Whatâs Going On Here?BBVA and Sabadell just canât see eye to eye: the two Spanish banks ended merger talks after struggling to come to a compromise on price. What Does This Mean?Sabadellâs been keen to merge with another Spanish bank for a while now, and it managed to catch the attention of heavy-hitter BBVA â worth $30 billion to Sabadellâs $2.5 billion. But when they actually sat round a table to work out details, BBVAâs proposed price didnât go down too well â and now it looks like Sabadellâs rejected it outright.
Not that BBVAâs losing much sleep over it: the bank â which has plenty of cash to spend after selling its US operations â saw its share price rise when it mentioned the deal was just one of several options. Sabadell, meanwhile, is under increasing pressure to boost profitability. And while it did say itâll release a new business plan in 2021, it wasnât enough to convince its investors, and its shares plummeted. Why Should I Care?Zooming in: Finding âthe oneâ.
Thereâs been a lot of deal talk among Spanish banks lately, mostly because of the tough time theyâve been going through as their recession-squeezed customers miss loan repayments. And even the loans that are being repaid arenât as profitable as they were, hobbled as they are by ultra-low interest rates. A deal, then, would allow banks to combine their revenues and cut duplicate costs (i.e. synergies), which is why this might not be the last you hear of a Saba-deal.
The bigger picture: The problem of too much cash.
BBVA isnât the only one with cash to burn right now: investment firm 3G capital is sitting on $10 billion, but itâs reportedly holding off from making deals amid all the coronavirus uncertainty and all-time high valuations. Investing legend Warren Buffett isnât having much luck either, which might be why his company, Berkshire Hathaway, has resorted to buying record amounts of its own shares. | 