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Closing the Gap - BBVA Update

16 November 2020 by jbchevrel

BBVA said it’s in talks on a combination with rival Banco de Sabadell. BBVA confirmed the talks in a regulatory filing on Monday and said that the two banks have appointed external advisers. That came on the same day BBVA announced the $11.6 billion sale of its US business to Pittsburgh-based PNC Financial Services Group Inc. That operation boosted BBVA’s CET1 ratio by +€8.5 billion or equivalently +300bp to 14.5%. Such domestic M&A is seen as creating value for shareholders, given the very undemanding valuation of Spanish domestic competitors, including Sabadell. BBVA CEO signalled his openness to possible deals during a summit in September but stressed that the bank won’t be pushed into an operation that doesn’t make economic sense. Sabadell has been working with GS in recent months on options including a sale or merger, asset disposals or buying a smaller competitor, people with knowledge of the matter have said. Today BBVA 5y SUB CDS is tighter by -23bp, and BBVA 5y SLAC CDS is tighter by -12bp. BBVA equity was up on the day by +15%. Other peripheral financial CDS tightened on the day. We had some positive macro news over the weekend (RCEP, Chinese data, Japan GDP) and the Moderna news added, obviously, to that market confidence. These moves contributed to take the fair value of iTraxx SnrFin s34 tighter by -3.4bp and the fair value of iTraxx SubFin s34 tighter by -6.2bp. On the margin, the recent decrease in Turkey-linked risk premium may have contributed to the stronger sentiment toward BBVA.