Caixa, Bankia Form Spain’s Biggest Bank in $4.5 Billion Deal
A sign hangs outside a branch of CaixaBank SA, top, across the street from a branch of Bankia SA in Barcelona. (Photographer: Angel Garcia/Bloomberg)

Caixa, Bankia Form Spain’s Biggest Bank in $4.5 Billion Deal

CaixaBank SA agreed to buy Bankia SA to create Spain’s largest lender as European banks start looking at takeovers and mergers to confront weak profitability and stiff competition.

The deal values Bankia at about 3.8 billion euros ($4.5 billion) and the joint bank will deliver combined annual cost cuts and increased revenue of about 1.1 billion euros, Caixabank said on Friday. Bankia investors will get a premium of about 20% to the bank’s closing price on Sept. 3, the last before a potential deal was reported.

The biggest Spanish banking deal in two decades is the latest indication that European lenders are warming to the idea of buying or joining their rivals. Italy’s Intesa Sanpaolo SA is taking over domestic rival Unione di Banche Italiane SpA to be in a stronger position for cross-border deals, and Spain’s Banco de Sabadell SA is exploring strategic options including a sale or merger or buying a smaller competitor.

Caixa, Bankia Form Spain’s Biggest Bank in $4.5 Billion Deal

Bankia Chairman Jose Ignacio Goirigolzarri will be executive chairman of the combined bank and CaixaBank CEO Gonzalo Gortazar will remain in that role, overseeing a 15-member board, the banks said on Friday. The acquisition is expected to be approved by the shareholders of the two banks in November, with the merger completing in the first quarter of 2021.

CaixaBank fell as much as 4% in Madrid trading and was 3% lower as of 2:53 p.m. Bankia was down 5.4%. The Stoxx Europe 600 Banks Indes fell by 2.1%.

“It’s going to put a lot of pressure on the banks that are subscale,” said Ricardo Wehrhahn, chief executive officer at Intral Strategy Execution. “They are complementary because they represent different regions of Spain, so you’re creating a Spanish champion.”

Caixa, Bankia Form Spain’s Biggest Bank in $4.5 Billion Deal

Bankia investors will receive 0.6845 shares of CaixaBank for each one they hold in Bankia. The Spanish state, which owned about 62% of Bankia after a 2012 bailout, will own about 16% of the combined company.

Spain’s mostly retail-focused banks have been looking for ways to streamline their businesses as years of low interest rates and now the Covid-19 crisis erode profitability. Spain’s economy has been one of the hardest hit by the pandemic with its tourism industry especially affected.

“With this operation, we will form the principal Spanish franchise at a moment when it’s more necessary than ever to create entities with a critical size,” Goirigolzarri said in a statement.

The main shareholder in the new entity will be the Caixa Foundation via its holding company Criteria Caixa SA with a 30% stake. The government, which is the majority shareholder in Bankia, will hold a stake of about 16% in the combined business.

Pulling off a strategic operation that strengthens the banking sector while diluting the state’s ownership in Bankia is a rare bright spot for Prime Minister Pedro Sanchez’s government.

Biggest in Spain

The accord creates a lender with a combined market value of about 16.8 billion euros based on Thursday’s share prices. It will be Spain’s biggest bank by loans, assets and deposits, creating economies of scale that may allow it to undercut competitors in prices. Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA remain the country’s largest by market value, with large operations outside of Spain.

Caixa, Bankia Form Spain’s Biggest Bank in $4.5 Billion Deal

CaixaBank said it expects the acquisition to generate about 770 million euros of cost synergies a year and additional annual revenues of about 290 million euros. Its earnings per share are expected to increase by 28% compared to market estimates for 2022. The combined bank is expected to have a CET1 ratio of 11.6%.

“It’s a blessed distraction because there’s 1 billion euros of value to be created per annum” Gortazar said on a conference call.

The joint bank will review overlaps in its business, but no decision has been made regarding the workforce, CaixaBank said.

Barcelona-based CaixaBank, with a market value of 12.4 billion euros, operates a large insurance unit and asset management business and has 3,846 branches and more than 35,000 employees in Spain. Bankia specializes in mortgages and has 2,267 branches and a workforce of almost 16,000. Its market value is about 4.4 billion euros.

Spanish Banks in Play as European Dealmaking Starts to Take Hold

The combination would see CaixaBank, with its roots in the regional economic powerhouse of Catalonia, extend its presence into the nation’s capital and its large consumer and corporate base. It may also lead other lenders in the nation to consider their role in future consolidation.

CaixaBank’s acquisition of Bankia could generate between 60 basis points and 80 basis points of capital thanks to about 9 billion euros of so-called badwill, according to calculations by United First Partners. The European Central Bank in July suggested in July that it may allow banks to utilize negative goodwill -- the difference between market price and accounting value -- to boost capital ratios.

Banks across Europe are reeling from intense competition and the fallout from negative interest rates, but few have succeeded in executing mergers to reduce overcapacity and increase profits. The European Central Bank has tried to make it easier for lenders to pursue deals to boost the beleaguered industry. The watchdog said in July that merged banks don’t automatically face higher capital requirements and that accounting gains can be used to help fund combinations as long as it makes the bank safer.

Bankers across the region are jostling to position themselves ahead of an expected wave of consolidation in fragmented markets such as Germany. Deutsche Bank Chief Executive Officer Christian Sewing said recently that the Covid-19 crisis could accelerate mergers and acquisitions in banking.

©2020 Bloomberg L.P.

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