Spain’s Bankia, CaixaBank Explore $17 Billion All-Share Deal

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(Bloomberg) — Spanish lenders Bankia SA and CaixaBank are exploring a 14 billion-euro ($16.6 billion) merger to take on the country’s largest banks and kickstart consolidation in one of Europe’s hardest-hit economies during the pandemic.

The firms are examining an all-share combination, CaixaBank said in a statement overnight. Discussions are “preliminary,” Bankia said separately, adding that it had submitted a proposal to examine the deal to its board. Shares of both banks soared.

An agreement would likely see Barcelona-based Caixabank take over a Madrid rival that’s about a third of its size and help it compete for market share in a country dominated by Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA. The takeover could also be the first major deal in a market dominated by retail banks struggling to boost profit in an era of negative rates and economic contraction.

Spain’s government has been deliberating the future of its 61% stake in Bankia since rescuing the lender in 2012 to avoid a collapse of the nation’s financial system. Spain’s bank rescue fund known as Frob would hold 14% of the new group, El Confidencial reported earlier, without saying where it got the information.

Frob would analyze any proposed merger with “objectivity,” from the perspective of optimizing the recovery of state aid, according to a statement from the Spanish Economy Ministry.

CaixaBank is particularly strong in insurance and has 3,846 branches in Spain, more than 35,000 employees and a market value of almost 11 billion euros. Bankia specializes in mortgages and has 2,267 branches and a workforce of nearly 16,000. Its market value is 3.2 billion euros.

CaixaBank shares rose as much as 7.4% in early Madrid trading, paring this year’s decline to about 31%. Bankia soared as much as 20%.

The combination would see CaixaBank — from its roots in the regional economic powerhouse of Catalonia — extend its presence into the heart of the country in Madrid and its large consumer and corporate base. It may also lead other lenders in the nation to consider their role in future consolidation.

European banks are reeling from intense competition and the fallout from negative interest rates, but few have succeeded in executing mergers to reduce overcapacity and increase profits. The European Central Bank has tried to make easier for banks to pursue deals which could help the beleaguered industry. The watchdog said in July that merged banks don’t automatically face higher capital requirements and that accounting gains can be used to help fund combinations as long as it makes the bank safer, rather than boost short-term shareholder returns.

Bankers across the region are jostling to position themselves ahead of the expected wave of consolidation in fragmented markets such as Germany. Deutsche Bank Chief Executive Officer Christian Sewing said at a conference earlier this week that the pandemic could accelerate that process. Italy’s Intesa Sanpaolo SA is taking over domestic rival Unione di Banche Italiane SpA to be in a stronger position for cross-border deals.

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