Sabadell plans a future without BBVA, focused on the Spanish market.

BarcelonaHaving decided to divest its British subsidiary TSB, pending the decision of the extraordinary shareholders' meeting on August 6, Banc Sabadell is seeking to strengthen what should be its future strategy—and will incorporate it into the strategic plan it plans to present on July 24—which involves focusing on the Spanish market, although it remains to be seen whether BBVA's takeover bid will go ahead. The bank, chaired by Josep Oliu, wants to strengthen its regional capillarity model, which contrasts with the global bank model of the Basque-based institution. Whether BBVA will derail is also uncertain. Sabadell CEO César González-Bueno reaffirmed this week, at a press conference to explain the agreement to sell TSB to Santander for €3.1 billion, that he intends to maintain "a strategy more focused on Spain," he said. Santander, for its part, is strengthening its presence in the United Kingdom, where it is already significant, while simultaneously blocking out one of its main competitors, BBVA, which needs to reduce the weight of its banking business in emerging markets such as Mexico and Turkey. TSB will reduce Sabadell's geographic and revenue diversification. This represents a change to refocus the group on its domestic retail market in Spain, where we see better growth opportunities, supported by a benign economic environment. In any case, if BBVA were to ultimately decide to back out, something that currently seems unlikely, after having recovered, it would be open to activating the possibility of mergers in which Sabadell, rather than being acquired, would become the buyer," according to analysts.

With the exception of BBVA, Santander, or CaixaBank, any other medium-sized Spanish bank could be part of this process, although the initial rumors about a possible merger with Unicaja or Abanca were rejected. In addition to ruling out "more hostile takeovers," such as that of Banco de Bilbao in Banesto in 1987, and especially a third attempt by BBVA, González-Bueno said that "there are possibilities and a lot of complementarity between small and medium-sized businesses in Spain."

Another option would be a cross-border merger—that is, with a bank from another eurozone country—which is what the European Central Bank (ECB) prefers. But this is complicated because they make more sense when there are synergies in both revenue and costs. And this isn't the case, especially in terms of revenue efficiencies. Sabadell currently has agreements with other entities, but for specific activities: with BNP as a depositary, and with Amundi, for wealth management. It also has the insurance company Zurich as a shareholder, with 4.205%.

After presenting its new strategic plan, Sabadell will hold two consecutive extraordinary shareholders' meetings on August 6: one to approve the sale of TSB, a procedure required by the company's liability obligation as it is involved in a takeover bid; and another for shareholders to decide whether to accept the distribution of €2.5 billion (0.50 per share) in the form of dividends after the sale. The National Securities Market Commission (CNMV) has imposed a separate session for both decisions.

The performance of both banks on the stock market reveals that investors expect an improvement in the offer from BBVA. Since the day after announcing the sale of TSB, the negative gap between BBVA's offer and Sabadell's share price has widened. Everyone interprets this as an improvement, because Sabadell has obtained a price higher than analysts had expected for its British subsidiary. And for BBVA, there is an added difficulty: instead of having to pay more to win business, it will have to do so to raise cash, given the planned distribution of extraordinary dividends. In any case, everyone is playing their cards: on Friday, it was announced that JP Morgan Chase had acquired 1.141% of Sabadell. According to market sources, these could be purchases for third parties to control shares in favor of the takeover bid, since it is an advisor to BBVA. The price at which they were purchased indicates that they are aware that the Basque bank plans to raise its offer, according to the same sources.

Sabadell has grown in recent years through mergers. In 1996, it incorporated the NatWest Spain group, which it renamed Solbank for European residents in the Spanish Mediterranean. In early 2000, it integrated Banco Herrero (Asturias). Two years later, it acquired Banco Atlántico; in 2006, Banco Urquijo; and in 2007, TransAtlantic Bank of Miami in the US. Following the financial crisis, it acquired Banco Guipuzcoano in 2010, CAM in 2011, and the branch network of Caixa Penedès in Catalonia and Aragon (2012), Banco Gallego, and Lloyds' business in Spain in 2013. In 2015, it took control of TSB in the United Kingdom.