The news that CaixaBank and Bankia, two of Spain's big four banks, are negotiating a merger that would create Spain's largest domestic banking institution, has been well received by the stock market. This Friday the share prices of both banks soared at the opening of the session at the Madrid stock exchange. Bankia shareholders showed their liking for the move most strongly, with share prices up almost 33% by the close of trading, while CaixaBank rose more than 12% in the course of the day.
Supported by the Spanish government
The banking giant resulting from the merger will be Spain's largest with total assets of 664 billion euros: 446 billion from CaixaBank, of Catalan origin, and 218 billion from the strongly Madrid-focused Bankia. The operation will involve a significant change in shareholdings in the two banking entities: the Spanish state - which currently controls more than 60% of the once bailed-out Bankia through the FROB banking reconstruction fund - would be diluted to about 14% of the shares in the new entity. The new bank is expected to be in the hands of Bankia's current number one, José Ignacio Goirigolzarri.
On Thursday night, the two banks communicated the status of the negotiations to the financial regulatory body CNMV. The talks - which have been kept secret for several weeks - are at an advanced stage and also have the support of the Spanish government and economic deputy PM Nadia Calviño. Despite the confirmation, few details have been released on the massive operation involving Spain's number three and four financial institutions.
Banking concentration is favoured by the current difficult banking context, due to low interest rates and the coronavirus crisis. There have been numerous calls from international financial authorities to speed up banking merger processes in Europe.
Strengthening of market share
Supervisory authorities made aware of the negotiations will now await the final proposal, including aspects such as the internal distribution of power in the new company and the business plan. From an industrial point of view, the merger will significantly strengthen the market share that the two banks currently have in the main areas of economic growth in Spain.
While CaixaBank is very strong in Catalonia, the Balearic Islands, Madrid, Valencia and Andalusia, Bankia, for its part, is the leading bank in Madrid and is also important in the Valencian Country. It remains to be determined where the registered office of the merged entity will be, as both financial institutions currently have their respective headquarters in Valencia.
Bankia earned 142 million euros in the first half of 2020, 64.4% less than a year earlier, having dedicated 310 million euros to measures to respond to the crisis generated by the Covid-19 pandemic. For its part, CaixaBank earned 205 million euros in the first two quarters of this year, 67% less than 2019, after making provisions amounting to 1,155 million euros due to the pandemic.