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Spanish banks Sabadell, BBVA scrap merger plan

Spain's 2nd largest bank BBVA and smaller rival Banco Sabadell scrapped plans on Friday, November 27, for a tie-up that would have created a top player as the industry struggles in the economic fallout from the coronavirus pandemic.

The two banks announced on November 16 that they were in talks about a possible merger although they stressed there was no certainty that it would be implemented.

The talks were announced at the same time as BBVA said it had agreed to sell its United States unit to PNC Financial Services for $11.6 billion, a deal which would mean the lender would not need a capital increase to carry out an operation involving Sabadell.

"Banco Sabadell informs that the board of directors has decided to terminate the...discussions because the parties have not achieved an agreement on the exchange ratio of both entities," Sabadell said in a statement.

BBVA's offer did not reflect the real value of its business, it added, without giving further details.

For its part, BBVA said in a separate, brief statement that "discussions about a merger with Banco Sabadell concluding without reaching an accord."

The end of talks is a setback to the bank consolidation underway in Spain, which has been encouraged by the country's central bank.

In September, Spain's CaixaBank and rival Bankia approved their merger into the country's biggest domestic lender in a move that transforms the landscape of Spanish banking.

Midsized lenders Liberbank and Unicaja, meanwhile, confirmed renewed merger talks in October.

Banks across Europe are struggling to cope with record-low interest rates and the economic downturn sparked by the coronavirus pandemic, which has raised pressure on them to boost liquidity by selling assets or through tie-ups.

Spain has been one of the hardest-hit nations in Europe by the pandemic and the International Monetary Fund sees the economy slumping by 12.8% this year, one of the steepest declines among the world's advanced economies.

Domestic focus

BBVA posted a net loss of 15 million euros ($12.7 million) for the first 9 months of 2020 while Banco Sabadell, Spain's 5th largest bank, saw net profit fall during the period by 74% to 203 million euros as it increased provisions for bad loans.

Founded in 1857, BBVA employs more than 100,000 people in about 30 countries.

It has a strong presence outside of Spain in former Spanish colonies in Latin America as well as in Turkey.

A tie-up between BBVA and Sabadell would have been 2nd in the ranking of assets by business in Spain, only behind CaixaBank-Bankia.

Spain saw dozens of lenders disappear in a wave of tie-ups that followed the 2008 financial crisis, when Madrid received a European Union bailout of 41.3 billion euros for its ailing banking sector.

Sabadell said on Friday that it would present a new strategic plan during the 1st quarter of 2021 which will focus on the domestic market.

Among the measures it is considering is "strategic alternatives for creating value with regard to the group's international assets, including TSB," its British unit. – Rappler.com