In Miguel de Cervantes’s great epic Don Quixote, the eponymous protagonist sallies across Spain in the deluded belief he alone fights for universal justice. Beleaguered Banco de Sabadell has taken its tragic heroism one step further by breaking off takeover talks with larger rival BBVA, insisting it too can go it alone in a noble quest to boost shareholder value. Boss Jaime Guardiola must hope a vaccine-led rebound leads to happier ending than befell the pitiful knight errant.
Less than two weeks after Sabadell and BBVA announced they were in talks to create Spain’s second-largest domestic lender, with combined assets in excess of 600 billion euros, the pair broke off talks. BBVA boss Carlos Torres will be smarting from the joust. Having just agreed to sell the lender’s U.S. arm for almost 10 billion euros, a quick-fire Sabadell takeover would have allowed him to deploy some of the proceeds to nearly double BBVA’s local market share to 20% and boost its proportion of lending to small- and medium-sized businesses.
Sabadell, however, has ended up with the bigger bruise. According to Spanish media, BBVA’s bid valued it at around 2.5 billion euros, or roughly 45 cents per share. That’s one-third higher than Sabadell’s closing price on Nov. 13, before BBVA’s U.S. sale fed takeover rumours.
Guardiola may have demanded his shareholders receive a larger portion of the potential benefits from a deal, which could produce cost savings with a net present value of around 6 billion euros, according to a Breakingviews calculation. However, the bank’s independent future is hardly alluring: it’s expected to earn a return on tangible equity of just 1% next year, according to forecasts compiled by Refinitiv. A possible sale of loss-making UK offshoot TSB also seems unlikely to transform its prospects.
A vaccine-fuelled recovery next year, when the International Monetary Fund predicts Spain’s economy will expand by a meaty 7.1%, could yet vindicate Guardiola’s stubbornness by limiting bad debt charges. Even after a 13% drop on Friday, Sabadell shares are trading above their level when BBVA came along, implying investors think a deal is still possible. Given the riches on offer from a union, Guardiola’s quixotic bravery need not have a tragic end.