Opinion

Coronavirus and bank mergers

photo_camera Fusión de Bankia y CaixaBank

The plan to take the European Union's (EU) credit institutions into a new era had been on the table of the European Central Bank (ECB) since French President Christine Lagarde took office as the new head of the body in November last year, with Spain's Luis de Guindos as Vice-President.

It is a question of adjusting the banking model: the arrival of SARS-CoV-2 which, in addition to the health emergency, has brought about collateral damage to the economic system, has provided a breeding ground for the rapid implementation of bank mergers.  The intention is to enable credit institutions to overcome the crisis as best they can, although the original context was based on the need to have a more digitalised banking system, with fewer and fewer branches and more virtual operations, and to create a more effective and efficient model with lower costs.

The pandemic has accelerated the process. If banks have better mechanisms for protecting themselves against liquidity and insolvency risks, as well as coverage for credit and loans granted, there are institutions that were barely breathing after the financial crisis of 2008.  It has taken a decade to be brought under control... and now a new invisible enemy appears on the scene, triggering a fall in consumption, loss of employment, along with income, as well as wage cuts. Many people are now borrowers.

A nightmare again. The global banking system has undergone a series of changes over the past 30 years in an attempt to respond to the ups and downs of economic as well as financial crises: mergers, consolidations, bankruptcies, bank bailouts and government interventions have taken place, sometimes to liquidate and sometimes to clean up the lending institution before selling it.

n this path of transformation, models have moved from multiple banks, with mixed institutions; public nationals who have then been privatised and over the years, countries have opened up to accept the presence of foreign private investment. From the multiple banks of the 1980s and 1990s, this has given way to more specialized banking and the current scheme is moving towards a much smaller concentration of large institutions.

Today, Spain is attracting international attention with the merger between CaixaBank and Bankia. Various experts point to a number of countries with weak banks as candidates for major mergers.  It is highlighted the cost savings, the affinities and that it will be an accelerator for the digitalization of the financial services; in the case of CaixaBank and Bankia between the search of synergies there will be closure of branches and reduction of the staff... up to 8.000 employees less.

The merger will have the largest share of branches and customers with 20 million people, almost half the population of Spain; its turnover will be 368.5 billion euros and some 555.4 billion euros in customer resources. The figures resulting from this merger give us the creeps, above all because experience has left us with bitter lessons: we have seen investment banks with roots go bankrupt and in the financial business the bigger the entity, the bigger the bailout should be, because I cannot imagine that a government would decide to let giants of such magnitude go bankrupt if they, one day and at some point in the volatile economic cycle, faced any contingency.

A view on the matter

Size does matter: the bigger the bank, the greater the risk and the bigger the bailout should be. In Spain, there is talk of a "good merger" because the state will no longer be Bankia's main shareholder and it is being taken out of the orbit of pressure from extreme left-wing parties such as Podemos. This will only be the beginning of other bank mergers...  The previous crisis (that of 2008) reduced the size of the banks in the Iberian country from 54 to 12 institutions, so it seems that the new size is aimed at leaving only three to five banks.

At present, the largest banks (Santander, BBVA, CaixaBank, Bankia and Sabadell) account for 70% of the Spanish market and there is already talk of interesting mergers such as BBVA with Sabadell or Liberbank or Abanca; or that of Santander with Abanca and that of Unicaja with the remaining savings banks. Some even add BBVA to Santander, which, if it happened, would create a colossal titan, but Ana Patricia Botín is a cautious banker; we will see where the system is heading.