Sabadell prepares its anti-BBVA arsenal and trusts the CNMV

End of the truce, again. Sabadell and BBVA will try their best to convince the Catalan bank’s shareholders after the summer, although it is not clear when they will have to make a statement. It could be in the autumn, imminently, or wait until 2025. There is a unexpected referee in this warwhich is the National Securities Market Commission (CNMV).

The two banks have been immersed in this war of results and messages to the market and Sabadell shareholders since May, when BBVA launched a merger proposal rejected by the board of the Catalan entity. The bank chaired by Carlos Torres turned it into a hostile takeover bid under the same conditions, for the shareholders to decide.

The offer consists of one BBVA share for every 4.83 shares of Sabadell, which would lead to the Catalan bank’s shareholders acquiring 16% of the Basque bank. The premium is 30% compared to the closing prices on April 29, before BBVA’s intentions were known. Now, The premium is at 2.4%. That is, it has almost evaporated.

There are two possible explanations for this and each entity defends its own. That of the bank offering the deal, which the market assumes will go ahead, and the investors, especially institutional ones. with arbitration funds at the helmthey position themselves. That of the bank that was taken over, Sabadell has risen like its peers and BBVA has suffered due to its exposure to Mexico, as has happened to Mexican banks. The reality is somewhere in between, although it is difficult to know which extreme it is approaching.

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In any case, the outcome of the takeover bid is uncertain. And so is the role of the institutions. In particular, doubts come from the National Commission of Markets and Competition (CNMC) by the oligopoly risk and from the Government, which would ultimately have to approve the merger. Until now, the Ministry of the Economy has explicitly shown its opposition to the operation.

But for any purchase to take place, Sabadell shareholders must approve the purchase by BBVA, which already has the approval of the funds to increase capital and execute the purchase. However, the CEO of Sabadell himself, Cesar Gonzalez-Buenorecalled that the funds have informed him that the approval of the BBVA expansion has nothing to do with the future decision in Sabadell, which they will examine when the time comes.

The two banks have been reinforced with an army of advisors to handle the operation and influence the opinion of shareholders, supervisors and the Government. BBVA works with JP MorganUBS, Mediobanca, Garrigues, Kreab, Brunswick, Acento and Atrevia. Sabadell, with Goldman Sachs, Morgan Stanley, Uria, Roman and Headland.

The outcome of the takeover bid is uncertain. And so is the role of the institutions.

Sabadell has been aggressive with its strategy and, after a break in August, knows that it is playing its last cards in the autumn. It needs to maintain the political flame against the takeover bid alive and try to convince the CNMV to wait for the CNMC, something that is not clear. And, in parallel, to be able to boast of results to anticipate higher dividends and convince shareholders that the solo project makes sense, despite the constant messages in the market about the need to gain scale in the banking sector.

Thus, Sabadell has several assets to support its message, which until now has focused on the distribution of dividends worth 2.9 billion (it raised the estimate in July by 500 million) between 2024 and 2025, greater than what Sabadell shareholders would receive in BBVA; the risks of executing the operation before supervisors and the Government, and that BBVA’s calculations on synergies and costs restructuring plans do not match recent experience bank mergers.

Regarding dividends, Sabadell expects to announce another increase in the expected remuneration to shareholders in the next results presentations, in line with its estimate of greater profitability by 2025. The bank claims that it has not done so yet because it wants to have more visibility on the evolution of the results, but the truth is that it has kept another ace up its sleeve to defend its story.

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To support this message, he will be able to boast of results. Sabadell and Bankinter They are the only banks that, in the second quarter, still increased the customer margin, which is the difference between what they charge for credit and what they pay for deposits. That is, although it has already registered growth in the production of new loans, especially in companies, the entity has room to be more aggressive commercially.

On the other hand, trust in TSB and in a sophisticated strategy of derivatives to boost the results of the British subsidiary, which weighed down the improvement in the bank’s numbers in the first half of the year. The bank follows a common practice in United Kingdom to cover the margins that condition income in periods of significant changes in interest rates, as is happening now.

This is what is known as the methodology caterpillarwhich has weighed on TSB’s margins in recent quarters and should boost them in the coming quarters, the bank expects. It is a structure consisting of a five-year derivatives portfolio to cover deposits that are free of charge (money in current accounts or demand deposits). Each of the 60 months, the proportional part expires, and is renewed to swap of the moment. That gave a margin of about 2.5% a year ago, which was the difference between the performance of the swap and the cost of the liability.

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This is the normal operation when deposits are not moved, but from the middle of last year there was a transfer of demand deposits to term deposits, as has occurred in other markets.r the previous increase in interest rates. And since only demand deposits are covered, in order to generate a return on a mass that is not as tied to the bank for a period as term deposits, the maturities of the derivatives were no longer covered until the mass of coverage was again in line with demand deposits.

During this period, the margin contracts. Increases the cost of the liability and the income from derivatives is falling. About 400 million are maturing each month, which reduces income. Every 400 million that matures at 3.5% is 14 million less per year. But the situation is now stable, and derivatives are now matching the proportion of deposits. There is already macheo. Thus, the derivatives that expired will be renewed again. swapwhich is above 3%, raising the margin in the coming quarters for TSB.

These are Sabadell’s expectationswhich should be met if there is not too sudden a change in interest rates that sinks the swap or that modifies the deposit structure due to customer demand.

Sabadell and Bankinter are the only banks that, in the second quarter, still increased their customer margin

Another of Sabadell’s assets has been regulatory, thanks to a version of Basel IV less aggressive than expected. The bank had already anticipated the impact. In fact, it is the only one that has included the downward revision of the impact on capital, which releases 250 million euros that it has used to increase its dividend estimate. Sabadell is the Spanish bank that has benefited the most from this change.

The key is that the risk-weighted assets (RWA) will have a lower inflation than initially shown by the calculation of the European Banking Authority (EBA) based on the Basel agreements.

In addition, Sabadell has taken on board the Government’s concern The risk of oligopoly and the ease of credit for SMEsamplifying the message. Banco Sabadell has focused on pointing out that the CNMC could force BBVA to get rid of assets and that the experience with Santander when it absorbed Popular is that there was a drop in credit to SMEs.

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BBVA estimated between six and eight months to obtain the authorizations from the supervisors, but in a veiled manner, Cani Fernandezpresident of the CNMC, already warned in June that the period will be longer. Competition is already examining the data collected of banks by postal codes, with the methodology that was used with CaixaBank and Bankia. So, it was authorized in phase 1 with very light requirements. Now, these obligations (remedies) could be higher. And, above all, it is believed that it will go to phase 2, lengthening the process.

Sabadell would like the CNMV to wait for the CNMCand BBVA that the shareholder acceptance period begins as soon as possible. The ECB’s approval is expected to arrive after the summer and, from there, the CNMV could give the go-ahead to the BBVA brochure or wait. The body chaired by Rodrigo Buenaventura will be a key arbiter in the dispute between the two banks.

The Catalan bank is also examining the documentation that BBVA has deposited in the SECthe US market regulator, which is more extensive than the one submitted to the CNMV. The entity wants to question the figures of BBVA, which has already anticipated cost savings in personnel that would be equivalent to the destruction of between 3,500 and 4,000 workers.