Not even two weeks after Pittsburgh’s PNC bought BBVA’s US lending business in what analysts described as the second biggest banking deal since the collapse of Lehman brothers more than 10 years ago, the consolidation of the European banking sector is apparently taking a breather.

According to the FT, BBVA and fellow Spanish bank Sabadell have given up on merger talks (talks they confirmed less than two weeks ago) because of disagreements over pricing of the deal as global equities power higher toward one of their strongest monthly performances in recent memory.

Apparently, one insider suggested that Spanish government officials won’t be too thrilled to hear about the collapse of the deal talks, which they had apparently sheperded along to some degree.

The collapse of the talks is a setback for champions of the consolidation of the Spanish banking sector — a process that had seemed near completion and which regulators support as a step towards cross-border mergers and a means of bolstering domestic lenders’ resilience. The failed deal would have amounted to an acquisition by BBVA, which has market capitalisation of €25bn compared with just over €2bn for Sabadell, but the smaller lender made clear that it considered the price suggested by BBVA to be unacceptably low. Sabadell said in a statement to Spain’s securities regulator that its board of directors “has decided to terminate the above-mentioned discussions, because the parties have not achieved an agreement on the exchange ratio of both entities”.

In a standalone statement, BBVA warned that talks with Banco de Sabadell had ended “without a deal” due to differences in price. One insider described the collapse in talks as “embarrassing”, hinting that there was widespread support for the deal coming from the government in Madrid as well as Brussels.

“It was a very surprising piece of news to wake up to this morning, this crashed and burned so quickly,” said a person familiar with the process. It is “difficult to explain and quite embarrassing because there was such supportive momentum among the media and regulators, for it to explode apart isn’t a good look”.

Investors were so frustrated to hear about the collapse of talks that they sent shares of El Banco Sabadell shares down 10% in European trading. Meanwhile, as Reuters reported, Sabadell has hired Goldman Sachs to sell its lossmaking British lending business, part of its efforts to refocus on its domestic business.

A combined BBVA and Sabadell would have accounted for roughly 20%-25% of Spain’s domestic market loans, deposits and mutual-fund capital.

That’s compared with with 25% to 30% for a proposed tie-up between CaixaBank and Bankia, whose boards next week are likely to approve their own merger, and 15% for Santander.

Sabadell says it’s now seeking a “new strategy with a clear focus on its domestic market” during Q1 2021. Part of this will involve the ‘transformation’ of its retail banking business, which is presently focused on small and medium-sized businesses.

The bank could finance these “restructurings” via the sale of government bonds, while also finding long-term “restructuring” efficiencies by aggressively cutting costs, which means closing bank branches and cutting employees. Of course, they’re not the only European banks looking to slash headcount to try and goose profits.

Now that Sabadell and BBVA have followed DB and Commerzbank in disappointing regulators pushing for a tie-up to create a new ‘national champion’, how long until they join DB in adopting some kind of permanent work from home strategy?