CaixaBank believes that the merger is the first chapter in the integration of banking in Europe
"The merger between CaixaBank and Bankia will not only be a revulsion, but above all it is the first chapter in a process of consolidation of banking in Europe. We are happy to have anticipated it". This is the message that both José Ignacio Goirigolzarri, the future Chairman of the new group, and the CEO, Gonzalo Gortázar, sent out. The still President of Bankia, José Ignacio Goirigolzarri, considers that each bank should analyse its individual case and the possible travelling companions it can count on because "reaching an integration agreement is not easy". Gortázar adds that "to get married in difficult times it is important to choose the right partner, and we are convinced that we have a good partner". And he justifies these operations with negative interest rates that have already accumulated four years of existence and that are expected to persist for a long period of time.
Goirigolzarri reveals that the first step towards the merger was taken by CaixaBank's main shareholder, the La Caixa Foundation, and its president, Isidre Fainé, when he approached Bankia's majority owner, the Frob, and the economic vice-president of the government, Nadia Calviño. "On 22 August the extraordinary councils are convened, which meet on the 25th to approve the start of negotiations and the hiring of the advisers", he says.
"The Frob did not take part in the negotiations," said Bankia's chairman, who made it very clear that the public aid for its clean-up was the "right decision" regardless of how much the state might recover. For Gortázar, the presence of the Frob as a shareholder in CaixaBank is a further incentive to create value and ensure that the recovery of the aid is as great as possible.
The Governing Committee of the Fund for the Orderly Restructuring of the Banking Sector (FROB) will carry out a "detailed analysis "and considering all the alternatives that could be proposed for the generation of value and, therefore, optimisation of the capacity for recovery of aid" of the proposal in order to establish its position and possible vote at the extraordinary general meeting of shareholders, which will be held in mid-November. Until then, it will not appoint its representative in CaixaBank, where it will hold 16.1%. But he speaks of an "improvement in the prospects for future disinvestments". The Frob has until 31 December 2021 to sell its stake, but this date may be changed by the Council of Ministers at the request of the Ministry of the Economy.
Gortázar ditches the speculations about what CaixaBank will do with the 'badwill' or negative goodwill that will be generated in the operation, because "it is no treasure from which Euros will come to pay something, neither the restructuring costs nor anything else, because it is a result that is not real". It is only an accounting impact because the price of the absorbed entity is below its book value.
Moreover, until the operation is closed, probably in March 2021, it cannot be quantified, as it will depend mainly on the performance of Bankia's shares over the next six months. In fact, negative goodwill is now lower than it was a few weeks ago, as the absorbed bank's shares have advanced by around 40%. Regarding the impact on the workforce, "it is too early to speculate on the people affected and the profile of possible exits", but he is committed to reaching non-traumatic agreements and to seeking other innovative ways to try to lessen the impact of the adjustment on workers.
Goirigolzarri points out that the current CEO of Bankia, José Sevilla, will occupy a position of great responsibility on CaixaBank's Management Committee, which will be communicated when the organisational chart is decided, although he will not sit on the Board of Directors. His contribution to the merger has been "decisive" and he will now continue to focus on Bankia's business, as for at least six months each institution will continue to work separately, with only a few people focusing on the merger project.
Bank of America argues that the goal set by the group resulting from the merger of Caixabank and Bankia to generate revenue synergies of ?290 million per year over a five-year horizon is "ambitious, given the experience of other transactions". On the other hand, both the synergies resulting from the operation in costs, which amount to annual savings of 770 million, and the restructuring costs of 2,200 million, are "in line with your expectations".
"We are concerned about the strength of the combined entity's balance sheet, the high level of net doubtful assets, the deferred tax credit, the tax losses carried forward and the double leverage of the CaixaBank insurance company", says the report, which mentions that the nearly 24,000 million euros in loans with defaults as well as the risk in the credit lines with the Official Credit Institute (ICO) "suggest pressure on capital and earnings in the future". Juan Carlos Ureta, president of Renta 4 Banco, believes that the merger of Bankia and CaixaBank will be the trigger for more mergers in the banking sector, due to the "popcorn effect" which "forces a sector to do the same things at the same time".
