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BBVA and Banc Sabadell, two of Spain's top five current banks, have confirmed that they have begun negotiations to carry out a merger. If the operation goes through, it will create the new second largest bank in Spain, and will constitute the second major restructuring move in the Spanish banking sector in a matter of weeks, after CaixaBank's plan to absorb Bankia, announced in September.

In a statement sent to the financial regulatory body CNMV, the chairman of BBVA, Carlos Torres, acknowledged that the two groups had begun a due diligence process and have appointed external advisers. In the same statement, BBVA emphasized that "no decision has been taken in relation to a potential merger operation" and added that "there is no certainty that it will take place".

If the merger does materialize, the resulting bank would have a volume of assets that would be close to 600 billion euros, a figure very close to CaixaBank and Bankia. CaixaBank and Bankia, currently ranked as number three and four among Spanish banks, are still working out some areas of a planned absorption which could create Spain's new largest bank. The result of the BBVA and Banc Sabadell move, if concluded, would then move into a close second spot, and current number one Santander would slip to third place.     

According to several media, BBVA has hired JP Morgan to conduct the negotiation. The bank also has legal advice from the Garrigues and Uría Menéndez partnership and is said to be evaluating the hiring of a "Big Four" consultancy to carry out the asset review to prepare for a future purchase.

Combining assets and creating synergies

The merger of the two banks would result in total assets of 963.1 billion euros (727.0 million from BBVA and 236.1 million from Sabadell), as well as a total of 9,769 branches in the geographic areas in which the two constituent banks operate (7,565 from BBVA and 2,204 from Sabadell) and 148,028 employees.

At Spanish level, the merged bank would have assets of 596.5 billion euros as well as 4,225 branches and 45,866 employees, and would allow the resulting institution to reduce expense.

Share price rises for both banks

The announcement confirms rumours of merger talks between the two banks, and share prices for both financial institutions have risen today on Spain's Ibex 35 index. BBVA's value had risen following the announcement of the sale of its United States subsidiary to PNC for 11.6 billion dollars (9.7 billion euros). At the same time, Banc Sabadell's value on the Ibex 35 also rose by 19.7%.

Second major merger

In September, CaixaBank and Bankia announced a merger by absorption, which is still to be approved by the general meetings of the two banks. This operation, in which CaixaBank will absorb Bankia, is likely to create Spain's leading bank in terms of worldwide assets. The two constituent institutions, which would be grouped under the CaixaBank brand, hope to conclude the merger in the first few months of 2021.

This operation would involve a major staff restructuring, which has yet to be finalized.