Despite facing prosecution on a number of charges, including widespread corporate espionage, Spain’s BBVA still wants to take over its third biggest rival. The ECB has already given its blessing.
For the first time ever, Spain’s national government has launched a public consultation on a proposed corporate buyout, sparking accusations from market players of government interference and overreach. The buyout in question is the hostile takeover bid launched last May by BBVA, Spain’s second largest bank by assets, against Banco Sabadell, the smallest of Spain’s big four lenders, which would further consolidate Spain’s banking sector.
Melding the two lenders together would create a bank with more than 1 trillion euros in total assets, which may be enough to propel the newly bloated lender onto the Financial Stability Board’s leader board of Global Systemically Important Banks, or G-SIBs, some time in the near future. In other words, BBVA would become, like its biggest domestic rival, Grupo Santander, officially too big to fail.
However, it would also create a lender that, like Santander, is too big to bail. Needless to say, Spain’s Pedro Sánchez government is strongly opposed to the proposed merger. Economy Minister Carlos Cuerpo says the main goal of the consultation is to gather “useful” information on what the Spanish people think about BBVA’s “hostile” takeover bid before deciding what action to take.
“As in other public consultations regarding our regulatory framework, those citizens, organizations, associations and economic agents who may be affected by the operation can participate,” said Cuerpo.
Once the consultation is complete, at the end of this week, the Ministry of Economy will have a week to analyse the information provided before deciding whether or not to recommend that the Council of Ministers try to block the proposed buyout or impose draconian conditions on Sabadell the deal.
Wiretaps, Blackmail and Shake-Downs
What makes this takeover bid particularly controversial is that both BBVA, as a legal entity, and some of its senior executives, former and current, are facing criminal prosecution over charges of widespread corporate spying and disclosure of rival companies’ secrets. The eight former executives facing charges include BBVA’s long-time president, Francisco González (2000-2018), and its former CEO, Ángel Cano.
For a period of 12 years (2004-16), BBVA hired the services of Grupo Cenyt, a private investigation firm belonging to former police chief Jose Manuel Villarejo, to spy on businessmen, politicians and journalists on behalf of the bank. Villerejo is currently serving a 19-year prison sentence for using Grupo Cenyt to wiretap, blackmail, and threaten people at the request of companies and private individuals, including, it seems, BBVA.
While other Spanish corporations, including Repsol, Iberdrola and CaixaBank, also hired Villarejo’s services, it was BBVA that would go on to become his biggest client, paying more than $10 million in fees and commissions.
In 2004, BBVA hired Cenyt to investigate executives at the construction company Sacyr, which was looking to buy a stake in the bank, as well as government officials in the former administration of Prime Minister José Luis Rodríguez Zapatero. The bank’s then-president, González, allegedly instructed his security chief to hire Villarejo to wiretap the phones of Sacyr’s president, the Spanish prime minister and the head of the administration’s economic office.
In the years that followed, Villajero is alleged to have spied on and, in some cases, bribed, intimidated and/or spread fake news, on a host of prominent figures, including senior executives of some of the bank’s largest rivals and corporate debtors, financial regulators, journalists, government ministers, members of the left-of-centre political party, Podemos, and the then-King of Spain Juan Carlos. In total, Cenyt’s team of private investigators listened to 15,000 phone calls on behalf of the bank.
Villarejo has been in prison since 2017, where he could one day be joined by the current and former BBVA executives accused of hiring his services if they are found guilty of the charges they face — I know, senior bankers don’t go to jail in this post-Lehman world, but one can still dream, can’t one?
As reader vao put it in a comment to a previous post, the reasoning why banks or bankers should be treated as “too big to jail” is that “even if the problems [facing a struggling or bankrupt bank] were caused by illegal shenanigans, members of its management are too influential and bringing them to account would ruin the confidence amongst economic actors.”
For the moment, BBVA’s lawyers are working around the clock to try to stall the trial, particularly as it tries to take over its third largest rival in an operation that nobody but itself and the ECB seems to want. So far, all its trial appeals have been struck down. The bank has also been accused of not cooperating with Spain’s National Court over requests for emails and other documents as well as refusing to share information on the case with its own shareholders — you know, the sort of things that only the biggest banks tend to get away with.
Banco Sabadell’s President, Josep Oliu, has underscored the risks of Sabadell being bought out by a rival bank that is currently in the dock (or at least should be):
The bank is facing criminal prosecution. If the result of these accusations is that it is found guilty, it could have a major impact on the value of its stock. Sabadell’s shareholders should know this. Transparency is needed.
The Risks of Further Concentration
But BBVA’s legal pickle is seemingly not serious enough to prevent Spain’s main market regulator, the National Commission on Markets and Competition (CNMC), from approving its proposed hostile takeover bid. However, the regulator did require certain binding commitments from BBVA, such as keeping bank branches open in areas with fewer competitors and maintaining the lending conditions Sabadell has already provided to its SME clients.
The Spanish government insists, however, that there are compelling competition and prudential reasons for blocking the proposed merger. Spain’s banking industry, it says, is already concentrated enough, with the four biggest lenders — Banco Santander, BBVA, CaixaBank, and Sabadell — controlling over 70% of the retail banking space. Before the 2008 financial crisis, the country was home to 45 savings banks and a dozen commercial banks. Now there are barely ten large and mid-size lenders left.
The consultation is not a referendum, and therefore its result is not binding. However, according to sources cited by El Diario, the government is trying to arm itself with as many arguments as possible to hamper BBVA’s hostile takeover bid. As we have previously reported, another merger in Spain would have a clear negative impact on banking competition and stability. However, the European Central Bank does not see this as a problem — in fact, it is going out of its way to encourage greater bank concentration in the Euro Area…
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Nick Corbishley 