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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is chief executive of Banco Sabadell
The first months of 2025 have been profoundly disconcerting. Old certainties have crumbled to dust and decisions have been taken that would have been unthinkable a short time ago. However, there is some cause for optimism. European governments are being forced to reorient their economies at pace.
With public finances stretched, the private sector will be crucial in helping countries strengthen their economies. Banks, investment funds and insurance companies will play a critical role in financing the new imperatives around climate change and defence. It is important that we all step up to these challenges.
Policymakers were already talking about making regulation more efficient, and asking financial watchdogs to focus on growth as well as stability. It is likely that the balance will tip further, as it is crucial to ensure that regulations do not unnecessarily interfere with the fundamental role of the banking system: enabling individuals and communities to pursue their financial goals and needs in an efficient and sustainable manner.
One potential approach is to foster consolidation among European banks. A common criticism is that the sector is too fragmented. But we should not allow the pursuit of growth through scale to blind us to the fact that not all banking transactions are created equal. Mergers in locally fragmented markets may be desirable, but not in highly concentrated ones. Those with reasonably long memories will not need reminding that ill-considered tie-ups can risk the stability and competitiveness of local economies and quickly destroy shareholder value.
European banks have performed strongly in recent times, fulfilling the financial needs of citizens against hugely complex backdrops, be it Covid-19 or the war in Ukraine. This shows that banks operating in sufficiently stable, growing and competitive domestic markets are vital for customers, shareholders and the European economy at large. Large and medium-sized banks play an important role in creating jobs, servicing businesses and supporting growth.
The unprecedented opposition in Spain to BBVA’s proposed acquisition of my bank, Sabadell, is rooted in a desire to protect competition and stimulate growth. More than 80 business and customer associations, central and regional Spanish governments, and local trade unions have raised concerns about further market concentration.
This is a major issue in a market that already has the second-highest level of concentration in European banking. Small and medium-sized enterprises are the cornerstone of growth and employment creation — additional concentration would create a de facto oligopoly of just three banks and erode access to financing.
It is important that the current geopolitical context does not detract from value creation. Nowhere is this more apparent than in the situation facing Sabadell shareholders. In the event BBVA is unable to execute a full merger and Sabadell becomes a subsidiary of the company, it would probably hit BBVA’s capital ratio, compromising future returns to shareholders. This would be consolidation in name only.
We have been here before. Santander acquired a controlling stake in Banesto in 1994. But it was only when a full merger was consummated in 2012 that Santander was able to realise the intended synergies of the acquisition.
It is right to argue for greater unity across Europe and there are compelling arguments for banking mergers. However, we must not risk undoing the good work that has been done to strengthen the sector since 2008. Yes, scale is important, but so is competition, local market expertise, customer relationships and value.
Sabadell’s board rejected BBVA’s proposed merger in May 2024 on the grounds that the proposal undervalued the potential of the bank and its standalone prospects. The board argued that the decision was also aligned with the best interests of our clients and employees.
While banking has a rich history of successful, transformative transactions, it also has countless examples of mergers that failed to deliver the anticipated synergies and ultimately destroyed value for shareholders, communities and economies.
That is why it is vital that we treat each transaction on its merits and do not shy away from asking the tough questions. Some transactions will serve Europe’s needs and ambitions. Others will not.
At a time when countries and investors are doing whatever it takes to shore up their balance sheets and seek safe harbours, the bigger is not always better adage is proving salient.
