Sabadell CEO On Defensive: Spreads Not Fully Discounting Takeover

Sabadell (SABSM: BBB- pos/BBB-) CEO in BBG interview stating BBVA bid underestimates restructuring costs. We are less sure of this, especially as Sabadell is hardly the most efficient bank in Spain. Its spreads have moved but are, in our view, far from discounting BBVA’s success in this deal. That chance is relatively slim (hostiles are rare, especially with the politicians against it) but not zero, we feel.

• CEO Gonzalez-Bueno states that “No one is achieving synergies lower than 3 times the cost to generate them”. BBVA’s bid includes EUR1.45bn of such costs, to generate EUR750m recurring savings – our experience with banks, especially with in-market mergers, is that 2-3x is generally fair, so BBVA just about squeezes into this bracket.
• SABSM is a bank which reported a 52.6% cost-income ratio in FY23 (from BBG), higher than Caixa’s 44.5%, BBVA’s own 42.9% and Bankinter’s 40.8%. So, much as each have different business and geographic mixes, Sabadell cannot be said to already be a remarkably efficient banks.
• SABSM spreads are 19bp tighter over the last month (peers -12bp) so there is a reasonable bid spec now built in. Hostile takeovers are unusual in banking – but not unique. RBS-NatWest was (very) hostile, and Intesa-UBI Banca was not exactly friendly so the precedents are few but success cannot be discounted. BBVA’s mid G-spread average is MS+93bp, SABSM’s is still +106bp whilst BKTSM is +130bp (one notch weaker than SAB). Arguably, spreads have moved but are far from discounting takeover success (yet).