The transformation of the banking sector is accelerated by the pandemic, with digitalisation, the zero interest rate "that penalises banking" and the structural overdimensioning of workforces and branches. It is therefore a "positive and necessary" operation, "one of survival" in a "Darwinian and creative destruction" world. But it warns of the destruction of jobs and the greater difficulty of obtaining loans by entrepreneurs and SMEs in the "short term".
The Boards of Directors of CaixaBank and Bankia have approved their merger by absorption project consisting of an exchange equation of 0.6845 new ordinary shares of CaixaBank for each of the nationalized entity. The agreed price includes a premium of 20% over the exchange ratio at the close of September 3, before the market is informed of the existence of negotiations on the operation. In addition, it represents a premium of 28% over the average exchange ratio of the last three months. Considering the total number of Bankia shares in circulation that could be used in the exchange, the maximum number of CaixaBank shares to be issued to meet the merger exchange is 2,079,209,002 ordinary shares of CaixaBank with a par value of one euro each; this figure could be adjusted according to the number of shares held in treasury.
The established exchange means that CaixaBank shareholders will initially represent 74.2% of the capital of the new entity, and those of Bankia, 25.8%. CriteriaCaixa, an entity controlled 100% by La Caixa Foundation, will remain the main shareholder of CaixaBank with around 30% of the shares, while the FROB will reach 16.1%. The combined entity's shareholder structure is completed with 54% of free float (shares quoted on the stock market), 37% corresponding to institutional investors and 17% to the retail market. Morgan Stanley and Rothschild, financial advisors to CaixaBank and Bankia, respectively, issued a fairness opinion yesterday in which they concluded that the proposed exchange rate is reasonable from a financial point of view and under current market conditions.
From now on, the approval of the merger reports is required from both boards, as well as from the General Shareholders' Meetings, which would be held in November. The operation is expected to be closed during the first quarter of 2021, once all the relevant regulatory authorisations have been received (Ministry of Economic Affairs and Digital Transformation, National Commission for Markets and Competition, non-opposition by the Directorate General of Insurance and Pension Funds, the CNMV and the Bank of Spain to the acquisition by CaixaBank of significant holdings in companies subject to its supervision).
José Ignacio Goirigolzarri, the current President of Bankia, once appointed by the new Board of Directors of CaixaBank, will be the President of the new group. The Chairman, who will have executive status, will be responsible for the areas of Board Secretariat, External Communication, Institutional Relations and Internal Audit (without prejudice to maintaining the dependence of this area on the Audit and Control Committee). The current Chief Executive Officer, Gonzalo Gortázar, will be the top executive of CaixaBank, reporting directly to the Board of Directors, with responsibility for all areas not covered by the previous paragraph, and chairing the Management Committee.
José Ignacio Goirigolzarri stressed that "with this operation we are making up the first Spanish franchise at a time when it is more necessary than ever to create entities of critical size, thus contributing to supporting the needs of families and businesses, and reinforcing the soundness of the financial system". "The new entity will continue to develop the best practices in corporate governance".
For his part, Gonzalo Gortázar stressed that "the merger will enable us to face the challenges of the next 10 years with greater scale, financial strength and profitability, which will result in greater value for our shareholders, more opportunities for our employees, better service for our customers and a greater capacity to support the economic recovery in Spain".
On the other hand, the composition of the bank's Board of Directors has also been defined, which will be submitted for approval at the AGMs and will continue to comply with the best practices in corporate governance. The proposed composition of the new Board of Directors, made up of 15 members, is as follows:
Tomás Muniesa Arantegui, currently a proprietary director of CaixaBank, appointed at the proposal of CriteriaCaixa.
José Serna Masiá, currently a dominical director of CaixaBank, appointed at the proposal of CriteriaCaixa.
Gonzalo Gortázar Rotaeche, currently executive director and managing director of CaixaBank.
