BBVA-Sabadell merger: Can new commitments ease antitrust fears?

BBVA has submitted a series of commitments to Spain’s National Markets and Competition Commission (CNMC) to address antitrust concerns regarding its proposed merger with Banco Sabadell.

The measures aim to safeguard financial inclusion, sustain lending to small and medium-sized enterprises (SMEs), and ensure competitiveness, particularly in Catalonia and the Valencian Community, where both banks have a strong presence.

Key aspects of the proposal include BBVA’s pledge not to close branches in areas where competition is limited, as well as a guarantee to maintain commercial terms for individuals and SMEs in postal codes served by fewer than four financial institutions.

The bank has committed to upholding all working capital lines for SMEs for 18 months following the merger and preserving the total volume of credit for SMEs exclusively banking with BBVA and Sabadell for the same period.

Additionally, BBVA has proposed maintaining pricing standards for SMEs at the national average and guaranteeing transparency in changes to commercial policies for Sabadell customers.

"These commitments largely mitigate the risks identified by the CNMC, which are mostly focused on certain territories," BBVA commented in a press release.

In September, BBVA secured approval for the merger from the European Central Bank, but Spain's independent competition regulator demanded additional assurances to prevent a deterioration in market competition.

Carlos Torres Vila, BBVA’s Chair, described the ECB’s earlier endorsement as a “significant milestone” that underscores the plan’s soundness and solvency. He also highlighted that there are "no competition issues in the transaction with Banco Sabadell."

BBVA-Sabadell merger: Regulatory hurdles highlighted

In its detailed report released Wednesday, the CNMC raised several concerns stemming from the transaction.

While the merger would not create municipal monopolies, the combined entity would dominate in 50 municipalities, resulting in duopolies that could limit consumer choice.

Particularly troubling for regulators is the risk of reduced credit availability for SMEs due to the differing diversification levels of the two banks.

BBVA’s stronger diversification compared to Sabadell might lead to a consolidation of lending practices, potentially harming smaller businesses.

The CNMC also noted the risk of branch closures, especially in underserved rural areas. The report emphasised the reliance of certain demographics, such as older and financially vulnerable individuals, on physical banking services.

The potential closure of branches in these areas could force residents to travel long distances for in-person banking, exacerbating financial exclusion.

In addition, the CNMC expressed concerns about the possibility of BBVA automatically transitioning Sabadell’s customers to its own products, potentially at less favourable terms. The lack of transparency during such transitions could worsen conditions for customers, particularly if they are unaware of better alternatives within BBVA’s portfolio.

Further scrutiny was directed at the market for acquiring services and managing point-of-sale terminals (TPVs). The merged entity would become the national leader in this market, with a market share exceeding 30%. The CNMC warned this could result in higher fees for businesses reliant on these services, such as increased commissions or monthly tariffs.

Next steps and potential impacts of the merger

The CNMC has invited feedback from stakeholders, including consumer groups, SMEs, and competing financial institutions, within the next ten days. This input will form part of the second-phase investigation, which is expected to extend into 2025.

If approved, the merger would create one of Spain’s largest financial institutions, consolidating significant market power in key regions.

"The combination between BBVA and Banco Sabadell, once approved, will create a stronger, more efficient institution that is better able to compete in the European and global landscape," BBVA stated in a report last month.

In Spain, it would rank as the second-largest banking group by market share in loans, holding total assets of €265 billion.

According to BBVA, the integration is expected to deliver a more diversified customer offering by capitalising on the complementary strengths of both banks: BBVA's focus on retail and large corporate clients, and Sabadell’s strong presence among SMEs.

Market reactions

Shares of BBVA fell 0.7% during midday trading on Thursday, marking a third consecutive session of losses. The decline was driven primarily by deteriorating risk sentiment amid escalating geopolitical tensions between Russia and Ukraine, mirroring the downward trend observed in Spain's IBEX 35 index.

Banco Sabadell shares similarly slipped 0.7% during the session.