An aggressive process of M&A activity among Spanish banks has radically reshaped the country’s financial services map. But now lenders are focused on expanding organically, although some believe further consolidation remains a viable option. Jules Stewart reports.

Over the past decade, the number of players in the Spanish market has shrunk from more than 50 to 10. This process gained momentum in 2020, when the Spanish banking landscape was transformed by a flurry of landmark merger and acquisition (M&A) deals. In that year, Abanca, a mid-sized lender and former savings bank, kickstarted the process by acquiring Crédit Agricole’s Spanish subsidiary, Bankoa, a small lender operating in northern Spain. 

After previous frustrated attempts, this was followed by an all-share deal in which Unicaja agreed to buy rival Liberbank, creating the country’s fifth-largest domestic bank with close to €113bn in assets. The combined entity extends the new group’s presence to 80% of Spain’s territory and has boosted its market share in deposits, credits and off-balance sheet funds. 

Bombshell acquisition 

Of all the M&A operations carried out in the past two years in the Spanish banking sector, the most eye-catching was CaixaBank’s takeover of Bankia. This €4.3bn deal created Spain’s largest domestic player, with more than €664bn in assets. Since 2008, CaixaBank has spent €8.7bn to expand its Spanish banking franchise through M&A deals and now has close to 20 million customers, with roughly a 25% share of the Spanish market in loans and deposits.  

This bombshell acquisition that left Bankia under the CaixaBank name, was approved in September 2020 and put consolidation in the domestic banking sector in to the spotlight.  

So far, CaixaBank’s takeover of Bankia has proved to be a solid success, according to CaixaBank chief financial officer (CFO) Javier Pano. “We are now looking at the final stages of integration, in the context of a more favourable economic situation,” he says. “We have met all the objectives set out in the original merger agreement. In February 2021, we defined the governing structure of the new entity and by the following month we were operating as a single entity.”

The next step was reaching an agreement with the trade unions on a staff reduction programme affecting 6500 employees. By January 2022, almost 60% of those affected had left the bank. By the first half of this year, CaixaBank aims to have completed the restructuring of its branch network, involving 1500 offices.

“In the summer of 2021, we revised upwards the annual cost synergies target to around €950m, while 80% of this target will be achieved this year,” says Mr Pano. “Over the next five years, we expect to reach annual revenue synergies of €290m a year.”

The irresistible rise of CaixaBank is reflected in its appetite for acquisitions. In less than 15 years, it has been a player in eight major takeovers, including Morgan Stanley’s private banking business in Spain, Banco de Valencia, Portugal’s BPI and Barclays’ Spanish operations.

Organic growth 

There is a difference of opinion over the prospects and, for that matter, the need for further consolidation in Spain’s banking sector. Some analysts believe there is still scope for mergers, mainly involving mid-sized banks, although it is not obvious that this will take place in the near future. 

“Profitability pressures would ease in the event of potential interest rate increases, from which Spanish banks are well placed to benefit,” says Pau Labro, director of financial institutions at Fitch Ratings. “Potentially higher interest rates, combined with good business growth prospects and contained asset quality risks, have reduced the pressures for additional M&A activity, though this cannot be discounted.”

For the moment, the major banks say they are determined to concentrate their efforts on organic growth. Rafael Salinas, CFO at BBVA, says: “With regard to consolidation in the Spanish banking market, we are prepared to look at any opportunity that might enhance our business, but our primary focus is to continue growing organically.”

BBVA is itself the result of a 1988 merger between two large Basque banks, Banco Bilbao and Banco de Vizcaya, which in 1999 incorporated Argentaria to create the BBVA brand. 

There was a further attempt at expansion through a takeover in 2020 when BBVA and Banco Sabadell tried to negotiate a merger. The two banks later announced they had broken off negotiations because of a disagreement over pricing. BBVA has a market capitalisation of €38bn compared with just over €5bn for Sabadell. The smaller lender made it clear that it considered the price suggested by BBVA to be unacceptably low. That said, Sabadell itself is no stranger to the M&A market, having acquired Banco Urquijo in 2006 and Banco Guipuzcoano four years later.

Mr Salinas’s reticence to seek further domestic mergers is echoed by José García Cantera, CFO at Banco Santander. 

“We are not interested in participating in any M&A activities in Spain,” says Mr Cantera. “Instead, we will continue to assess any opportunities that might arise in countries in which we operate. I don’t think Spain is overbanked, though I do see scope for shrinkage in some other European countries. Nevertheless, for this to happen we’d need first a Capital Markets Union or a European Deposit Guarantee Fund.”

Banco Sabadell’s CFO Leopoldo Alvear also plays down speculation over future consolidation.

“I do not see the need for more takeovers in the Spanish market, bearing in mind that the number of banks operating in the country in the past decade or so has shrunk from more than 50 to 10 today,” says Mr Alvear. “The merger process in Spain has outstripped that of other European countries, like France or Germany. For the moment, there is no market or regulatory pressure to reduce the number of banks.”

Expansion activity

Santander has for a number of years been an active player in M&A, both in Spain and abroad. In 1994, Santander became Spain’s leading bank by assets following its takeover of Banesto. In 1999, Santander and Banco Central Hispanoamericano (BCH) group merged. BCH was absorbed by its bigger rival to form the current Banco Santander. In 2004, Santander made its debut in the UK with the takeover of Abbey National, followed by Bradford & Bingley and Alliance & Leicester. Over the past three decades, Santander has acquired around 35 banks or financial institutions in more than 15 countries.

María Dolores Dancausa, chief executive officer of Bankinter, also firmly rules out any interest in expansion through acquisition. 

[Bankinter] is not contemplating mergers. Our aim is to continue growing our business organically

María Dolores Dancausa

“We are not contemplating mergers,” says Ms Dancausa. “Our aim is to continue growing our business organically, a strategy that has made us one of the most profitable and efficient entities in Spain.” 

More than 50 years since it was founded, Bankinter remains the only independent bank in Spain that has not become part of the consolidation trend, maintaining its own brand and the same shareholder structure. 

“According to the latest stress test by the European Banking Authority, Bankinter was rated the Spanish bank with the greatest resistance to hypothetical economic downturns, as well as the third in Europe,” says Ms Dancausa. “We are therefore quite happy to carry on as an independent entity.”

A case for more consolidation

Not all market observers dismiss the likelihood of takeovers among Spanish banks.

Elena Iparraguirre, director of financial institutions at S&P Global Ratings, believes there is a case for more consolidation, given the excessive number of banks for the volume of business in the domestic market.   

“Profitability pressures will remain and many mid-sized entities need to consolidate, though this could prove difficult for those which still have single shareholders or are owned by former savings bank foundations,” says Ms Iparraguirre.

A number of smaller banks are believed to be under pressure to explore possible mergers, essentially to ensure their profitability in a market that is increasingly dominated by larger competitors.

Ibercaja Banco is frequently named by analysts as a potential participant in any future consolidations, after having postponed its initial public offering in February, citing volatility in international markets. The mid-sized bank is believed to be valued at around €1bn. The Spanish authorities have given former savings banks such as Ibercaja until the end of 2022 to go public or raise money to cut stakes held by foundations. This is considered a persuasive incentive to seek an alliance with one of the larger banks. 

José María Roldán, chairman of the Spanish Banking Association, points out that Spain has been very active in this endeavour and he believes the current situation is stable. “However, we cannot exclude the chances of future merger activity,” he says. “The market is king and we must never say never again.”


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