It seems like the deal for the so-called merger between BBVA and Banco Sabadell does not conclude due to lack of agreement on price, and that the merger between CaixaBank and Bankia is progressing.
We like to call business concentration the phenomenon that has occurred since the financial crisis and that continues over time. The merging between two companies – or banks, in this case – itself does not exist. Generally, a bank will end up imposing its management team, culture, and strategy to the other bank. This is because one of the banks has a higher volume of assets, higher turnover, more political force, or a combination of the characteristics mentioned. For this reason, we consider it is better to speak of acquisitions or business concentration processes.
Following on with the process of bank concentration the phenomenon that has occurred since the financial crisis and that continues over time. The merger between two companies – or banks, in this case – itself does not exist. Generally, a bank will end up imposing its management team, culture, and strategy to the other bank. This is because one of the banks has a higher volume of assets, higher turnover, more political force, or a combination of the characteristics mentioned. For this reason, we consider it is better to speak of acquisitions or business concentration processes. The bank that is going to be absorbed (or both banks – see the example of the resulting mergers in Bankia -) may have difficulties due to questionable administration by its management team. Perhaps the most appropriate strategy for banks that are going through difficulties is not only a consolidation process, which also entails the increase of the banking market power and the creation of oligopolies.
If two banks have operational inefficiencies (excess overhead costs), treasury or incorrect strategic planning, there is a high probability that the takeover does not result in a positive outcome. In these cases, what is commonly proposed is an operational and financial restructuring. Said restructuring involves cutting general and personnel expenses -massive layoffs and office closings-, asset reduction, sale of non-strategic assets, etc.
Spanish banking volume
Source: Banco de España, Total Bank assets 3Q results 2020.
Financial supervisors are concerned about the profitability, solvency, efficiency, and sustainability of financial institutions, but to what extent do they ensure that they can maintain a competitive offer for clients? The National Markets and Competition Commission (CNMC) has not regulated this matter. As for the European Commission, it points out that competition problems appear after 2,000 points of IHH – Herfindahl-Hirschman Index-. Among the top three Spanish banking groups and if the corporate operation between BBVA and Sabadell had materialized, the index would be above 1,500 points.
The acquisition by BBVA of Sabadell would have created a bank with a market share of 20% (according to the volume of deposits), only behind the new group resulting from the new CaixaBank and ahead of Santander.
Assets in Spain, as of September 30, 2020, of BBVA amounted 403,527 million, and of Sabadell, without considering TBS to 192,954 million, which represent an amount of 596,481 million in Spain due to the merger of BBVA and Sabadell. Behind the 661,732 million of CaixaBank-Bankia, which comes from the 445,572 million of CaixaBank assets, and the 216,160 million of Bankia. After these figures we find the 352,296 million assets represented by Santander bank, followed by the 62,145 million of Unicaja, and the 46,814 million of Liberbank.
Thus, in 2021 there will be a clear leader in the Spanish market, which will be the new CaixaBank, with market shares in credit, deposit, or funds greater than 20%. Santander will continue in second place with 19% in credit, BBVA in third position with 14% and Sabadell in fourth with 8%. Bankinter has 4% and between 2% and 3% are KutxaBank, Abanca, Ibercaja, Cajamar, Unicaja and, close to 2%, Liberbank. If BBVA and Sabadell had merged, three banks would control almost two-thirds of the credit next year.
Lali de Juan and Marta Clemente, M&A. Akerton
