Madrid (AFP)

The boards of directors of CaixaBank and Bankia are meeting on Thursday to approve their merger which will upset the Spanish banking landscape by giving birth to a juggernaut.

According to a source familiar with the matter, the two banks' councils will be held in the afternoon to validate the details of the operation, the subject of tough negotiations in which the Spanish State, Bankia's largest shareholder, took part with 61.8 %.

This merger should upset the Spanish banking landscape by giving birth to the country's largest bank in terms of assets in Spain, ahead of Santander or BBVA, which, on the other hand, have a more international presence.

These assets would amount to around 664 billion euros, according to analysts at Renta 4 Banco.

At the end of this buyout of Bankia by CaixaBank, the shareholders of the latter should ultimately own around 75% of the new entity, against 25% for those of Bankia, according to the press.

As Bankia's largest shareholder, the state should inherit a 14% share of the new group.

In 2012, the State saved Bankia from bankruptcy by injecting 22 billion euros, or more than half of the European funds granted to Spain to avoid the collapse of the banking sector, devastated by the explosion of a real estate bubble in the midst of the global financial crisis.

This merger comes in a very dark economic context for Spain, one of the European countries most affected by the Covid-19 pandemic, whose GDP collapsed by 18.5% in the second quarter.

In this context, this merger should allow the two banks to reduce their costs, which is therefore "a way of trying to improve profitability", explains Xavier Vives, professor at IESE Business School.

- Job cuts in sight -

Their geographical complementarity is seen as another advantage of the merger, Bankia being more present in Madrid and in the center of the country, while the Catalan CaixaBank is well established in the south and the east, underlines Robert Tornabell, specialist in banks of Esade Business School.

The financial structure of the operation will also allow CaixaBank to obtain "several billion" euros in tax relief, says the expert.

What "will finance the restructuring of personnel and the closings of agencies", he explains while the press evokes nearly 8,000 job cuts, out of some 51,000 employees and 6,000 agencies that will have the new juggernaut.

Despite these social consequences and the competition concerns that could arise from an entity that will manage nearly a third of Spain's real estate loans and pension funds, the government views the operation favorably.

"There is a process underway," Economy Minister Nadia Calviño confirmed last week, stressing that the European authorities have long supported the concentration of the banking sector.

- Recover the taxpayer's money -

"With this operation, the government is getting rid of a puzzle," recently estimated the business daily Cinco Dias.

Since the rescue of Bankia, he has been trying to get rid of his stake, but the financial context has never been favorable.

He has so far only recovered 3.3 billion out of 22 by selling part of the capital on the market.

Even if its share in the new entity will be reduced to 14%, it should bring in more money to the State than its share in Bankia because the new bank will be much more profitable.

Nevertheless, it will take "several years" for the State to hope to recover an amount which will not be very high in the end, underlines Robert Tornabell.

By the way, the sulphurous name of Bankia should disappear from the landscape in favor of that of CaixaBank, according to the press.

Because Bankia evokes for all Spaniards multiple scandals, in particular that of its IPO in 2011, which had attracted thousands of small shareholders ruined a few months later by the collapse of the title while the bank on the verge of bankruptcy was saved by the state.

Justice must soon deliver its verdict in this case.

Eight and a half years in prison were required against former IMF director Rodrigo Rato, accused of forgery and fraud when he ran the establishment between 2010 and 2012.

© 2020 AFP