latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/m-a-talk-heats-up-among-spanish-banks-but-deals-no-easy-task-52017046 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Contact Us

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

M&A talk heats up among Spanish banks, but deals no easy task

StreetTalk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk – Episode 69: Banks left with pockets full of cash and few places to go

Street Talk Episode 68 - As many investors zig away from bank stocks, 2 vets in the space zag toward them

Street Talk Episode 66 - Community banks tap the debt markets while the getting is good

M&A talk heats up among Spanish banks, but deals no easy task

A possible takeover of Liberbank SA by Abanca Corporación Bancaria SA is a sign that M&A is heating up in Spain's banking sector, but the breakdown of recent merger talks between Liberbank and Unicaja Banco SA reveals the difficulties involved.

The Liberbank-Unicaja talks broke down in May after the two banks were unable to agree on a share swap. At one point Abanca stepped briefly into the fray, discussing a possible bid with Liberbank shareholders, but withdrew its interest.

Now, a report suggests it could be back in the bidding. An Abanca acquisition of Liberbank would create the sixth-largest bank in Spain by asset size.

SNL Image

Spain's banking industry underwent a vast restructuring following the country's real estate crash in 2008 and the ensuing financial crisis, with the number of saving banks falling to 11 from 45 between 2010 and 2015. The market has become more concentrated, with 66% of deposit market share in the hands of the five largest banks, compared to 45% 10 years ago, Pablo Manzano, an analyst at DBRS rating agency, said in an interview.

The recent interest around Liberbank has sparked speculation that a second wave of consolidation may be kicking off.

The industry is highly competitive and remains fragmented, with too many players chasing too little market share. Lenders are digitizing their business, boosting online banking and cutting branches.

State-owned Bankia SA needs to be privatized and has been linked to other Spanish lenders such as Banco de Sabadell SA, while Spanish press reports have suggested Unicaja might start shopping around again for another lender such as Ibercaja Banco SA, which is planning to list on the stock market.

Neither Liberbank nor Abanca responded to requests for comment for this article. Unicaja declined to comment.

Weak profits

The sector has drastically reduced its exposure to bad loans inherited from Spain's real estate crash, signalling that perhaps it is the right time for medium-sized banks to start looking for suitors, Manzano said.

Most banks face profitability issues, and a merger is a good way to cut costs and generate synergies, he said.

SNL Image

Many of Spain's medium-sized banks are trailing their larger peers in terms of profitability. Liberbank, for example, had a return on average equity — a key measure of profitability — of 2.90% in the first quarter, compared to 10.51% for Banco Bilbao Vizcaya Argentaria SA, and a cost-to-income ratio of 72.11%, the highest among Spain's 12 largest banks.

Spain's smaller and medium-sized banks "remain way behind the level of competitiveness that they require, so there has to be some form of consolidation," Daniel Lacalle, chief investment officer at fund manager Tressis Gestión, said in an interview.

But, he said, a lack of investor support for mergers due to low bank share prices, an inability to agree on price and concerns about whether mergers will deliver on costs and profit growth will probably put a stop to many tie-ups for the moment.

"We are not going to see 'growth-for-growth's-sake' type mergers," he said. "There has to be a very, very sound logic and I think that is going to prevent many of these firms from entering into a process of consolidation," he said.

'Lean and mean'

Many Spanish banks want to create smaller versions of the nation's largest, Banco Santander SA, but they should instead concentrate on being "lean and mean," Lacalle said.

He cited the example of Bankinter SA as one of Spain's best-performing lenders. The Madrid bank has set itself apart by concentrating on affluent customers, investing in digital banking before many of its peers and not engaging in mortgage price wars.

SNL Image

According to S&P Global Market Intelligence data, Bankinter had the second-best ROAE among the top Spanish banks in the first quarter, at 12.84%, and a cost-to-income ratio of 55.66%. Abanca is the leader of the pack in terms of ROAE and cost-to-income, with 13.72% and 45.93% respectively.

Analysts at Fitch noted that price and agreements on shareholder structure could be sticking points to future deals between regional banks. Other points of contention could include potential job losses and the loss of control of local branches.

"If shareholders with strong regional affiliation represent a significant part of a bank's ownership, this may become an additional obstacle to a deal," Fitch analysts said in a note.

DBRS' Manzano said that while consolidation will definitely take place, it will be at a different pace.

At the moment, banks can compete in their regions but the industry is rapidly changing, especially with advances in technology, he said.

This is different from the crisis period when consolidation was a "must" and was driven by capital purposes, he said. At the moment it is more for profitability and so there is not the same urgency.

SNL Image

See a section dedicated to financial highlights for your bank. Search for the company in the top search box and go to the "Financial Highlights" section, housed under the Templated Financials on the left-hand panel. Here is an example for Banco Santander SA.

Enjoyed this analysis? Click here to set up real-time alerts for data-driven articles on any region of interest.