The managing director of the new Spanish mega-bank said he had “nowhere to hide” – no other source of profit than the country’s struggling economy following the merger of CaixaBank and rival Bankia.
“If things go wrong, we can’t say Spain is a small part of our business,” Gonzalo Gortázar, who has led CaixaBank for the past seven years, told the Financial Times in an interview. “We have always been 100% focused on making our business in Spain profitable. . . We have nowhere to hide.
CaixaBank officially acquired Bankia on Friday as part of the largest merger in the Spanish banking sector of this century. The deal makes the bank the largest share of the loan and deposit market in a country whose economy has contracted more than anywhere else in the EU last year.
For Gortázar, the deal underscores a willingness to bet on Spain as Europe’s banking sector faces its biggest challenge since a generation of negative interest rates.
For banking regulators in Madrid and Frankfurt, the operation, which creates a group with 624 billion euros in assets and nearly 20 million customers, is a welcome step towards consolidating the sector.
Even before the merger, CaixaBank was Spain’s largest retail bank, although apart from its Portuguese subsidiary BPI, it lacks the overseas operations of Santander and BBVA.
By acquiring Bankia, about half its size in terms of assets, CaixaBank significantly increased its share in areas ranging from consumer and business lending to mortgages and long-term savings, in each of which it now represents around a quarter or more of the Spanish market.
“Together, we are the clear leader in the banking industry,” says Gortázar, citing the view of regulators that consolidation of the sector is vital to making the European banking system more efficient and sustainable. “This puts us in a better position to deal with the economic consequences of the pandemic. “
For the Spanish government, the transaction draws a line on the country’s biggest banking crisis, that of 2012 collapse Bankia, which absorbed € 20 billion in bailout funds and forced it to ask for a bailout from the EU.
The state, which held 62 percent of Bankia after the bailout, now owns 16 percent of the new entity, with the La Caixa charitable foundation, traditional shareholder of CaixaBank, controlling 30 percent. José Ignacio Goirigolzarri, Executive Chairman of Bankia, will assume the same role within the merged bank, alongside Gortázar as CEO.
“Everything that happened before [Bankia’s 2012 bailout] was obviously a problem, but nine years have passed, ”says Gortázar. “The Bankia that we are absorbing now has different owners and different management, and over the last nine years they have radically changed the situation – they have turned the omelette over, as they say in Spain. “
He argues that offering services that go far beyond traditional banking is essential for profitability – and by extension that of European industry as a whole.
“If taking deposits and giving loans is the only business you have and interest rates are negative, it won’t be sustainable,” he warns.
Instead, it highlights new business that it says will bring customers 100 million euros a year, like leasing cars or selling TVs and smartphones.
Overall, he suggests that the Bankia acquisition may translate to over € 1 billion in pre-tax annual synergies, thanks to € 770 million in cost savings – although he declined. set out plans for branch closures and job cuts. The bank is targeting 290 million euros in new income, in part thanks to the marketing of CaixaBank services to Bankia customers.
CaixaBank’s insurance business has long been at the heart of its business, contributing € 888 million to its € 1.4 billion net income last year, when provisions for loan losses affected the bank profitability.
After the Spanish economy contracted 11% last year, the outlook is far from clear. The Bank of Spain has a baseline expectation of 6 percent growth this year, but has also established a more “severe” scenario for the economy in which tourism falls below dismal levels of last year.
But Gortázar notes that in terms of activities in Spain, the combined group has a base capitalization of more than 300 basis points above EU requirements and one of the lowest NPL ratios in the world. Spain, at around 4%.
He adds that the uncertainty is significantly reduced from six to nine months ago, when companies’ ability to repay loans was much more difficult to determine, and customer activity levels this month indicate. a substantial rebound from the worst of the pandemic.
“We think there will be a very strong recovery in the second half of the year,” he said. “And if it’s not in the second half, it will be a bit later.”
Gortázar recognizes, however, that even when the threat of the coronavirus has finally receded, the backdrop will be far from benign.
“There is a lot of talk about the pandemic, but what seems more important to the banking sector is the structural factor of ultra-low or negative interest rates,” he said.
“We’ve had negative interest rates for over five years: when they started we all thought it would be a short-lived aberration,” he adds. “Now the working assumption has to be that interest rates are going to stay negative forever. I don’t think that’s what’s going to happen, but that’s what we need to prepare for.