Joy Macknight

Despite the perceived upsides, a large merger or acquisition project is not for the faint-hearted. There are many hurdles to overcome, not least IT integration and cultural alignment.

While bank mergers and acquisitions (M&As) have been subdued in the euro area since the 2007–2009 global financial crisis, there are recent signs of recovery according to a European Central Bank (ECB) report, driven in many cases by a need to improve profitability, achieve economies of scale and reduce overcapacity.

Much of the domestic M&A activity to date in the banking industry has involved smaller targets, but there have been some big deals as well, such as CaixaBank’s takeover of Bankia. Touted as the biggest merger in Spanish history, the €4.3bn deal – announced in late 2020 and approved by Spanish regulators in March 2021 – created the country’s largest domestic player, with more than €664bn in assets.

Merging such large entities is a mammoth task, with many pitfalls along the way, particularly in the areas of IT system integration and cultural alignment. The secret to CaixaBank’s success? Speed of execution.

Just over a year after the merger was approved by regulators, at the bank’s investor day, CaixaBank’s CEO Gonzalo Gortázar reported that the vast majority of the integration work had been completed: 90% of branch closures and 95% of employee departures had been completed by the beginning of May. According to him, the bank is delivering on cost savings and business synergies, and has set a target of 12% for return on tangible equity for 2024, up from the current 7% level.

IT systems integration, which is often a major obstacle to a successful merger, was also done swiftly. Speaking to The Banker in late May, Mr Gortázar described how the IT integration was completed in November, just eight months after the merger closed. “This is a fairly short period, particularly taking into account that we were integrating a very large bank, which also had rich diversity of functionalities – Bankia was created through the merger of many savings banks,” he said. “The best way to reduce the complexity is to get [the integration] done as soon as you can to reduce uncertainty for people.”

Impressively, the team switched off the Bankia platform and migrated staff and customers to the CaixaBank system in just one weekend last November. “Our IT teams did a superb job. Even they were surprised how well things went, with no incidents whatsoever,” Mr Gortázar said, adding that it was akin to gaining seven million new customers in one weekend.

The next step was to train up staff and customers on the Bankia side to use the CaixaBank system, as well as upgrade customers to the CaixaBankNow app. “Customer satisfaction is now back to levels that are higher than at the beginning of the process, both for the online channels and our physical service branches,” he reported.

Completing a successful merger in the midst of the pandemic brought with it new challenges, according to Mr Gortázar. Such a huge undertaking requires IT teams to work physically together, so CaixaBank created a space in Madrid where the teams could come on a weekly basis. “We took all the sanitary measures to minimise the possibilities of contagion,” he said, adding that no one contracted Covid-19. He emphasises: “Being able to be together was critical.”

In addition, CaixaBank successfully navigated cultural integration, another stumbling block faced during a merger process. What made it less arduous, according to José Ignacio Goirigolzarri, chairman of CaixaBank and ex-executive chairman of Bankia, is that the two savings banks had a common culture coming into the union. “Savings banks have the same culture related to social responsibility, where dividends are allocated to social welfare projects,” he said. “Staff are proud of the work they do in social engagement.”

Mr Goirigolzarri believes that corporate governance is key in a merger. “If you have a board that works properly, with board members who are committed and have a common objective, then they forget about the past and only focus on the future,” he explained. While one third of the board comes from Bankia and two thirds from CaixaBank, it is now “impossible to differentiate” who is from which organisation during a board meeting, he added.

Again, speed is key when it comes to corporate governance. “In my experience, you have to act fast to define the organisational chart and outline responsibilities, because staff need to know who their boss will be, who is responsible,” said Mr Goirigolzarri. “We did that at the end of March 2021.”

With the prospect of more M&A activity in the region on the horizon, including potentially cross-border tie-ups due to recent efforts around a more integrated EU banking market, institutions need to build up their M&A expertise and map out a route to success. In this journey, speed is of the essence.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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