CaixaBank, Bankia Mull Deal to Form $17 Billion Spanish Bank

(Bloomberg) -- Spain’s CaixaBank SA and Bankia SA are exploring a merger to form the largest lender in the country and kickstart consolidation in one of the hardest-hit European economies during the pandemic.

The firms are examining an all-share transaction, CaixaBank said in a statement overnight, in a deal that would create a lender with a combined market value of about 14 billion euros ($16.6 billion) as of Thursday. The talks are in an advanced stage and an agreement could be reached as soon as next week, according to two people familiar with the matter.

Shares of both banks soared, with Bankia gaining the most in seven years.

Barcelona-based CaixaBank would probably take over a Madrid rival that’s about a third of its size, creating a lender that would distance rivals Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA at home. It would mark the first major deal in years in a market dominated by retail banks struggling to boost profit in an era of negative rates and economic contraction, and could reignite merger talks across Europe.

A combination of CaixaBank and Bankia would create the largest lender in Spain by loans, assets and deposits, according to calculations by Citigroup Inc. The new entity would have a market share of 23% by assets, 26% by loans and 24% by deposits, according to Citi.

As things stand, Bankia Chairman Jose Ignacio Goirigolzarri would become chairman of the new entity, while CaixaBank’s Gonzalo Gortazar would be its chief executive officer, the people said, asking not to be identified discussing internal negotiations.

Spain’s government has been deliberating the future of its 61.8% stake in Bankia since rescuing the lender in 2012 to avoid a collapse of the nation’s financial system. Spain’s bank rescue fund known as Frob would hold 17% of the new group, according to Citi calculations, while the Caixa Foundation would be the largest stakeholder with about 30% of the new entity.

Frob will analyze any proposed merger with “objectivity,” from the perspective of optimizing the recovery of state aid, according to a statement from the Spanish Economy Ministry.

CaixaBank shares rose as much as 15% in Madrid trading, paring this year’s decline to about 26%. Bankia soared as much as 34%.

What Bloomberg Intelligence Says

An all-share merger with Bankia has appeal for the larger CaixaBank, as the former is well-capitalized (CET1 of 13.3%) and we calculate significant synergy scope with almost $10 billion of badwill potential to boost provisioning and cover integration costs.

Georgi Gunchev and Jonathan Tyce, banking analysts

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 banks to pursue deals which could help 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 at a conference earlier this week that the pandemic could accelerate that process. 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.

CaixaBank is particularly strong in insurance and has 3,846 branches in Spain, more than 35,000 employees and had a market value of almost 11 billion euros as of Thursday. Bankia specializes in mortgages and has 2,267 branches and a workforce of nearly 16,000. Its market value was 3.2 billion euros.

Barclays estimated that a deal could lead to annual cost savings of almost 500 million euros.

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.

The current management of Bankia has worked hard to clean up the bank’s image since the financial crisis. Ex-Chairman Rodrigo Rato is currently serving a 4 1/2 year sentence in a prison outside Madrid after he and 63 other officials racked up 12 million euros in expenses on their corporate credit cards.

A Spanish court is also investigating his role in Bankia’s initial public offering in 2011, in which he and other former managers stand accused of falsifying the bank’s accounts and providing false data in its prospectus.

©2020 Bloomberg L.P.