The Competition Authority does not consider Sabadell "irreplaceable" in the SME business.

MadridThe National Commission on Markets and Competition (CNMC) has put its analysis of BBVA's hostile takeover bid for Banc Sabadell in black and white. The body has published its provisional report detailing the conclusions it reached after studying the potential impact of the merger of both entities on competition, which support the authorization of the transaction in its second phase and subject to commitments.

Among the CNMC's results, the one related to SME lending stands out, where Sabadell has always sounded the alarm. The organization chaired by Cani Fernández It concludes that the Vallecas-based bank is not an "irreplaceable" entity in this business area. It even points out that it is not an "irreplaceable" entity in Catalonia, the autonomous community most affected if the merger goes ahead, as acknowledged in the same report. "Sabadell cannot be considered an irreplaceable competitive force that plays a disruptive and price-disciplining role in these markets [SME lending], beyond the role that other entities may play," the document states.

In its arguments, Sabadell had defended its "fundamental and irreplaceable" role in the SME lending business. The entity, chaired by Josep Oliu, emphasizes that this is a "concentrated market" in which the number of operators nationwide would be reduced from four to three if the transaction is successful—the bank has placed the need for SMEs at this threshold. It also points out that medium-sized and small operators represent a "limited alternative" to the problem and suggests that "neither neobanks nor banks" nor the companies fintech are a real option for these [small and medium-sized] enterprises".

In light of this, the CNMC concludes that, in terms of demand, "the majority of companies [SMEs] in the market (96.7%) have between one and two banking entities for their financing needs", while in the case of supply "it cannot be that BBVA is its closest competitor, nor can the irrelevance of third-party operators in the SME credit market be accepted, since there are numerous medium and small operators that already compete [...] and that together represent a relevant and growing share in all regions, also in those most affected by the concentration". To justify Sabadell's lower weight." between 2021 and 2023. However, financial sources clarify in the ARA that Sabadell has not changed its share in SMEs and indicate that the CNMC has not taken into account an internal reclassification of the entity. the Balearic Islands. In fact, in lending to SMEs, the CNMC notes that, in the event of integration, the problematic or risk levels set by the European Commission would be exceeded.

What do competitors say?

The report, released this Friday, also includes the opinions of various consumer associations, regional competition authorities, and competitors, as collected by the CNMC in the market test. In this regard, it highlights the concern of many of these stakeholders about the worsening trading conditions in those areas where Sabadell and BBVA have a greater presence. In this regard, the report includes CaixaBank's specific statement on possible "unintended effects on retail banking."

Likewise, the focus is on other issues such as financial inclusion, branches, deposit conditions, and business with merchants (payment card services). However, the CNMC does not assess the impact on labor market terms, which the Spanish government can do.

Doubts about efficiency

But not everything is linked to the report. Although the Competition Authority concludes that the problems arising from the banking concentration, which have been identified as a result of the analysis, are "geographically localized" and in "certain product markets"—apart from being resolved, in the agency's opinion, with the commitments assumed by BB—it questions the benefits of the takeover bid for the client.

The reason for this is that the efficiencies of the operation proposed by BBVA (the CNMC highlights the cost savings resulting from unnecessary duplications and the increase in operational efficiency with a more robust entity) are on a global scale, for the entire scale, for the entire region ... "It is not possible to conclude that these efficiencies alone are capable of offsetting the problems generated by banking concentration in the most affected localities or postal codes," the report states, which also notes that "it is not possible to guarantee that [the efficiencies] will ultimately be passed on to the final consumer."

The nearly 200-page report published this Friday comes with the banking operation on the table for the Spanish government. After Economy Minister Carlos Cuerpo submitted the takeover bid to the Council of Ministers, the latter has until June 26 to decide whether to require greater commitments from BBVA for reasons of public interest. However, this is not a final report. The Competition Authority is studying whether or not to incorporate elements that Sabadell has requested to remain confidential, including proposals to offset BBVA's commitments. Sources consulted by ARA indicate that a decision is not expected for several weeks, so the full report will not be available before the announcement of Pedro Sánchez's government.

The Competition Authority's study has not been without controversy, as Sabadell itself has questioned the methodology used by the entity, and some social and business stakeholders have complained of not having been listened to. "We have done a technical, rigorous, scrupulous, and independent job," the president of the CNMC stated in her latest appearance before the Congress of Deputies.

IMF Statement

However, this Friday the International Monetary Fund (IMF) also issued a statement on the takeover bid. In its annual report on Spain, the organization warns of the need to "adequately assess" the potential adverse implications of the merger between BBVA and Sabadell. However, it believes that the competition concerns the transaction may raise "could be mitigated through the structural and behavioral solutions proposed by the competition authority."