Santander will redefine its presence in Spain and the United Kingdom with its takeover bid for Sabadell.
Santander denies this, but its decision to buy TSB from Sabadell is a significant blow not only to its business in the United Kingdom, but also to its Spanish counterpart. If there's one bank that could be indirectly affected by BBVA's takeover bid for Sabadell, it's the one chaired by Ana Botín, which is now preparing to climb to third place in the British market and could retain its second position in Spain if the bid for the Catalan bank falls through.
With the acquisition of TSB for 3.1 billion euros, Santander has given new impetus to its British subsidiary, which was undergoing strategic review, digesting the resignation of its chairman and launching a plan to cut 750 jobs amid sale rumors consistently denied by Botín. The story is now very different: the bank is continuing the adventure it began in 2004 with the purchase of Abbey National, which included the acquisition of other smaller banks, as well as branches of Royal Bank of Scotland and NatWest.
Read also Sabadell believes that the sale of TSB makes BBVA's takeover bid more expensive and more difficult. Eduardo Magallón
For the integration of TSB, Santander has chosen Pedro Castro, its top executive in Europe, and has identified synergies of 400 million pounds, which is quite substantial. This represents 13% of the resulting entity's costs and is primarily due to the integration of technology platforms. This is the same reason that motivated BBVA to buy Sabadell and is fueling banking consolidation in Europe.
Santander explains that the transaction, once approved by Sabadell shareholders, cannot be reversed, even if BBVA's takeover bid is successful. The only risk would be if Sabadell decided to sell TSB to another bank, in which case Santander would be entitled to compensation of €31 million.
The acquisition of TSB is guaranteed if approved by the Sabadell board, regardless of the takeover bid.However, the United Kingdom is only one of the effects for Santander related to the takeover bid. If successful, BBVA would overtake its long-time rival in Spain and compete on equal footing with CaixaBank. Hence, Santander's emergence has been such a surprise.
Does Santander have a reason to torpedo the takeover bid by its most prominent rival in Spain, BBVA? Botín has asserted that the purchase of TSB is based on "strategic and financial" reasons. The bank insists that the operation in the United Kingdom "has nothing to do with stopping the takeover bid." "If TSB hadn't bought Santander, Barclays would have," they emphasize. Another argument is that the takeover bid for Sabadell could even benefit Santander in Spain, since generally, when two banks merge, the resulting bank tends to lose customers, at least initially.
According to the banks' annual reports, Santander's gross margin in Spain, at €11.974 billion, would be far exceeded by the combined €9.49 billion of BBVA and €7.75 billion of Sabadell. The merger of BBVA and Sabadell, which would not occur for at least three years, would rival CaixaBank's €15.873 billion in revenue. Both BBVA and Santander are on a par in profits in Spain, with around €3.8 billion, but Sabadell would add around €2.1 billion to the former, putting it on par with CaixaBank's €5.795 billion.
The CNMC's report on the takeover bid corroborates this shift in the balance of power. It includes market share ranges showing that BBVA, along with Sabadell, would overtake Santander from second place in businesses such as retail credit, private banking, card issuance, and data terminals, and would be on par with Santander and CaixaBank in deposits and investment banking.
The bank assures that it has no intention of torpedoing the plans of its rival BBVA.Santander has taken an active position in the new banking consolidation movement in Europe, just a few months after selling its Polish subsidiary for €6.8 billion. Of the transaction proceeds, €3.1 billion will go to TSB and another €3.2 billion to improve shareholder returns through share buybacks. Its excess capital remains high, giving it the leverage to tackle new operations in Spain, Europe, and the rest of the world.
Stock market rises continueThe corporate battle between BBVA and Sabadell, with its ramifications around Santander, is spilling over into the markets in the form of sharp increases. Yesterday, although more moderate, they continued their rally, consolidating Wednesday's surge following the announcement of the sale of TSB to Santander. Sabadell shares closed the session up 1.44%, slightly lower than BBVA's 1.69% gain and also below Santander's 1.8% gain. The Catalan bank had advanced 5% on Wednesday and managed to significantly break the link between its shares and those of BBVA. Its stock market value remains nearly 10% more favorable to the takeover bid, increasing pressure on BBVA to improve its offer. Meanwhile, Santander continues to receive positive signals from the market following the move in the United Kingdom. So far this year, the three banks have only added gains on top of profits. Sabadell has accumulated a 55% increase since January, higher than the 42% increase of its closest rival, BBVA, but lower than the 64% increase of Santander.
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