BBVA-Sabadell Takeover: Political Friction and Banking Consolidation in Spain

Failed Negotiations and Hostile Turn

This marks BBVA’s third attempt at acquiring Sabadell since 2020, with previous negotiations collapsing over valuation disagreements and concerns about Sabadell’s UK subsidiary TSB[5]. The current hostile approach emerged after Sabadell’s board rejected BBVA’s improved May 2024 offer of 30% premium, citing undervaluation despite the bid’s €12.28 billion valuation[5][16]. The adversarial dynamic intensified when BBVA bypassed management to appeal directly to shareholders—a tactic reflecting confidence in market support but escalating political backlash[3][16].

Regulatory and Political Battlefield

Unprecedented Government Intervention

Spain’s Ministry of Economy triggered an extraordinary “Third Phase” review under Article 60 of the Competition Act, marking the first application of public consultation in banking M&A history[17]. The consultation gathered input from 70+ business associations and unions largely excluded from the CNMC’s process, reframing approval criteria around “general interest” considerations beyond competition: SME financing access, employment guarantees, and Catalonia’s regional economic autonomy[15][17]. This procedural innovation established a political veto point absent in previous banking consolidations.

Conditional Approval Framework

The Council of Ministers’ June 24 approval mandated structural separation exceeding competition remedies: BBVA and Sabadell must maintain distinct legal entities, autonomous management, separate HR policies, and independent branch networks for three years (extendable to five)[16][19]. These conditions specifically prohibit planned cost-saving measures like branch consolidations and workforce reductions while requiring sustained SME lending levels—effectively nullifying 72% of projected synergies[20]. Economy Minister Carlos Cuerpo defended the decision as necessary for “territorial cohesion” and “social policy objectives,” directly invoking constitutional principles[16].

EU Law Compatibility Challenges

European Commission spokesperson Olof Gill publicly challenged Spain’s regulatory overreach, stating that discretionary national interventions after ECB and CNMC approvals “lack basis under EU banking directives”[15]. The Commission’s ongoing compatibility assessment focuses on potential breaches of the Capital Requirements Directive IV, which reserves supervisory authority for ECB-led mechanisms[15][17]. This sets a critical precedent for EU banking union governance, with outcomes potentially constraining member states’ ability to impose non-competition criteria in future cross-border consolidations.

Stakeholder Dynamics and Market Impact

Catalan Resistance and Political Economy

Catalan President Salvador Illa explicitly opposed the “Basque takeover of Catalan banking,” mobilizing business associations that warned of reduced regional financial sovereignty[15]. The Catalan Banking Foundation—controlling Sabadell’s golden share—threatened voting obstruction, reflecting tensions between Madrid and Barcelona that intensified after the 2024 regional elections[3][15]. This geopolitical dimension transformed the transaction into a proxy conflict over economic centralization, with Sumar (Spain’s junior coalition partner) leveraging opposition to extract employment guarantees[16].

Investor Reactions and Valuation Erosion

Market responses revealed deepening skepticism: Sabadell shares traded at just 7% above pre-bid levels by June 2025—well below the 30% premium offered—while BBVA’s stock declined 8% since announcement[5][20]. Credit Suisse analysis indicates the government’s conditions could reduce BBVA’s return on invested capital below 13%, compared to the 20% threshold required for capital allocation approval[20]. Bond markets amplified concerns, with BBVA’s 5-year CDS spreads widening 42bps since the Council’s decision—reflecting rising political risk premiums[20].

Broader Implications for European Banking

M&A Precedent and Regulatory Arbitrage

The Spanish intervention establishes a template for political override of competition authorities that may spread to Italy’s fragmented banking sector and France’s mutual institutions[17][20]. Germany’s BaFin already references the case when reviewing Commerzbank/Deutsche Bank scenarios, fearing similar “general interest” justifications for intervention[20]. This fragmentation risk contradicts ECB banking union objectives while encouraging regulatory arbitrage—banks may prioritize cross-border deals within unified supervisory frameworks to avoid national political interference.

SME Financing and Regional Disparities

Spain’s emphasis on SME lending access reflects deeper structural issues: Spanish SMEs pay 290bps more for loans than German counterparts due to banking concentration[15]. The mandated maintenance of Sabadell’s regional lending networks—particularly in Catalonia and Valencia—highlights how banking consolidation exacerbates core-periphery disparities in eurozone credit markets[3][16]. Similar dynamics are emerging in Italy’s Mezzogiorno region, suggesting banking M&A may increasingly face redistributive conditions beyond traditional competition remedies.

Resolution Scenarios and Strategic Alternatives

BBVA’s Exit Ramps and Contingencies

BBVA Chairman Carlos Torres retains three exit options: legal challenge through Spain’s Supreme Court (citing ultra vires regulatory overreach), improved offer restructuring with accelerated synergy realization, or complete withdrawal[16][20]. Withdrawal appears increasingly probable—RBC analysis shows BBVA could deploy €3-4 billion in buybacks using reserved capital, generating higher shareholder returns than the diluted merger[20]. Alternatively, BBVA might renegotiate by offering binding commitments on Catalonian employment and SME lending, though this would require government compromise.

Sabadell’s Plan B Trajectory

Should BBVA withdraw, Sabadell’s standalone strategy faces capital constraints: its CET1 ratio of 12.1% trails Iberian peers, necessitating asset sales[20]. TSB divestment becomes likely—HSBC and Lloyds expressed preliminary interest at 1.1x book value, potentially raising €1.8 billion for digital transformation[20]. Sabadell could also pursue regional mergers with Unicaja or Bankinter, though antitrust concerns would persist. The Catalan government’s hinted support for a “regional champion” model suggests political backing for alternative consolidation.

Conclusion: Banking Consolidation in the Political Arena

The BBVA-Sabadell saga exemplifies the collision between financial efficiency and political economy in European banking. Spain’s imposition of operational separation fundamentally alters the transaction’s value proposition while testing EU single market principles—a tension the European Commission must resolve through its compatibility assessment[15][17]. For BBVA, the path forward requires choosing between protracted political engagement and strategic retreat toward shareholder returns[20]. Regardless of outcome, this case establishes that banking consolidation now operates within a “triple veto” framework: competition authorities, national governments, and regional interests all wield decisive influence. Future transactions must navigate this expanded stakeholder map through earlier political engagement and redesigned synergy models that address distributional concerns upfront.