Merger Counselling

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What's going on?

BBVA and Sabadell just can’t see eye to eye: the two Spanish banks ended merger talks after struggling to come to a compromise on price.

What does this mean?

Sabadell’s been keen to merge with another Spanish bank for a while now, and it managed to catch the attention of heavy-hitter BBVA – worth $30 billion to Sabadell’s $2.5 billion. But when they actually sat round a table to work out details, BBVA’s proposed price didn’t go down too well – and now it looks like Sabadell’s rejected it outright.

Not that BBVA’s losing much sleep over it: the bank – which has plenty of cash to spend after selling its US operations – saw its share price rise when it mentioned the deal was just one of several options. Sabadell, meanwhile, is under increasing pressure to boost profitability. And while it did say it’ll release a new business plan in 2021, it wasn’t enough to convince its investors, and its shares plummeted.

Why should I care?

Zooming in: Finding “the one”.

There’s been a lot of deal talk among Spanish banks lately, mostly because of the tough time they’ve been going through as their recession-squeezed customers miss loan repayments. And even the loans that are being repaid aren’t as profitable as they were, hobbled as they are by ultra-low interest rates. A deal, then, would allow banks to combine their revenues and cut duplicate costs (i.e. synergies), which is why this might not be the last you hear of a Saba-deal.

The bigger picture: The problem of too much cash. 

BBVA isn’t the only one with cash to burn right now: investment firm 3G capital is sitting on $10 billion, but it’s reportedly holding off from making deals amid all the coronavirus uncertainty and all-time high valuations. Investing legend Warren Buffett isn’t having much luck either, which might be why his company, Berkshire Hathaway, has resorted to buying record amounts of its own shares.

Originally posted as part of the Finimize daily email.

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