Spain’s Bankia, CaixaBank Talk Merger

Two of Spain’s big banks could become one.

The Financial Times reported talks are underway to merge Madrid-based Bankia and CaixaBank in Valencia. If a deal is signed, it would create the country’s largest bank with assets of more than 650 billion euros ($769 million).

Since January, the European Central Bank (ECB), which oversees the biggest European Union lenders, has eased regulations to encourage mergers and reduced the capital requirements for such transactions, the news service reported.

The reason is not hard to understand.

Returns at the more than 100 banks supervised by the ECB dropped to 5 percent last year, down from 6 percent in 2018, behind most of their Asian and U.S. and Asian rivals. Regulators say consolidation in the banking sector would lower costs, improving efficiency and boost profits.

Benjie Creelan-Sandford, analyst at New York-based financial advisory company Jefferies LLC, told FT a combined Caixa-Bankia could cut as much as 40 percent of the lenders’ cost through branch closures and layoffs.

As the number of Spanish banks has dwindled to just a dozen, down from 55 since the financial crisis of 2008, regulators have continued to advocate for mergers.

A combined Bankia-Caixa name would become Spain’s largest lender by market share in loans and deposits, the news service reported.

Earlier this week, Pablo Hernández de Cos, the ECB’s governor, said there was a margin for banking mergers that would help strengthen individual lenders and the sector as a whole.

Two years ago, José Ignacio Goirigolzarri, Bankia’s chairman, said his bank could be a perfect fit for several of its rivals, per the report.

Earlier this year, Spain-based CaixaBank was one of six financial institutions in the country to sign up for the Swift global payments innovation (Swift gpi), the new standard for cross-border payments that promise to improve the customer experience by increasing speed, transparency and end-to-end tracking.

At the time, Beatriz Kissler, general manager of CaixaBank-owned GDS Cusa, told PYMNTS the new service supports cross-border payment optimization, makes it easier to assign payments to correspondent banks that make the most sense and promote the greatest efficiency.