What's going on?
It takes two Spanish banks to tango, and luckily Bankia and Caixabank are both wearing their dancing shoes: they reportedly agreed to a merger on Wednesday.
What does this mean?
The banks haven’t officially formalized the agreement yet, but now that their main shareholders are on board – including the Spanish government, which owns almost two-thirds of Bankia – it could happen as soon as Thursday. That’s pretty quick going considering the two only announced they were considering a merger at the start of the month.
Folding Bankia and Caixabank into one another will combine their revenues, and should allow them to boost their profits by cutting duplicate office, tech, and risk management costs. Investors will be happy to hear that: years of low interest rates in Europe have been hampering how much profit the two banks can earn from the loans they make.
Why should I care?
For markets: Muy bueno.
The new “Caixa-Bankia” should be worth about $17 billion and will become Spain’s biggest lender: rival Santander is worth twice as much, but it makes two-thirds of its profit outside Europe. That newfound dominance might be why investors initially sold Santander’s shares and bought up Bankia and Caixabank’s on Wednesday. It might also have validated the European Central Bank’s efforts to make it easier for eurozone banks to team up – even if German banks haven’t taken advantage since Deutsche Bank and Commerzbank’s mooted merger fell through last year.
The bigger picture: No bueno.
While cost-cutting plans might go down well with banks’ shareholders, spare a thought for their employees: Citigroup, Nomura, and HSBC have now restarted the lay-offs they’d put on hold during the pandemic, meaning this year’s industry job cuts are likely to exceed last year’s 80,000. And since unemployed people can’t spend as much, that could hit already-slowing consumer spending hard.