Sabadell surfs interest-rate wave away from BBVA
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, July 23 (Reuters Breakingviews) -Spanish behemoth Banco Bilbao Vizcaya Argentaria BBVA.MC wants to buy Banco de Sabadell SABE.MC. The smaller bank’s response is effectively to buy itself instead. Sabadell’s CEO César González-Bueno on Tuesday committed to buybacks and dividends worth 2.9 billion euros over the next two years. Alongside his increased profit targets, the boss of the 11 billion euro lender is making a convincing case for independence.
Sabadell started the year with an 11.5% 2024 return on tangible equity target and fuzzy goals for returning money to shareholders. Higher for longer interest rates and an approach by BBVA Chair Carlos Torres Vila, whose all-share offer turned hostile in early May, have poured rocket fuel on the outlook. González-Bueno is now gunning for a greater than 13% return both this year and next. He also wants to hand investors more than one-quarter of the group’s equity value through buybacks and cash payouts over two years.
The main thing that’s enabling these new targets is net interest income – or revenue from loans and bonds, minus interest paid to customers. It rose 10% year-on-year in the first half of 2024. González-Bueno now expects “mid-single digit growth” for this year, compared with “low-single digit growth” expectations back in January. Next year’s total will be higher still, González-Bueno says, even as the European Central Bank cuts rates.
If the new targets are anywhere near credible, BBVA’s offer is not. Using the bidder’s Tuesday share price, the 60 billion euro giant is offering 0.9 times Sabadell’s latest tangible book value. A bank that is churning out 13%-plus returns for the next two years would probably expect to trade comfortably above 1 times tangible book.
Sabadell’s stock might not even fall very much if shareholders reject BBVA’s bid, potentially emboldening them to do so. Imagine that, absent an offer, González-Bueno’s bank would have performed in line with the 10% average rise for local rivals CaixaBank CABK.MC and Bankinter BKT.MC. Sabadell’s shares would now be around 1.92 euros, or just 9% below the current value of the BBVA bid. Even that's probably conservative: on average, analysts had raised their forecasts for Sabadell’s 2025 earnings per share by 18% since before the bid and Monday, according to LSEG data, more than double the 8% average increase for CaixaBank and Bankinter.
The upshot is that BBVA’s Chair Torres may have to raise his offer to get what he wants. He could argue that Sabadell’s earnings will crash in line with ECB rates. Yet analysts’ forecasts show Sabadell’s net interest income holding steady for several years, according to Visible Alpha. If González-Bueno can convince investors of the same, he’ll have successfully put the ball back in Torres’s court.
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CONTEXT NEWS
Banco de Sabadell on July 23 said it expected a return on tangible equity of more than 13% in 2024, compared with a previous target of greater than 12%. The lender, which is fighting a hostile takeover from larger Spanish rival Banco Bilbao Vizcaya Argentaria, reckons it can also clear a 13% return in 2025 even as interest rates fall.
Shares in Banco de Sabadell were up 1.2% to 2 euros as of 0957 GMT on July 23.
Analysts think Sabadell's interest income can hold firm https://reut.rs/3SHscJp
Editing by Neil Unmack and Streisand Neto
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