Directors from CaixaBank and Bankia meet Thursday to approve their merger into Spain's biggest national lender in a move which will transform the landscape of Spanish banking.
A source close to the deal said the board of directors of both banks will meet during the afternoon to approve the merger, details of which were thrashed out in a series of tough negotiations with Bankia's biggest shareholder, the Spanish government.
The merger will transform the Spanish banking sector, creating the country's largest bank with combined assets of around 664 billion euros, Renta 4 Banco analysts say, putting the new entity ahead of Santander or BBVA, both of which have a more international presence.
Under terms of the deal, shareholders in CaixaBank, Spain's largest domestic bank, would hold 75 percent of the new entity, while Bankia shareholders would take the remaining 25 percent.
The Spanish state, which currently holds just under 62 percent of Bankia, will hold a 14-percent share in the new group, press reports said.
In 2012, the Spanish government stepped in to save Bankia from collapse, spending 22 billion euros ($26 billion at current exchange rates) to bail out a bank that was seen as a symbol of financial excess at a time when the Spanish economy was mired in crisis.
The huge merger comes in a very difficult economic context for Spain which has been particularly badly hit by the coronavirus pandemic, with gross domestic product collapsing by 18.5 percent in the second quarter.
The deal should enable the two banks to reduce costs and offers them "a way of trying to improve profitability," said Xavier Vives of the IESE Business School.
- Job cuts loom -
Another advantage of the merger is the geographical footprint of each bank, with Bankia more present in Madrid and in the centre of the country, while CaixaBank is well-established in the northeastern Catalonia region, said Robert Tornabell, a banking specialist at ESADE business school.
The financial structure of the deal will allow CaixaBank to access tax breaks worth "several billion" euros, which would allow the new bank to "finance staff restructuring and branch closures," he said.
Press reports suggested the takeover would result in nearly 8,000 jobs being axed. The two banks currently employ 51,000 staff spread across 6,000 branches.
Despite the staffing issues and the competition concerns raised by the deal, which will create a bank that will manage nearly a third of all Spain's home loans, the Spanish government has welcomed the tie-up.
"There is a process under way," Economy Minister Nadia Calvino said last week, pointing out that the European authorities have long been encouraging consolidation in the banking sector.