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ARCHIVED - Bankia and Caixabank negotiate merger
The start of “a wave of mergers”
On Friday it was confirmed that Bankia and CaixaBank are in negotiations to merge.
On the 1st September former Spanish Minister of the Economy and Vice-President of the European Central Bank (ECB), Luis de Guindos, spoke at an economic forum in Santander about the potential implications of the growing economic crisis and warned that:“Cost reductions and consolidation have become much more essential because of the crisis”, his belief being that the start of a new wave of mergers was inevitable should there be a second wave of covid cases, “Mergers can be useful at a national level and at a cross-border level (…), and should be put into operation relatively urgently ”.
The Spanish Government is the majority shareholder in Bankia, with 61.8% of the capital, having merged together seven bankrupt banks during the last economic crisis in 2012, injecting more than 22,000 million euros to prop it up. The Sareb (commonly called the bad bank) sprang from this same operation, property assets hived off and sold/managed over the last 8 years to try and reclaim as much capital as possible from the housing, land and property portfolios seized by the bands due to loan defaults when the property bubble burst, a process which began in 2008, but intensified in 2010 and lasted until 2013.
The initial brief of the Sareb envisaged disposal of the assets within 2 years, but 8 years later, there is still a substantial bank of assets and the Spanish Government has been waiting for a chance to withdraw from Bankia, but has been unable to do so due to the ongoing fallout from the economic crisis and the length of time it has taken for the country to emerge from recession, the State unable to withdraw from Bankia, due to a persistent low level in its value.
So far, it has only recovered 3.3 billion euros from the initial injection.
CaixaBank, is Spain’s third largest institution, with nearly 10.9 billion euros in capitalization and 400 billion euros in bank assets, and Bankia, its fourth largest bank, with nearly 3.2 billion in capitalization and over 200 billion in assets.
Both banks have lost a significant part of their value since the Covid crisis began and published falling profits, but analysts believe that a merger is a mutually beneficial proposition, and both banks are well-aligned to offer advantages to the other.
A merger is thought to be the most practical option, although will undoubtedly lead to local job losses as branches are lost from the high street.
Both entities lodged their exploratory contacts at midnight between Thursday and Friday with the Madrid Stock Exchange regulator, and the stock market received the news positively.
The merger is also backed by Bankia's majority shareholder, the Fund for Orderly Bank Restructuring (Frob). If the negotiations are successful, this public body could have 14% of the new entity, according to current market valuations. But the majority partner will be the La Caixa Foundation, which will maintain control with about 30% of the capital.
CaixaBank, since the last financial crisis, has been one of the most active entities in the absorption of entities. It was acquired Banca Cívica, Morgan Stanley in Spain, and Banco de Valencia and Barclays. Bankia also has experience in this field, since it joined with BMN a few years ago, a group that was also nationalized.
As a result of the pandemic, the situation in the sector has become more clouded if that is possible, due to the inevitable financial burden as unemployment rises and the economy teeters.
Bankia has reduced its stock market value to less than 3,200 million, so that the participation of 62% of the Frob barely stands at 2 billion. For its part, CaixaBank has reduced its capitalization to 11,900 million.
The operation would allow the State to participate in a group with a greater potential for profitability and thus be able, through a subsequent sale, to recover some of the public aid originally injected.
The new group will be able to carry out high cost synergies, since it would be created with more than 50,000 employees and 6,700 offices, of which 6,000 are located in Spain. The rest are in Portugal, where CaixaBank has a presence through BPI. The greatest network duplications occur in the Valencian Community, where both have their headquarters.
The Ministry of Economic Affairs says that it will analyze the eventual formal merger proposal “from the perspective of generating value and optimizing its ability to recover aid.”
And undoubtedly, from the point of view of a second covid wave and the high costs of financing it.
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