Brussels opens a case against Spain over the legislation used against the takeover bid for Sabadell

Brussels / MadridFirst warning from Brussels to the Spanish government for the obstacles it puts in the way of BBVA's hostile takeover bid for Sabadell. The European Commission opened an infringement procedure against Spain this Thursday for the legislation used by the Moncloa (Ministry of Economy) against the transaction. Specifically, the European Commission considers that both the Spanish regulations that grant the Ministry of Economy powers to rule on the acquisition, primarily the competition law, and the Spanish government's decision to submit its assessment to the Council of Ministers contravene EU law. For the European Commission, the analysis by the National Markets Commission (CNMV) is inconsistent with the Spanish National Markets Commission's analysis. In any case, Brussels does not intend with this decision to directly intervene in the transaction or in the Moncloa's maneuvers, but rather to force Spain to reform its legislation.

These laws—Law 10/2014 on capital requirements, Decree 84/2015 on supervisory and solvency requirements, and Law 15/2007 on competition—have been in force for more than a decade. However, Brussels didn't take notice until a citizen reported to the European Commission two days after the takeover announcement that Spanish regulations allowed the Moncloa to take action against the transaction that did not comply with EU law. In fact, EU sources explain that even at that moment, they had indications that the Spanish government would try to thwart the Sabadell transaction by using laws that contradict EU legislation on banking supervision, capital requirements, and the freedom of establishment and free movement of capital.

Shortly after, in August of last year, the European Commission opened a consultation procedure in Spain, which consisted of a dialogue with the Spanish government to ascertain the intentions of the Moncloa and the potential scope of using these laws. According to the same EU sources, both parties initially maintained a fluid and fruitful exchange of views. However, this was only the beginning of the Spanish government's battle against the takeover bid, and as time went on, everything began to go wrong.

Community sources see the decision by the Spanish central bank to submit the evaluation of BBVA's hostile takeover bid for Sabadell to the Council of Ministers as a turning point and emphatically point out that the competent authorities must review the operation: the CNMC on the one hand and the European Central Bank (ECB) on the otherThe Spanish entity is responsible for assessing whether the banking transaction does not jeopardize banking competition in the State and in Europe, nor does it pose a financial risk. In this case, since the majority of BBVA and Sabadell's business volume is concentrated in one Member State, Spain, it was not necessary to notify the takeover bid to the European Commission.

Thus, Brussels did not need to comment on the operation against Sabadell, and it only decided to act following a citizen complaint and when it considered that the Spanish government was taking advantage of legislation that contravenes EU law to attack the takeover bid. It is at this point that, given the positive reports from the CNMC and the ECB, the European Commission considers that the Spanish government cannot oppose it, much less hinder it, unless it is for reasons of general interest, which it also does not believe is the case. Therefore, beyond the obstacles from the Moncloa, it also opens an infringement procedure against the regulations that grant the Ministry of Economy, led by Carlos Cuerpo, the power to hinder a banking merger for reasons unrelated to the general interest.

Sources from the Ministry of Economy confirm that they have received the European Commission's warning. "We will provide all the information requested [by the European Commission] and will collaborate constructively," Economy Minister Carlos Cuerpo told the media on Wednesday. Cuerpo asserted that they are "totally convinced" they have complied with Spanish and European regulations and that the Brussels file "does not suspend the Council of Ministers' agreement" that approved the conditions of the takeover bid.

"It should be noted that these are regulations that have been in force for many years and have been applied on several occasions since then," the same sources indicated, confirming that Spain will respond within the deadline.

The threat of a fine in Spain

One of the functions of the European Commission is to ensure that Member States comply with European law. Should they fail to do so, it can initiate infringement proceedings, such as the one it initiated this Thursday against Spain, and may ultimately impose multimillion-dollar financial penalties. The intention of these proceedings is for state governments to ultimately comply with EU law, and Member States are rarely fined. The same EU sources admit that this is not their objective and that, in any case, they do not expect to impose fines in the short or medium term.

The next step is for Spain to respond within a maximum of two months to the letter sent by Brussels regarding the infringements. If the European Commission believes the Spanish government is not moving in the right direction, it will send what is known as a reasoned opinion, which is the first step toward bringing the case before the European Court of Justice.

These processes tend to take a long time, and the European Commission itself believes it is highly likely that the battle over the takeover bid will be over before the Brussels case against Madrid is closed. However, this does not worry the EU executive, which suggests that its objective in opening the infringement procedure is not to intervene in this specific operation, but rather to force Spain to amend its regulations.