"The deal comes as Europe’s financial sector braces for lean times. With banks’ profitability in recent years already dented by low interest rates, which squeeze their profits on loans, they are battling a steep economic downturn as well as uncertainty about the future due to the coronavirus pandemic and the United Kingdom’s departure from the European Union," the Associated Press wrote in an article on Friday.
Bankia is based in Madrid and CaixaBank is in Valencia. The entity created by the merger, should it come to fruition, would keep the CaixaBank name and would be larger than the country's current largest bank, Santander.
According to a news release issued by the banks, the new entity will have "more than 20 million customers, a 25 percent and 24 percent share in loans and deposits respectively, and a diversified and balanced geographic presence."
José Ignacio Goirigolzarri will be the executive chairman of the entity and Gonzalo Gortázar will serve as CEO.
"The merger will allow us to face the challenges of the next 10 years with greater scale, financial strength and profitability, resulting in greater value for our shareholders, more opportunities for our employees, better service to our clients and a greater capacity to support Spain’s economic recovery," Gortázar said in the news release.
Goirigolzarri added: "With this operation, we will become the leading Spanish bank at a time when it is more necessary than ever to create entities with a significant size, thus contributing to supporting the needs of families and companies, and to reinforcing the strength of the financial system. The new entity will continue to carry out the best corporate governance practices.”
The banks stated that the merger is scheduled to close in the first quarter of 2021.
The share-exchange approved by the banks' boards would leave CaixaBank shareholders owning 74.2 percent of capital and Bankia shareholders owning 25.8 percent.
The banks referenced cost savings in Friday’s announcement, but did not indicate how many employees will lose their jobs.