Madrid (AFP)

Bankia and CaixaBank have announced that they are discussing a merger that would give birth to a banking juggernaut in Spain amid a grim economic backdrop due to the Covid-19 pandemic.

An operation closely followed by the State which saved Bankia from bankruptcy in 2012.

This announcement, synonymous with an earthquake for the Spanish banking sector, fell overnight from Thursday to Friday.

In a press release, Bankia said "to confirm contacts with CaixaBank (...) with a view to analyzing the possible opportunity of a merger between the two entities".

CaixaBank said for its part that "no agreement had been sealed for the moment beyond the signing of a confidentiality agreement in order to exchange information intended to evaluate the operation".

At the Madrid Stock Exchange, the securities of the two banks flew away.

Bankia took 28% to 1.33 euros around 11:15 GMT while CaixaBank climbed 14% to 2.08 euros.

- Largest bank in terms of assets -

Such a merger would give birth to the largest bank in the country in terms of assets in Spain, ahead of Santander or BBVA which, on the other hand, are stronger internationally.

According to calculations by Renta 4 Banco analysts, these assets amount to around 664 billion euros.

The announcement of these discussions between the two banks comes in a very dark economic context in Spain.

It is one of the countries most affected in Europe by the Covid-19 pandemic, which will inevitably increase bad debts for banks and therefore provisions.

Under one of the strictest lockdowns in the world, Spain's GDP plunged 18.5% in the second quarter, a period during which more than a million jobs were destroyed.

For the year as a whole, the government expects a drop of 9.2% but the Bank of Spain estimates that the decline should reach 15%.

This operation is closely monitored by the Spanish government, which will have to give the green light after the State saved Bankia from bankruptcy in 2012 by injecting 22 billion euros into it following the worsening financial crisis in Spain. .

It still holds 61.8% of its capital.

The government will examine any merger project from the angle "of value generation and optimization of recovery of state aid", said the Ministry of Economic Affairs.

Since 2012, the State has been trying to get rid of its participation, but the financial context has never been favorable.

He has so far only recovered 3.3 billion by selling part of the capital on the market.

According to Nicolas Lopez, director of analysis at MG Valores, the Spanish state sees in this operation "a way to improve the valuation of its investment in Bankia" and to recover "a little more than if it had remained alone" at the head of the shareholders.

But, according to Mr. Lopez, he will not be able to hope to recover much of his 22 billion while the market "has nothing to do" with the previous levels of valuation.

According to several analysts, the State should retain 14% of the capital after a possible merger between the two entities.

Such an operation should have social consequences, according to the press, while the two banks will have to avoid duplication by closing branches.

Bankia chairman José Ignacio Goirigolzarri could hold the same function within the merged entity while the managing director is expected to be Gonzalo Gortázar, who occupies that position within CaixaBank.

© 2020 AFP