis levels. Sabadell’s falling stock price reflects skepticism about the offer’s fairness and execution risks.

Conclusion: A High-Stakes Gamble with a Narrow Margin for Error

The BBVA-Sabadell merger’s success rests on three pillars:
1. Regulatory Compliance: Meeting the Q2 2025 branch divestiture deadline and adhering to CNMC’s behavioral terms.
2. Shareholder Buy-In: Convincing Sabadell’s stakeholders the deal’s synergies outweigh its risks.
3. Operational Execution: Integrating systems and managing cost savings without destabilizing the combined entity.

Should these hurdles be cleared, the merged bank—projected to hold €1 trillion in assets—could dominate Spain’s banking sector, leveraging digital capabilities and scale to thrive in a low-interest-rate environment. However, the CNMC’s approval alone is not enough; the €425.8 million in fines imposed on Spanish banks in 2024 underscores regulators’ resolve to enforce compliance.

Investors should monitor two key metrics:
- Q2 branch sales completion: A missed deadline could unravel the deal.
- Shareholder vote outcomes: A rejection would leave both banks exposed to fragmented profitability and reduced global competitiveness.

The merger’s fate is far from certain. For now, the market’s eyes are fixed on Spain’s regulators—and the clock.