BBVA-Sabadell combination: a stronger and more efficient bank, with more than 100 million customers

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. „The resulting bank, with more than 100 million customers worldwide and almost 7,000 branches, will generate value for all stakeholders: shareholders, customers, employees and society as a whole.” – according to the press release.

Size is becoming increasingly important in the financial sector in meeting the fixed costs associated with growing investments in technology (digitization, cybersecurity, data, artificial intelligence, etc.). Greater scale will allow these costs to be diluted among a larger customer base, thus unlocking greater efficiencies.

The combined entity would be a benchmark in the market by volume of assets, loans and deposits. It would also have more than 100 million customers and assets exceeding one trillion euros at a global level. In Spain, it would be the second largest banking group in terms of market share in loans, with total assets amounting to 265 billion euros¹.

Moreover, the combination of BBVA and Banco Sabadell would bring together two businesses that are highly synergistic, owing to their positioning in different customer segments in Spain. While Banco Sabadell has a greater weight in small and medium-sized companies, BBVA is positioned more heavily in the retail and large companies segment. Moreover, Banco Sabadell’s presence in the UK would build on BBVA’s global scale and its leadership in Mexico, Türkiye and South America. The merged entity would have an improved product offering for households and SMEs and a greater capacity to support companies in their international expansion..

The combination would amplify the new entity’s ability to provide credit to the real economy–with an estimated future impact of an additional €5 billion per year. It would also contribute significantly to the process of transformation, innovation and decarbonization of society, as both banks have a clear strategic focus on digitization and sustainability.

Lastly, the combination of the two banks would unlock synergies estimated at €850 million gross per year, by stripping out certain expenses that each of them currently incurs separately. BBVA estimates that it could save around €450 million per year in overheads and technology costs, while also saving €300 million in personnel costs and a further €100 million in borrowing costs.

The combination of the two banks would give rise to a group with close to 7,000 branches worldwide, of which more than 2,700 would be located in Spain (even taking into account post-merger closures), more than twice as many as Sabadell has today (1,143 branches as of June 2024). The new group would also have more than 7,000 ATMs in Spain, almost three times as many as Sabadell alone (more than 2,500 as of June 2024).

Given that both organizations have trimmed the size of their branch networks in recent years, BBVA estimates that post-merger branch network rationalization would be limited to a percentage of less than 10 percent of the combined network of both organizations, i.e., about 300 of the 870 branches within a radius of less than 500 meters. Banco Sabadell customers would therefore have access to more than twice as many branches and three times as many ATMs as they have available today.

In short, the combination of these two large banks would enable them to achieve more together than they could hope to achieve separately.

“We are doing this transaction to boost lending, particularly to SMEs,” said BBVA’s CEO Onur Genç.

Far from reducing available credit to small and mid-sized companies, this transaction seeks to increase it. In fact, only 1.5 percent of the SMEs in Spain work exclusively with BBVA and Banco Sabadell, based on the definition of these kinds of companies by the Bank of Spain. In Catalonia, the figure is 3.6 percent of SMEs. “We will continue to serve all of them,” he said.

In terms of the possible impact of the transaction on BBVA’s business in Spain, the CEO announced that as of September this year, the bank has added nearly one million new customers in Spain, including over 100,000 self-employed individuals and SMEs. This represents 5.8 percent growth year-over-year in this segment.

The CEO recalled that with this transaction, BBVA seeks to gain scale in an attractive market for investment, like Spain, as well as in Europe. The fixed costs in technology driven by the exponential digitization of the sector are forcing banks to grow in size to be efficient. In one year alone, BBVA invests €3 million in technology, €1 million of which is for Spain.

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¹ Data as of December 2023.