A €4.3 billion all-share merger between Madrid’s Bankia and Barcelona’s CaixaBank marks a clear victory for the Catalans in the long-running battle for Spanish banking supremacy.
The merger will create an institution with a market share of Spanish loans and deposits of about 25%. It will see what is essentially an agglomeration of regional savings banks around Caja Madrid, Bankia, subsumed into its bigger and more successful Barcelona-based rival, CaixaBank.
This could finally end the last decade’s crisis in the Spanish savings banks – known cajas in Castilian, or caixas in Catalan. And if it’s a banking equivalent of El Classico – the match between football arch rivals FC Barcelona and Real Madrid – this time the Catalans have clearly come out on top.
Perhaps, another bank from Madrid – most likely BBVA – will win the consolidation game for smaller Catalan lender, Banco Sabadell, which is rumoured to be looking for a partner.
But BBVA, or indeed Santander, will only ever gain second or third place in Spain’s banking sector. CaixaBank has the country’s biggest market share of loans and the second biggest share of deposits, while Bankia has the fourth biggest share of both. Sabadell’s share of domestic loans and deposits is only the fifth biggest.
Officially, CaixaBank – as it will continue to be known – will still be registered in Valencia, as it and Bankia are today. The merged entity will split its operational headquarters between Madrid and Barcelona.
Bankia’s executive chairman José Ignacio Goirigolzarri will retain his title, while CaixaBank’s chief executive Gonzalo Gortázar will retain his.
Friendly takeover
But this is a takeover, even if it is a friendly one. Despite a 20% premium over Bankia’s unaffected share price, CaixaBank shareholders will own 74% of the combined entity.
Above all, by far the biggest shareholder – with about 30% – will remain the investment vehicle of Caixa’s charitable foundation, Criteria. This is headed by one of the most influential people in Catalonia and all Spain, Isidro Fainé. He is the key powerbroker in the deal, alongside Spanish prime minister Pedro Sánchez.
CaixaBank’s victory was only possible because it had become much more than a purely Catalan bank, thanks to string of mergers with banks across Iberia over the last decade.
That demise of regional centricity is not to everyone’s taste in Catalonia. Gortázar is from Madrid and Goirigolzarri is from Bilbao, in the Basque country.
But as the new bank’s identity will ultimately remain CaixaBank, the Spanish ascendance of a Catalan champion is surely useful for Sánchez’s efforts to promote the benefits of national unity.
By joining forces, the two banks hope to save €770 million a year by 2023
It is also desirable for the financial supervisors in Frankfurt, as banks need to bulk up at a national level, and become more profitable in doing so, before the continent can hope to build European champions.
The deal will make it easier for Bankia’s biggest owner – the government – to sell out, as its shares will be more liquid.
The state bailout vehicle owns 62% of Bankia and will only own about 16% of CaixaBank.
A minority shareholding will also make it harder for Sánchez’ junior coalition partner, far leftist party Podemos, to dream of turning Bankia’s balance sheet into an instrument of government policy.
Both Bankia and CaixaBank have good managers.
Under Gortázar, CaixaBank has proven its ability to bulk up through acquisitions.
Under Goirigolzarri, Bankia has cut costs and become one of the safest banks in Spain after its bailout in 2012, just two years after its creation.
Business models
However, the longer-term reasons behind the Barcelona-based bank’s leading role is its fundamentally better business model. Bankia’s bailout saw the government take soured real-estate loans off its books, but it is far more dependent on interest income from residential mortgages than other Spanish banks, especially CaixaBank.
As mortgages tend to be interest-rate trackers in Spain, prolonged negative eurozone interest rates are particularly damaging for Bankia. As a result, even before Covid-19, it was one of the banks in Europe with least chance of earning its cost of equity.
By contrast, one of CaixaBank’s differentiating strengths in the Spanish banking sector is its ownership of Spain’s biggest insurance company, VidaCaixa.
As elsewhere in Europe, Spanish banks tend to do far better if they can hang profitable in-house ancillary products – especially life insurance – onto their mortgages.
CaixaBank was at pains to highlight this advantage when explaining why the banks’ boards approved the merger in late September.
By joining forces, the two banks hope to save €770 million a year by 2023. Yet greater cross-selling potential will motivate staff more, even if analysts have more faith in layoffs and branch closures.
The banks say that adding Bankia’s distribution will generate €290 million in new revenues, as Bankia’s clients only hold about 22% of their funds in asset management and life insurance products, versus 41% at CaixaBank. They expect to save €75 million just from insourcing Bankia’s insurance products from a joint venture with Mapfre.
Any acquisition of Sabadell, meanwhile, would be done for different reasons.
BBVA and Santander, like Sabadell, have weaker capital ratios than Bankia or CaixaBank. To pay for restructuring costs, it might require sales of insurance and asset management product factories.
Weighing up the credit risks of Sabadell’s big small and medium-sized enterprise book is also harder, given the uncertainties stemming from the pandemic in 2020.
