Sánchez Government’s Weakness Fuels BBVA-Sabadell Merger Scrutiny

The Spanish government’s fragile position, exacerbated by recent corruption allegations, has increased its reliance on regional parties, potentially influencing the proposed BBVA-Sabadell merger. This situation has placed significant pressure on the government’s decision-making process, with implications for the banking sector and Catalonia.

Political Maneuvering and Banking Sector Concerns

The Pedro Sánchez Government’s vulnerabilities, resulting from recent corruption cases within the PSOE, have amplified its dependence on key political players. This shift in power dynamics has placed the proposed merger between BBVA and Sabadell under intense scrutiny. This has resulted in the Sabadell tilting the balance in favor of political parties.

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When the public consultation began a month ago, the situation in Spain was different. The final decision on the OPA was raised to the analysis of the Council of Ministers, after adding to Cerdán all the weaves of Koldo and Ábalos.

“The loss of marca Sabadell In Catalonia it would be a weapon in the hands of ERC and Junts to recover lost ground internally at the polls last year. Not to mention a possible advance of the generals.”

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The banking sector is worried the proposed merger will trigger emergency conversations between the president and different political groups to secure support. This has caused the Catalan party and other partners to almost unanimously request to block the operation.

Government’s Criteria and Potential Conditions

Carlos Cuerpo, the Minister of Economy, has outlined five broad criteria of “general interest” that the government might use to impose specific conditions. These conditions may include the protection of workers and the maintenance of Sabadell’s brand in key geographical areas.

The government is planning to impose the criterion of “the protection of the workers“. The BBVA has committed to that, but the lack of detail in the offer weighs on the decision of the Executive.

Estimates suggest that around 2,500 workers, over 5.5% of the combined workforce of both banks, may be affected. The merger is expected to be completed through voluntary layoffs and incentivized departures.

Another government concern is “social cohesion,” which entails the preservation of Sabadell’s branches and image in its primary operating areas. This could entail the continued use of both brands for a defined duration if BBVA gains control.

Potential Outcomes and Legal Challenges

Specialists in competition law stress the need for a solid legal foundation when applying specific conditions based on these criteria. BBVA may appeal to the Supreme Court if it believes the imposed conditions are unlawful or contradict the BCE and CNMC’s prior criteria. According to a 2023 report by Deloitte, mergers and acquisitions in the European banking sector have increased by 15% compared to the previous year (Deloitte 2023).

Lawyers anticipate that any government-imposed conditions can be adjusted, along with the commitments made by BBVA regarding competition. The potential sale of Sabadell’s technology subsidiary, TSB, before shareholders vote, is the only factor outside the political analysis.