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The author is the CEO of Banco Sabadell.
The first few months of 2025 are extremely confused. The old certainty fell into the dust, and decisions that could have been made shortly before. However, optimism has several reasons. The European government is being forced to reorient the economy at a pace.
With the widening finances, the private sector is important in helping the country strengthen its economy. Banks, investment funds and insurance companies will play a key role in funding new climate change and defense demands. It is important for us all to step up to these challenges.
Policymakers were already talking about making regulations more efficient and had asked financial watchdogs to focus on growth and stability. The balance can be further tilted as it is important to ensure that regulations do not unnecessarily interfere with the fundamental role of the banking system. It is to enable individuals and communities to pursue their financial goals and needs in an efficient and sustainable way.
One potential approach is to promote integration between European banks. The general criticism is that the sector is too fragmented. However, we should not be allowed to pursue growth through scale to blind us to the fact that not all banking transactions are created equally. Mergers in locally fragmented markets may be desirable, but they are not highly concentrated markets. Those with moderately long memories are reminded that an irrational partnership can put the stability and competitiveness of the local economy at risk, and do not need to immediately destroy the value of shareholders.
European banks have been performing strongly these days, meeting the economic needs of citizens for a very complicated background, whether it is Covid-19 or the war in Ukraine. This shows that banks that have grown well and are operating in a well-stably competitive domestic market are essential to their clients, shareholders and the European economy as a whole. Large and medium-sized banks play a key role in job creation, business service and support growth.
Spain’s unprecedented opposition has proposed the BBVA’s proposed acquisition of my bank, Sabadell, rooted in a desire to protect competition and stimulate growth. Over 80 business and client associations, the central and regional Spanish governments, and local trade unions have raised concerns about further market concentration.
This is a major issue in a market that already has the second highest level of concentration in European banking. Small and medium-sized businesses are the foundation for growth and job creation. Additional concentrations create a de facto oligopoly for the three banks and erode access to funding.
It is important that the current geopolitical context does not undermine value creation. This is less obvious than the situation Sabadell shareholders face. If BBVA fails to carry out a full merger and Sabadell becomes a subsidiary of the company, it will likely reach the capital ratio of BBVA and undermine future returns to shareholders. This is consolidated by name only.
We were here before. Santander gained control of Banesto in 1994. However, only when the full merger was completed in 2012 could Santander achieve the intended synergy of the acquisition.
It is right to advocate for greater unity across Europe, and there is a compelling argument about bank mergers. However, we should not risk revoking the excellent work done to strengthen the sector since 2008. Yes, scale is important, but competition, local market expertise, customer relationships, and value are important too.
Sabadell’s board rejected the merger proposed by the BBVA in May 2024, citing that the proposal underestimated the bank and its independent prospects. The board argued that the decision was also consistent with the greatest interests of clients and employees.
Banks have a rich history of successful, transformative transactions, but there are also countless examples of mergers that have not produced the expected synergy and ultimately destroyed value in shareholders, communities and the economy.
Therefore, it is important to treat each transaction with its merits and not avoid asking difficult questions. Some transactions will help European needs and ambitions. Others don’t.
When a country or investor does whatever it takes to reinforce its balance sheet and seek a safe port, the bigger the saying isn’t necessarily prominent.
