BBVA approaches Sabadell to create €70bn Spanish banking giant

Spanish bank BBVA has approached TSB owner Banco Sabadell about a potential takeover to create a €70bn lender in what would be one of the biggest European banking deals in years.

BBVA said it had conveyed to the chair of Alicante-headquartered Sabadell its interest in “initiating negotiations to explore a potential merger transaction”. Sabadell said on Tuesday it had received an “indicative written proposal” from BBVA.

The approach, which would create a Spanish banking behemoth close in market valuation to Santander, comes as European bank valuations have hit their highest levels in nine years.

Lenders whose profits have been turbocharged by rising interest rates are pledging to pass on the benefits to investors with capital returns.

The increased valuations have again raised the prospect of consolidation within the European banking sector, though cross-border deals look unlikely in the near term.

A BBVA-Sabadell deal would raise questions over the future of TSB, the UK high-street lender that Sabadell bought in 2015 but has since explored selling.

Sabadell said its board of directors “will properly analyse all aspects of the proposal”. UBS and JPMorgan are advising BBVA on its bid, according to people with knowledge of the discussions.

While the combined entity would be just shy of Santander’s €73bn market capitalisation, it would have a business more heavily weighted towards Spain, its home market.

One person close to the situation said that Sabadell’s roster of small business clients in Spain would complement BBVA’s strength in retail banking and serving big corporate clients.

Another person with knowledge of the talks said the bid was at a very early stage and it was unclear whether a deal would be reached.

Shares in BBVA dropped 3.5 per cent after the news of the talks was first reported by Sky News, while shares in Sabadell rose 5.8 per cent.

The two banks have attempted to strike a deal before. Four years ago, merger talks between the pair broke down after two weeks following disagreements over the pricing of the deal.

At the time, BBVA had a market capitalisation of €25bn compared with Sabadell’s €2bn. Now, the larger bank has a market value of just under €60bn, with Sabadell closer to €10bn.

Sabadell acquired TSB for £1.7bn in 2015 as part of an effort to internationalise its business, although that has not advanced far beyond the UK.

After the merger talks with BBVA fell through, Sabadell raised the possibility of selling TSB by announcing a strategic review, but ultimately decided against offloading it.

Beyond Spain, BBVA has big businesses in Mexico and Turkey.

Bankers and regulators have long made the case for more consolidation among Spanish banks, arguing that it would boost the sector’s resilience.