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Spanish bank BBVA has approached TSB owner Banco Sabadell about a possible takeover to create a €70 billion lender in what would be one of the biggest European banking deals in years.
BBVA said it had expressed interest to the chairman of Alicante-based Sabadell “to begin negotiations to explore a possible merger transaction.” Sabadell said on Tuesday it had received an “indicative written proposal” from BBVA.
The approach, which would bring a Spanish banking giant up to Santander in market valuation, comes at a time when valuations of European banks have reached their highest level in nine years.
Lenders, whose profits have soared due to rising interest rates, are promising to pass on the benefits to investors through capital gains.
Increased valuations have again raised the prospect of consolidation in the European banking sector, although cross-border deals appear unlikely in the near future.
A BBVA-Sabadell deal would raise questions about the future of TSB, the British high street lender that Sabadell bought in 2015 but has since explored a sale.
Sabadell said his board would “duly analyze all aspects of the proposal.” UBS and JPMorgan are advising BBVA on its offer, people familiar with the discussions say.
While the combined company would come close to matching Santander’s market capitalization of 73 billion euros, its business would be more focused on Spain, its home market.
A person familiar with the situation said Sabadell’s list of small business clients in Spain would complement BBVA’s strength in retail banking and serving large corporate clients.
Another person with knowledge of the talks said the offer was at a very early stage and it was unclear whether an agreement would be reached.
Shares in BBVA fell 3.5 percent after Sky News first reported the talks, while Sabadell shares rose 5.8 percent.
The two banks have previously tried to reach an agreement. Four years ago, merger talks between the two collapsed after two weeks after disagreements arose over the price of the deal.
At that time, BBVA had a market capitalization of 25 billion euros, compared to 2 billion euros in Sabadell. The larger bank now has a market value of almost 60 billion euros, while Sabadell is closer to 10 billion euros.
Sabadell acquired TSB in 2015 for £1.7 billion as part of its efforts to internationalize its business, although this has not yet progressed well beyond the UK.
After merger talks with BBVA failed, Sabadell raised the possibility of selling TSB by announcing a strategic review, but ultimately decided against a divestment.
Outside Spain, BBVA has large operations in Mexico and Turkey.
Bankers and regulators have long advocated for greater consolidation among Spanish banks, arguing that it would strengthen the sector’s resilience.