Banco Sabadell has decided to stand. On Thursday night, the entity chaired by Josep Oliu told BBVA up to here, and despite the forecasts of almost all analysts and supervisors, the Catalan bank has decided to choose to remain alone rather than be absorbed by BBVA without obtaining the value that you think you have, and that you should revert to the shareholder.
Shortly after announcing the completion of the negotiations with BBVA, Sabadell issued a statement detailing its new plans, which include continuing alone. The entity announced that it will develop a new business plan that will prioritize the domestic market and which includes the sale of the British subsidiary TSB, once its restructuring has begun, and of the Mexican business, led by a digital bank, whose operations are very similar to the one launched by ING when it entered the Spanish market, attracting deposit clients with high remuneration, although its main business is financing SMEs. He also has his renting business for sale.
Its plan B has been designed by Goldman Sachs, an investment bank hired in July to carry out this project, although it also advised in the merger negotiations.
Sabadell, however, will not part with TSB until it has managed to put this firm in value, which could already happen in 2021. Now its value is negative, after several years in losses, but after the restructuring plan put in place on the Last year, Sabadell hopes to be able to obtain from its sale between 500 million euros and 600 million, according to several analyst reports. Although for this, the British subsidiary has to be acquired by another British bank that manages to add millionaire synergies. Sabadell assures that in addition to the synergies that the purchase of TSB by another bank can generate, there is also the value of the entity’s IT platform, the best, according to it, in the British market, once its 2019 problems have been cleared.
Sabadell expects to draw around 600 million for its British subsidiary
The Spanish and European supervisors are in favor of Sabadell focusing only on Spain and divesting itself of TSB, a bank acquired in 2015, which has only given it headaches since then. In addition, its objective is to focus on the business of SMEs in Spain, although it will not neglect that of individuals with medium and high income.
But the bank also plans to launch a new efficiency plan to save costs. To do this, it will undertake a new workforce cut in 2021 that will be added to the one agreed on Friday with the unions, and which affects 1,800 employees. This adjustment will cost about 400 million.
This new adjustment will be accompanied by hundreds of new office closures, which will join the 235 stores that have already closed this year. To carry out this future restructuring, the bank has capital gains of 1,300 million that it will use in part for this purpose. Sabadell has 3,300 employees over 55 years of age, although some 1,700 with that age will now leave with the agreed adjustment.
BBVA prefers to remunerate the shareholder
The CEO of BBVA, Onur Genç, already warned on the 18th that the possible merger with Banco Sabadell would only be carried out if it was found that the operation really created value for shareholders. The number two of BBVA stressed then that the entity is not “obliged” to carry out “any purchase in Spain” since its market share is 15%, but “that does not mean that the bank can analyze opportunities”.
It was a warning to sailors. Its recipient, Banco Sabadell, took the hint, which he received with dislike. He did not think it logical that BBVA number two would take advantage of an open forum to publicly communicate his opinion on the operation that both companies were negotiating.
BBVA: We are not in a hurry to invest the surplus capital that we have
But BBVA wanted to bring out its strength and the options it could carry out with the surplus capital it will have in a few months after closing the sale of its US subsidiary to PNC. Its priority is “to create value for the shareholder”, Genç has stressed on more than one occasion since last November 16, the date on which the bank announced the sale of its franchise in the United States and hours later the negotiations it was holding with Sabadell.
Its main objective, thus, is to carry out a “relevant” buyback of shares to remunerate its investors since “as it is now, the share price creates a lot of value with this option”, according to statements by the CEO of BBVA.
BBVA did not want to disburse 2,700 million euros for Sabadell, as requested by the entity chaired by Josep Oliu, which represented a premium of around 35% over the price of the Catalan entity since the merger negotiations were known. Sabadell has reached a capitalization these days of about 2,300 million euros, although on Friday, after announcing the breakdown of negotiations, it closed with a market value of 2,002 million, after collapsing 13.58% on the day.
The bank chaired by Carlos Torres has 9,700 million euros, and an excess of capital of 8,500 million, to carry out operations after the sale of its US subsidiary. But the entity has several plans for those funds. “We are in no rush,” according to the bank. “We have a strategic flexibility (…). There are many strategic opportunities competing for that capital, ”the CEO explained a few days ago.
The bank also announced that it would dedicate a part to undertaking a possible consolidation operation, in markets in which it was consolidated, such as Spain, Colombia and Turkey. Now, once Banco Sabadell has been ruled out, the options to invest in purchases in Spain are reduced, unless the operation is reconsidered.
In Mexico, its main market, it has a market share of 30%, which can hardly rise, since it would run into competition problems. And in Turkey, where it controls 49.9% of Garanti, it already ruled out on Friday expanding this percentage, since it would increase its risk and weight in emerging markets-
In fact, after selling the US, the bank goes from having a weight of 69% of its assets in mature markets, and from 31% in emerging markets, to 65% compared to 35% in emerging countries, something that is not highly liked by supervisors.