(Finance) – From a credit rating point of view, the acquisition of Sabadell from BBVA probably would have positive implications for long-term credit ratings of Sabadell, currently positioned two notches below BBVA’s long-term credit ratings. Morningstar DBRS states this in a report on the topic.
BBVA’s long-term credit ratings reflect its strong franchise with a high degree of international diversification and its ability to generate solid, recurring earnings. If the acquisition goes forward, Sabadell will step in part of a much larger and more diversified banking group and its ratings will benefit from the support of its parent company BBVA, even in the absence of full legal integration.
Sabadell’s ratings would benefit from a more diversified and cheaper access to markets of capital, both for financing and for capital needs. However, until the lawsuit is resolved, Sabadell will have a reduced ability to make strategic decisions outside its current corporate scope. Furthermore, the bank has temporarily suspended the buyback program it had in place.
Regarding BBVA’s credit ratings, Morningstar DBRS notes that the transaction would improve BBVA’s position in Spainwith potential domestic market shares of loansas calculated by Morningstar DBRS, above 24% for businesses and 21% for households, compared to around 16% and 15% respectively at the end of 2023. It would also introduce further borrower diversification as BBVA would benefit from franchising Sabadell’s leader among the Spanish SMEswhich is the largest business segment in Spain.
Furthermore, this would open the door for BBVA to operate in the United Kingdom, a significant new market for BBVA. The transaction would also reduce BBVA’s relative exposure to emerging markets, where country risks usually lead to higher earnings volatility. Ultimately, if BBVA is able to realize its announced cost and financing synergies, the combined entity could benefit from lower personnel, IT, compliance and financing costs.