María Verónica Fisas Vergés, currently an independent director of CaixaBank.
Cristina Garmendia Mendizábal, currently an independent director of CaixaBank.
María Amparo Moraleda Martínez, currently an independent director of CaixaBank.
Eduardo Javier Sanchiz Irazu, currently an independent director of CaixaBank.
John Shepard Reed, currently an independent director of CaixaBank.
Koro Usarraga Unsain, currently an independent director of CaixaBank.
José Ignacio Goirigolzarri Tellaeche, currently an executive director and Chairman of the Board of Directors of Bankia.
Joaquín Ayuso García, currently an independent director of Bankia.
Francisco Javier Campo García, currently an independent director of Bankia.
Eva Castillo Sanz, currently an independent director of Bankia.
A director proposed by BFA Tenedora de Acciones, S.A., who is expected to join as a proprietary director. Fernando María Costa Duarte Ulrich, who is expected to be considered as "another external director". He is currently the non-executive Chairman of BPI.
Of the total of 15 members, two will be executive directors, two will be proposed by CriteriaCaixa, one by BFA Tenedora de Acciones, S.A., six by CaixaBank and three by Bankia. Fernando María Costa Duarte Ulrich is expected to be considered as "another external director". Independent directors represent 60% of the total number of directors and women make up 33% of the Board of Directors.
The new CaixaBank will exceed 664,000 million in total assets, a volume that will make it the largest bank in the domestic market, with a market capitalisation of over 16,000 million. It has more than 20 million customers (half of them digital) and the highest market share in all the key products: deposits (24%), loans (25%) and long-term savings (29%), which include savings insurance, investment funds and pension plans. It will be present in around 2,200 municipalities, and in 290 it will be the only entity represented. "This operation is a project to create value for customers and shareholders, improving efficiency and profitability levels, based on an excellent customer base, highly diversified in activities and geographically, with access to a single distribution platform and the best offer of products and services," the new group explains.
The transaction will generate new revenues from the renegotiation of the agreements signed by Bankia in the insurance field. Over a five-year horizon, the forecast involves progressively generating revenue synergies of ?290 million per year. On the other hand, it is estimated to achieve recurrent cost savings of EUR 770 million per year (fully from 2023), which will significantly improve the efficiency ratio to 47.9%. It has the lowest NPL ratio in Spain, at 4.1%, and comfortable coverage of 64%, one of the highest among the main banks in Spain.
In addition, CaixaBank and Bankia's solid capital position will enable them to absorb restructuring costs and valuation adjustments, resulting in a combined bank's CET1 ratio of 11.6%, maintaining a very wide margin -310 basis points- over the level required by regulations. And the strength in liquidity, at 128 billion, will facilitate support for the economic recovery through credit growth. The generation of synergies improves the expected profitability, with an estimated RoTE of over 8% in 2022.
VidaCaixa and SegurCaixa Adeslas will keep the insurance business after compensating Mapfre The merger with Bankia will generate 290 million euros in additional income for CaixaBank over 5 years, according to the calculations of its CEO, Gonzalo Gortázar. Of this amount, 75 million will come from the integration of the life insurance policies of the nationalised entity, which has an agreement with Mapfre. Gortázar is very clear that, despite the compensation the group will have to pay to Mapfre and other companies (such as Caser), the integration of the insurance will generate significant income. VidaCaixa, 100% CaixaBank, will keep all the life business of the group. And Seguros Generales will go to SegurCaixa Adeslas, an alliance between CaixaBank and Mutua Madrileña, which is also a major shareholder in the bank.
The Chief Executive Officer of CaixaBank is clear that he will assert that it now has more than 6,700 branches and access to 20 million customers. Although it has closed 1,500 branches, it is still a much larger network than its main competitors: Santander (which has Mapfre and Aegon as its bancassurance partners) and BBVA (which has Allianz). But it also sees great opportunities in life insurance, pension plans, life insurance, savings, among others. CaixaBank will increase its income thanks to "the extension of the offer of savings and protection insurance".