Background on BBVA and Sabadell
BBVA, a Spanish multinational financial services company, and Banco Sabadell, another major Spanish banking institution, have been in discussions regarding a potential merger. BBVA has proposed an initial offer to acquire Sabadell, which has sparked market speculation about a possible increase in the offer price.
Bank of America’s Perspective
In a recent report, Bank of America has expressed that the market’s expectation for a 2,000 million euro increase in BBVA’s offer for Sabadell is “excessive.” The report was published on Monday ahead of the release of Spanish banking results.
Reasons for Bank of America’s Stance
According to the report, while the merger holds a “solid industrial sense,” government-imposed restrictions have diluted its economic rationale. Bank of America estimates that a three-year delay in the legal merger would only register technology synergies of around 300 million euros in the short term.
“This equates to a mere 1% improvement in earnings per share,” the analysts note. “Meanwhile, the market anticipates BBVA will enhance its offer for Sabadell by 2,000 million euros, which we deem excessive. The agreement is strategic but financially beneficial only under certain conditions.”
Market Expectations vs. Bank of America’s Analysis
The 2,000 million euro increase expected by the market stems from Sabadell’s negative premium. For BBVA to successfully acquire Sabadell, it would need to raise its offer by approximately 2,000 million euros so that Sabadell’s shareholders do not incur losses during the stock exchange.
Bank of America’s Updated Price Targets
Alongside the report, Bank of America has updated its price targets for various Spanish banks:
- BBVA’s price target increased from 15.50 euros to 16 euros, representing a potential upside of 24%.
- Bankinter’s price target raised from 10 euros to 10.20 euros, suggesting a possible 10% decline in its stock price.
Price targets for Santander (7.50 euros), CaixaBank (8.50 euros), Sabadell (3.15 euros), and Unicaja (2.20 euros) remain unchanged.
Bank of America’s Recommendations
The bank continues to recommend purchasing BBVA, CaixaBank, Sabadell, and Unicaja shares while maintaining a “hold” position on Santander and suggesting to sell Bankinter stocks.
“In our view, CaixaBank continues to offer the best combination of net interest margin, growth in non-interest revenues, and capital distribution among domestic banks,” Bank of America stated.
Key Questions and Answers
- What is the main concern of Bank of America regarding BBVA’s offer for Sabadell? Bank of America deems the market’s expectation of a 2,000 million euro increase in BBVA’s offer for Sabadell as “excessive.”
- Why does Bank of America believe the expected offer hike is excessive? The analysts argue that a three-year delay in the legal merger would only register technology synergies of around 300 million euros in the short term, equating to a mere 1% improvement in earnings per share.
- What are the updated price targets for Spanish banks according to Bank of America? BBVA’s price target increased from 15.50 euros to 16 euros, while Bankinter’s price target was raised from 10 euros to 10.20 euros. Price targets for Santander, CaixaBank, Sabadell, and Unicaja remain unchanged.
- What are Bank of America’s recommendations for Spanish bank stocks? The bank recommends purchasing BBVA, CaixaBank, Sabadell, and Unicaja shares while maintaining a “hold” position on Santander and suggesting to sell Bankinter stocks.
