Daily Management Review

Uptick In Bank Mergers In Europe Signaled By Caixabank’s $5 Bln Deal For Bankia


Signals of an uptick in mergers among Europe’s banks even as they struggle from the impact of the novel coronavirus pandemic re available with the agreement of Bankia being acquired by Caixabank for 4.3 billion euros ($5.1 billion) in an all-share deal which will result in the creation of the biggest domestic bank of Spain.
With a combined market value of more than 16 billion euros ($19 billion), the merger of the two banks will create the largest domestic bank by assets. The two banks hope that the deal will also result in an annual cost saving of 770 million euros.
There is increasing pressure on European banks to merge and thereby combine resources to deal with increasing bad debts and record-low rates of interest.
While Unione di Banche Italiane is being acquired by Italy’s Intesa Sanpaolo, informal talks about a possible tie-up is also being held by Spain’s Sabadell.
The deal had been done as the two banks anticipated a “more complex environment” triggered by the pandemic, Bankia chairman Jose Ignacio Goirigolzarri told analysts.
“We believe we are in a disruptive moment and in a disruptive moment we think it is necessary to take decisions and react,” said Goirigolzarri, who will become the executive chairman of the new lender, albeit with limited powers.
The number of job losses or the number of branches that will be needed to be closed down because of the merger was not specified by Caixabank and state-backed Bankia. But fears of hefty cuts from a merged bank that will have more than 6,300 outlets and more than 51,000 staff in Spain have been expressed by the main trade union CCOO.
Even though the deal is being described as a merger, it I in fact more suitable to call is a takeover of the smaller bank by Caixabank as it is almost three times larger than Bankia in terms of market value and about two times as large in terms of assets.
By 2023, an expected annual cost synergies of around 770 million euros and new annual revenues of around 290 million euros in a period of five years is expected by the banks, both the banks said in a joint statement.
The goals will not be easy to achieve in a “very short term,” but were feasible said Caixabank Chief Executive Gonzalo Gortazar, who is slated to be the CEO of the merged entity.
Since the revenues projected from the merger “are not minor”, therefore more execution risk than just a cost savings plan was involved in achieving the target, said brokers BBVA.
Caixabank and Bankia said that the new merged entity will have 25 per cent of gross costumer loans and 24 per cent of deposits in Spain which are more than Santander and BBVA.