BBVA faces the 'Banesto route' after the government blocked the takeover of Sabadell for three years.

BBVA is considering—with the option of renouncing—the conditions the government has imposed on its hostile takeover bid for reasons of public interest, which are in addition to those already agreed upon by the National Commission of Markets and Competition (CNMC) just over a month ago. Essentially, the government's requirement is to ensure that each bank operates completely autonomously for at least three years, which would limit, at least for the time being, the ability to achieve the €850 million in synergies the Basque bank had projected. Instead, if the takeover bid goes ahead, the bank led by Carlos Torres will have to adopt the solution that Santander used for years with Banesto: maintain the management of two banks separately and delay the achievement of the promised profits.

Economy Minister Carlos Cuerpo has detailed that the Council of Ministers has agreed to authorize BBVA's hostile takeover bid for Sabadell on the condition that it "maintains the legal personality, separate assets, and management autonomy" of both entities. This means that, if the takeover bid goes ahead, BBVA must manage the banks "maximizing the value of both separately" and not jointly. Specifically, the minister stated that he will ensure that the Basque bank maintains autonomous decision-making in financing and credit (with special attention to SMEs), human resources, the branch network, and social work. These measures may be extended for two more years, up to five years.

The specific measures that BBVA will or will not be able to implement under this general umbrella have yet to be finalized. The body has clarified that it will not allow the two banks to merge, nor will it allow them to carry out a collective redundancy plan as a result of the transaction. It will also strengthen its branch network. BBVA's plans called for the closure of approximately 300 branches, while the number of layoffs has yet to be finalized, but could be around 4,000.

Torres has repeatedly stated in the 13 months since launching the hostile takeover bid for Banco Sabadell that the operation has a strategic purpose beyond a purely financial one: the need to gain traction in Spain and with SMEs, and not so much profits from branch closures or layoffs. The bank claims that of the 850 million euros in projected synergies , 450 million euros would come from administrative savings, 300 million euros from workforce reductions, and 100 million euros from financial savings. It remains to be seen whether, given the conditions imposed first by the CNMC and then by the government, the numbers will still add up.

This is what the bank chaired by Carlos Torres is currently facing. In a communication to the National Securities Market Commission (CNMV) following the Cabinet press conference, the bank stated that it is evaluating these measures. A day earlier, Torres himself noted that they had the legal right to withdraw the takeover bid due to the government's actions. Sabadell has also demanded that BBVA recalculate its figures for the operation.

To begin with, the ban on layoffs and branch closures wipes out the €300 million in personnel savings in one fell swoop. As for the merger ban, this has an impact on the resulting entity's capital. BBVA projected that absorbing Sabadell would cost it around 30 basis points in its fully loaded CET 1 ratio (the highest quality, which currently stands at 13.09%, above its target, in a range between 11.5% and 12%), but if it were unable to do so, and having to keep the bank listed on the stock exchange, this impact would skyrocket due to a technical issue arising from having to record the interests of minority shareholders. Nor would it be able to offset this with the positive impact it expected when it launched the operation in May 2024, derived from Sabadell's goodwill , given that the Catalan bank has since traded above its book value.

As for the bulk of the expected synergies, the €450 million in administrative cost savings, it remains to be seen how far they will be realized. Everything depends on how strict the government is with the independent management of the two entities and what measures BBVA might take. For example, Cuerpo has not clarified whether they will allow both banks to share the same technological platform and has said they will analyze it based on consumer protection criteria. This was one of the key measures BBVA was preparing to profit from the transaction.

Faced with the option of throwing in the towel, BBVA could still choose to wait. Remaining the owner of more than 50% of an independent bank for three years and convincing the shareholders of both entities that the gains will come in 2028, either because a government more amenable to their demands will be in power by then, or because the current administration decides to authorize the merger. This would be imitating what Santander did with Banesto for years, although in that case they shared aspects such as the technological platform or some central services. If the offer goes ahead, BBVA must notify the National Securities Market Commission (CNMV) of its new synergy calculation and await approval of the prospectus during the month of July.

To convince Sabadell shareholders of this and gain a majority's support for the transaction, the key is the bank's ability to raise the offer (currently at one BBVA share and 70 cents in dividends for every 5.3456 Sabadell shares). While the Basque bank's management has repeatedly stated that it has no intention of doing so , the truth is that investors are somewhat discounting this. Sabadell shares have been trading above the price offered by BBVA since January, and yesterday they closed almost 6% higher.

Furthermore, BBVA is keeping open the legal avenue, which Torres has left open. The BBVA chairman's opinion is that the government can only soften the CNMC's conditions and never tighten them. In his appearance, the minister emphasized that the decision is balanced and respects the Competition Law, and that they have requested a report from the State Attorney's Office to support it. The press release issued by his department also explains that this decision "is rooted in the Spanish Constitution" and is supported by previous decisions of the European Court of Justice of the European Union.

The Government believes that the Competition Law allows it to impose additional conditions on these issues of general interest. Specifically, the minister stated that they seek to safeguard the objectives of sectoral regulation, worker protection, territorial cohesion, social policy linked to banking foundations, financial consumer protection and affordable housing, and the promotion of research and technological development.

The Executive must also overcome Brussels' misgivings. The European Commission, through a spokesperson, has expressed its concerns about the Executive's intervention in the transaction, in a way that could make it impossible. After learning of the Spanish government's decision, Brussels reiterated that it ensures that the conditions imposed on this type of transaction are proportional—a point the Minister repeatedly made during his appearance—and that it reserves the right to eliminate any conditions if it deems them to be contrary to the EU treaties.