Caixabank and Bankia agree deal to create Spain's biggest lender

The combined entity will have a market value of about €16bn and hold €600bn of assets

The logo of Caixabank is seen outside a branch in Madrid, Spain, September 16, 2020. REUTERS/Sergio Perez
Powered by automated translation

Caixabank and Bankia are set to approve a deal that will create Spain's biggest domestic lender, with a combined market value of around €16 billion (Dh69.6bn/$19bn).

Negotiating teams from both banks agreed to the merger in principle on Wendesday and board members are due to sign off on Thursday on the financial terms of an all-share deal which would lead to a bank with around €600bn in assets, sources told Reuters.

"The deal was given white smoke late [on Tuesday] by its main shareholders," a source said. Bankia, Caixabank and the Economy Ministry declined to comment.

The Spanish state holds a 61.8 per cent stake in Bankia and the foundation of La Caixa holds, through its parent company Criteria, a 40 per cent stake in Caixabank.

The proposed merger marks another round of consolidation for Europe's banks which are struggling to cope with record low interest rates and the economic downturn sparked by the Covid-19 pandemic. More deals are expected to follow in Spain.

Teaming up with rivals offers banks a chance to generate value and cut costs to help to offset an expected increase in non-performing loans. The Caixabank/Bankia tie-up is expected to lead to hefty cuts in jobs and branches.

Caixabank and Bankia would leapfrog Santander and BBVA in the Spanish market with a combined market share of around 30 per cent, according to analysts. Both Santander and BBVA would remain bigger globally.

The deal has been described as a merger, but is, in effect, a takeover by Caixabank as it is almost three times as big as Bankia in terms of market value and almost two times by assets.

A source said earlier this week that Caixabank was considering offering a premium of between 15 per cent and 20 per cent over Bankia's average share price in the last three months, valuing Bankia at around €4bn.

This would be below Bankia's current value of €4.24bn, as both banks' share prices have jumped since the merger talks were announced.

Financial details of the transaction have not been announced but taking into account market capitalisation from the day the merger talks were confirmed on September 3, Caixabank would hold 77 per cent in the merged entity and Bankia around 23 per cent.

At current market prices, the split would be closer to 74 per cent for Caixabank and 26 per cent for Bankia.

"This is now being finalised and would also be the subject of the board meetings on Thursday, including the exact remaining stakes of current shareholders," a source familiar with the matter told Reuters.

Sources with knowledge of the matter said the state could end up holding around 14 per cent of the merged entity and Caixabank's main shareholders around 30 per cent.

Any potential deal involving state-owned Bankia has become a sensitive issue in Spain, where a recovery from the country's worst ever recession is now likely to be slower than expected due to the resurgence of the coronavirus infection.

Bankia was bailed out in a €22.4bn state rescue in 2012, at the height of Spain's financial crisis. So far, it has only returned €3.3bn of state aid.

But BBVA analysts said the deal would allow the Spanish state to divest its Bankia stake more easily.