Since CaixaBank formally acquired Bankia last Friday, following the biggest merger this century in Spain’s banking sector, it began trading on the stock market this week as a new company. CaixaBank is now the largest bank in Spain by market share in loans and deposits and continues to be the country’s biggest retail bank.
Next steps for the company are to overcome the challenging market conditions in a country needing to dig deep to recover from contracting more than any other EU country last year.
The challenge is one that CaixaBank’s CEO, Gonzalo Gortázar, is fully embracing, admitting that there is ‘nowhere to hide’ for the company as it seeks to generate profits against a backdrop of negative interest rates.
The combined group, with assets of 624 billion euros and 20 million clients, will focus on increasing its share in consumer and business lending and long-term savings.
Banking regulators in Madrid and Frankfurt see the merger as a positive step towards consolidation in the sector, which they regard as being key to efficiencies and sustainability in European banking.
In an interview with The Financial Times this week, Gortázar highlighted the strength of the bank’s position following the merger, stating that ‘together, we are the clear leader in the banking sector … this puts us in a better situation to deal with the economic consequences of the pandemic.’
Bankia’s reputation was marked by its collapse and subsequent bailout from the EU in 2012, when the government took control of 62% of company. It was the biggest crisis in the history of Spain’s banking sector.
Since then, Bankia had transformed the business and Gortázar praised the company’s turnaround over the last nine years, saying, ‘the Bankia we are absorbing now has different owners and different management, and in the past nine years they have changed the situation radically – they have flipped the omelette, as we say in Spain.’
The merger will result in an expected reduction in costs of 770 million euros, although details of how this will be achieved have not been made clear. Over the last few days, it has been rumoured that up to 8,000 jobs are now at risk at the bank and that discussions with trade unions have begun as part of the process to begin a redundancy programme. More information about this is expected to be released soon.
As far as the bank’s plans to generate profits, there will also be a shift in focus to generate new business strands through initiatives such as car leasing and similar activities.
CaixaBank has previously benefitted from a strong performance of its insurance products, and this is also expected to continue.
In the months ahead, forecasts for the bank indicate growth of 6%, but also highlight that this is subject to how the summer months play out with the economy and Spain’s tourism sector continuing to be impacted by Covid-19 and restrictions.
However, Gortázar was more optimistic about determining companies’ abilities to repay loans, and that there were indications that customers’ activities were rebounding from the worst of the pandemic.
The post-Covid era, however, will still see low or negative interest rates prevailing, and the challenge for all banks generating profits in this type of environment will continue for some time.
CaixaBank will be announcing in the weeks and months ahead how it will reorganise its business to tackle these challenges, continue to win new business and to support its customers.
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