Spain violated EU rules by meddling in banking merger, says Brussels

BRUSSELS — The European Commission has issued a legal warning to Spain saying it violated European Union banking and single market rules by intervening in banking giant BBVA’s hostile takeover of local Spanish rival Banco Sabadell earlier this year.

The infringement notice, made public on Thursday, reflects Brussels' growing frustration with what it sees as vested interests of national governments getting in the way of European banking consolidation. This month it also intervened in the Italian government's imposition of conditions on UniCredit's bid for Milanese banking rival BPM.

The moves suggests the EU executive is taking a more muscular approach to mergers that are blocked for reasons other than financial stability and fair competition.

"Consolidations in the banking sector benefit the EU economy as a whole and are essential for the achievement of the Banking Union," the EU executive said in a statement announcing the action.

Last month the Spanish government imposed stringent conditions on the tie-up between the two banks, which had previously been approved by the European Central Bank and the national competition authority.

The Commission’s complaint is that the Spanish government does not have the authority to block the merger, as only the ECB’s supervisory arm has the power to do this for banks of BBVA and Sabadell’s size under the EU’s Single Supervisory Mechanism Regulation.

It also complains that Spain is creating a barrier to the single market by stopping the tie-up, and that discretionary powers given to the country’s economy minister to block banking deals under the country’s rollout of the EU’s Capital Requirements Directive were misused.

The Commission's competition department is not involved in the action. Formally, a procedure under the EU's Merger Regulation, which sits within DG COMP's powers, would not have been possible as the two banks aren't large enough in the market.

But the new move, coming proactively from the Commission's financial services department in response to an anonymous complaint, could create a rift within the Berlaymont if financial services commissioner Maria Luís Albuquerque is seen to be encroaching on competition commissioner Teresa Ribera's turf. 

Brussels vs national capitals

The Commission has been in talks with Spain over the case since last year. After the complaint, the Spanish government will have two months to respond. After that, the Commission can challenge the Spanish government at the EU’s top court, in a procedure which could last years and result in major fines.

There are other fact-finding Commission conversations taking place, on EU bank mergers, but these conversations are not public. The preliminary talks, known as “pilot procedures,” represent the step before a formal infringement procedure.

A similar “pilot procedure” is ongoing with Italy — which used national security provisions to intervene in a domestic banking merger, UniCredit-BPM. The Commission is currently examining Italy’s response to its questions within the EU Pilot, a spokesperson said in an emailed statement. Earlier this week the Commission sent a letter of concerns to Italy warning that it may have violated the bloc’s merger rules with its UniCredit-BPM decision.

If the Commission chooses to challenge national blocks of bank mergers more frequently, it would be a direct challenge to governments, who keep their national champions on a tight leash. The German government intervened extensively to prevent a merger between its lender Commerzbank and Italian bank Unicredit, although it did not formally block it.   

The Spanish economy ministry said it has received the letter and will “continue to cooperate constructively” with the Commission — although it noted that the laws in question, which include the discretionary powers for the economy minister, “have been in force for quite some years.”