(Bloomberg) -- Banco Sabadell SA increased the amount of money it plans to return to shareholders as it seeks to fortify its defenses against the proposed takeover by rival BBVA SA.
Chief Executive Officer Cesar Gonzalez-Bueno pledged €2.9 billion ($3.2 billion) in payouts over this year and next, up from €2.4 billion he promised earlier this year.
The new target comes roughly three months after BBVA’s takeover attempt became public. Since then, the two sides have become more and more entrenched in their respective positions, with BBVA Chairman Carlos Torres saying a combination would benefit investors and Gonzalez-Bueno saying shareholders would be better off if the bank stays independent.
BBVA is offering a fixed share exchange ratio, which means the deal gets less appealing for Sabadell investors if its stock rises more quickly than BBVA’s.
The announcement on Tuesday “could create more doubts about the success of the takeover bid if shareholders believe that the development of Sabadell on its own can earn them more,” Renta 4 analyst Nuria Alvarez said.
BBVA wants to acquire its smaller competitor to add more business in Spain as the lender currently generates much of its revenue in emerging markets. If successful, the move would create a new domestic banking behemoth with more than €1 trillion in assets and a potential market value close to the country’s biggest bank, Banco Santander SA.
Sabadell has rejected the bid as too low and Gonzalez-Bueno is now counting on the stock performance to derail it.
Sabadell’s shares rose as much 1.65% in early trading on Tuesday and were trading 0.9% up at 10:17 a.m. The stock is up roughly 80% this year to date, making it the second-best performer in the Bloomberg Europe Banks and Financial Services Index.
BBVA, whose official name is Banco Bilbao Vizcaya Argentaria SA, is offering one newly issued share for every 4.83 Sabadell shares. At the time the offer was made, that ratio implied a valuation of €11.5 billion for the smaller bank.
BBVA’s Torres suggested in a Bloomberg interview that a previous Sabadell pledge to make €2.4 billion in investor payouts overstates its ability to generate excess cash in the long run.
Sabadells’s net income rose to €483 million ($526 million) in the second quarter, an increase of 35% on the previous year, it said in the filing on Tuesday. The results compare with an analyst estimate for €423 million.
The lender also increased its planned payout ratio to 60% for the current year from 55% last year and raised its 2024 profitability guidance to more than 13% in return on tangible equity goal, from more than 12% announced in April.
The bank expects net interest income to be higher than previously expected this year, predicting mid-single digit growth, it said. It also cut the anticipated decline in fees and commissions to about 3%.
The fully-loaded capital ratio rose to 13.5% from 13.3% in the second quarter. The non-performing loan ratio declined from 3.5% to 3.2%.
(Updates with details throughout)
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