By Elena Vardon

Banco Bilbao Vizcaya Argentaria is pursuing merger talks with smaller peer Banco de Sabadell, seeking another shot at a tie-up that could make it Spain's largest bank after a previous attempt fell apart in 2020.

A potential deal could form a banking giant with a combined market value of almost 73 billion euros ($78.27 billion), which would rank among Europe's biggest, and the No. 1 entity by assets in Spain, the eurozone's fourth-largest economy.

BBVA said in a regulatory filing Tuesday that its board approached Sabadell's chair to explore a combination, and that it appointed advisors. Sabadell separately said it received a merger proposal from BBVA that its board would analyze.

In late European trading, Sabadell shares traded 3.2% higher at EUR1.71, paring earlier gains, while BBVA was down 5.3% at EUR10.33.

BBVA's approach for Sabadell comes as investors ponder European banks' appetite for dealmaking after a period of high interest rates that boosted their profits and led many lenders to splurge on cash returns to shareholders. However, analysts have previously pointed out that there are hurdles in the way of consolidation of Europe's fragmented banking industry.

Conditions in Italy seem good for banking mergers and acquisitions, analysts at Barclays said in a recent research note. Press reports earlier this year suggested Deutsche Bank was looking for potential takeover targets. The German bank declined to comment at the time.

BBVA and Sabadell have considered a merger before. In November 2020, talks were called off due to disagreements over pricing a couple of weeks after they were disclosed.

If they reach an agreement this time around, the tie-up would bulk up BBVA's footprint in its home market as well as in the U.K., where Sabadell is present through its TSB business. Sabadell also has smaller business in Mexico, which is BBVA's biggest market.

Spain has seen plenty of banking mergers and acquisitions since the 2008 crisis that hit the financial sector hard. BBVA and Santander have big international operations, but their Spanish businesses trail CaixaBank in terms of assets. CaixaBank became the largest bank locally by assets after its acquisition of Bankia, which was completed in 2021.

The market value of BBVA--already one of Europe's largest banks by that metric--stood at EUR63.5 billion as of Monday's close, while Sabadell's was EUR9.4 billion, according to FactSet data. BNP Paribas, the biggest eurozone bank by market value, had a capitalization of EUR77.6 billion at Monday's close.

Write to Elena Vardon at

(END) Dow Jones Newswires

04-30-24 1103ET