The Spanish government has rejected BBVA’s hostile takeover bid for Banco De Sabadell (Sabadell), citing the transaction could create uncertainty in the financial market.

BBVA has directly offered Sabadell’s shareholders one newly issued BBVA share for every 4.83 Sabadell shares held, which values Sabadell at about $12.4bn.

Earlier this week, Sabadell’s board of directors rejected a proposal on the same terms.

Sabadell, in its filing with the Spanish securities regulator CNMV, said that the documents provided by BBVA violate a government rule on how companies must make such approaches,

Spain’s Economy Minister Carlos Cuerpo said that the government has the authority to suspend any merger or acquisition of a bank.

The government can decide within six months, after consulting with regulators including the Bank of Spain and the securities regulator CNMV.

The Minister said that the government considers the combination of the two banks would pose harmful effects on the Spanish financial system and would impact jobs and customers.

Cuerpo, in an interview on TVE, said: “We are right now, both in form and substance, rejecting this operation as a consequence of those potential negative effects it could have.

“We have the last word when it comes to authorising the merger by absorption by BBVA with Sabadell and that is where we would come in, of course, to make this assessment.”

BBVA Chairman Carlos Torres said: “The combined entity would boost the Spanish economy by generating a higher tax base and creating a stronger player in Europe. I am confident that the government will appreciate the value of the transaction.”

BBVA said that the proposed merger will have positive financial impacts and will relevant synergies and the complementarity and excellence of both banks

Catalonia region in Spain, which would be most affected by the merger due to a large number of overlapping branches in the region, will hold regional elections in two days.

Sabadell and CaixaBank, both founded in Catalonia, moved their legal headquarters out of the region in 2017, after a failed attempt by Puigdemont to separate it from the rest of Spain.

Unions and some local parties have already expressed concerns about the impact any merger would have in terms of job losses and branch closures in the region.

According to the workers union CCOO, a hostile takeover generates more concerns than the previous proposal and calls on regulators to apply measures that ensure there is no monopoly.

CCOO in a statement, said: “Should the takeover go ahead it would demand even more firmly that this operation be carried out with specific labour guarantees agreed in writing, while we call on the supervisors and regulators to move from statements to facts, adopting present and future antitrust measures.”