BBVA, Sabadell Are in Merger Talks -- Update

--BBVA and Sabadell are in talks over a potential merger that would create a bank with a market cap of about EUR27.5 billion

--The talks follow other M&A operation in the European banking sector, as Italy's Intesa Sanpaolo SpA has secured support to acquire UBI Banca, and Spain's CaixaBank is taking over Bankia

--BBVA shares closed up more than 15% Monday, while Sabadell gained almost 25%

 
  By Pietro Lombardi

Banco Bilbao Vizcaya Argentaria SA and Banco de Sabadell SA are in talks over a potential merger that would create a banking giant with a market cap of roughly 27.5 billion euros ($32.54 billion), a further signal that a long-expected consolidation in the European banking sector may be gathering pace.

The coronavirus pandemic has forced European banks to make hefty provisions for expected loan losses sparked by the crisis, adding to existing challenges like low interest rates and costs related to IT and regulation. All this has put the focus back on consolidation in the overcrowded banking landscape, with Italy's Intesa Sanpaolo SpA recently securing support to acquire UBI Banca, while Spain's CaixaBank SA is taking over Bankia SA.

BBVA and Sabadell said Monday that they have started a due diligence process and appointed external advisors.

"No decision has been made in relation to the potential merger transaction and there is no certainty as to whether any such decision will be made or, if that is the case, as to the terms and conditions of a potential transaction," BBVA said.

The news comes just after BBVA agreed to sell its U.S. subsidiary to PNC Financial Services Group Inc. for $11.6 billion. The lender will be able to use such firepower in a potential tie-up with its smaller peer. Capital was seen as a key obstacle to BBVA's potential role in M&A, and the sale of its U.S. operations addresses this issue, strengthening its core tier-one ratio by roughly 300 basis points to 14.5%, well above regulatory requirements. It also boosts its valuation.

With European regulators moving to ease some conditions for mergers and the Spanish Prime Minister having recently called for more consolidation, investors had bet on this potential merger.

On Monday, BBVA shares closed more than 15% up, while Sabadell gained almost 25%.

Write to Pietro Lombardi at pietro.lombardi@wsj.com; @pietrolombard10

(END) Dow Jones Newswires

November 16, 2020 12:54 ET (17:54 GMT)

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