By Patricia Kowsmann 

Banco Bilbao Vizcaya Argentaria SA, Spain's second-largest lender by assets, and smaller peer Banco de Sabadell SA ended their merger talks because of disagreements over pricing, underlining that consolidation in Europe's fragmented banking system remains complicated.

The banks disclosed the talks less than two weeks ago. BBVA said on Nov. 16 that it was conducting due diligence on Sabadell after agreeing to sell its operations in the U.S. to Pittsburgh-based PNC Financial Services Group Inc. for $11.6 billion.

European banks have faced intensifying pressure to merge as they struggle to make money in a negative-rates environment and as the pandemic pummels the economy. Shares of most of the region's lenders have fallen sharply this year, with Sabadell -- with its exposure to corporates and small businesses in Spain -- declining more than 60%.

Sabadell's shares were down 13% Friday morning, while BBVA's were up close to 3%.

Another duo of Spanish lenders, CaixaBank SA and Bankia SA, agreed to merge in September. In Italy, Intesa Sanpaolo SpA is buying smaller rival UBI Banca SpA. A small Italian cooperative bank, Credito Valtellinese SpA, is currently considering an acquisition offer from France's Credit Agricole SA, which has operations in the country. Regulators are hopeful for more deals, which would provide the scale banks need to be profitable in a sector where costs remain high.

Sabadell said Friday that its board unanimously agreed to end talks with BBVA given the lenders didn't reach an agreement on the exchange ratio of their shares. It said it would launch a strategic plan early next year focusing on its domestic business. The bank added that it would analyze alternatives for its U.K. unit, TSB Banking Group.

BBVA also said the talks were off. The bank said earlier this month that it could buy back shares with the proceeds of its U.S. sale and still have plenty to grow in its key markets, which include Mexico and Turkey.

Spanish banks were hit hard during the sovereign-debt crisis of the last decade because of their exposure to a troubled construction sector. Since then, most have sold off large portfolios of souring loans, cleaning up their balance sheets more than those in Italy or Portugal.

Spain's largest bank, Banco Santander SA, which has big operations abroad, has stayed away from mergers so far. In 2017, it bought a collapsing lender in the country with considerable operations.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com

 

(END) Dow Jones Newswires

November 27, 2020 04:53 ET (09:53 GMT)

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