CaixaBank and Bankia announce their merger

On 17 and 18 September 2020 the boards of directors of CaixaBank and Bankia approved their merger. The operation would create the largest financial institution by assets in Spain, headquartered in Valencia. It was one of the most significant operations in the Spanish banking sector in years, and the news had an immediate echo among customers, employees and competitors. Also for investors, who would have to assess the effect on the sector as a whole.

Although it was a decision between two institutions, its effects extended to the market as a whole. For anyone with accounts, loans, mortgages or investments in either of them, the merger raised the question of what would change in practice: terms, fees, service, the branch network. And for those who work with other institutions, it raised a similar question about the new balance of the market. They are legitimate questions, better answered with information than with rumours.

A merger of great size

A bank merger combines two institutions into one. With both boards in agreement, the result would be an institution far larger than either of the two on its own. An operation of this kind must also pass corporate and supervisory procedures before it is completed.

Those procedures include shareholder approval, authorisation by the supervisory and competition authorities and the integration of systems, products and teams. It is a process that usually takes months, during which the two institutions go on operating separately. For the customer, that means changes are not immediate, but it is worth watching for communications and the deadlines announced. In the meantime, there is no reason to take hasty decisions about accounts or products.

Fewer institutions, fewer branches

Consolidation in the sector foreshadowed fewer branches and less competition. When two banks join, their networks tend to overlap and the number of branches falls, and customers may see changes in terms, fees or services. Fewer competitors also reduce the bargaining power of those who need financing. That reduced competition does not automatically translate into worse terms, but it reduces the alternatives available.

For a customer, this can mean that their usual branch closes, that their account manager changes or that certain products are reorganised. For a company, it can mean that the structure of credit lines is reviewed or that the relationship with the bank is handled by different people. These are not necessarily negative changes, but they are reasons to review what has been contracted and check that it is still suitable. If the branch or the account manager changes, it is worth asking in writing for any term agreed verbally.

Not depending on a single relationship

For companies and families with all their accounts at one or two institutions, it was a good time to review terms and avoid depending on a single relationship. Keeping a relationship with more than one bank, knowing the terms of each product and comparing periodically makes negotiation easier and reduces the risk of being left without an alternative. This is especially relevant for companies with recurring financing needs.

A diversified banking relationship does not require moving everything or opening unnecessary accounts: it is enough to have several sources of financing identified, to know the cost of each service and to have contacts at more than one institution. Reviewing at least once a year the fees, loan rates and guarantees offered helps to spot improvements and prevents inertia from making you pay more than necessary. For companies, a second banking relationship can also be insurance against unexpected changes in an institution’s risk policy.

A diversified banking relationship gives room to negotiate.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.