The head of Bankia SA has said a sale to another Spanish lender could be the ideal way for the government to meet its obligation to privatize the bailed-out bank, but the number of prospective buyers with the cash to seal a deal is limited, making such a transaction unlikely in the immediate future, analysts say.
Rescued with more than €22 billion of state funds in 2012 in the wake of Spain's property market collapse and the eurozone sovereign debt crisis, Bankia remains 61% state-owned and must be sold by 2019 to meet European conditions for its bailout. Spain's bank restructuring fund, known as the FROB, has gradually reduced its stake by selling blocks of shares on the market and is expected to continue doing so in 2018, but another option may be to find a buyer for some or all of the government's stake.
Bankia Executive Chairman José Ignacio Goirigolzarri told the Financial Times in early March that the bank would be "the perfect fit" for another Spanish lender. He said Bankia's geographic presence — lacking in Catalonia but strong elsewhere along the Mediterranean coast — was among the reasons a merger could succeed and that Banco Bilbao Vizcaya Argentaria SA, where he spent eight years in the 2000s as president and COO, would be particularly well-suited.
Bankia is the result of a seven-way merger of savings banks, or cajas, and recently completed the acquisition of another bailed-out lender, Banco Mare Nostrum SA, the product of a four-way caja merger. Both those transactions came during the postcrisis restructuring of the Spanish banking sector, but the market is still considered to be overbanked, and Banco Santander SA's acquisition of the failed Banco Popular Español SA led to expectations that another round of consolidation was on its way.
Consolidation trend
"The overall trend of the sector is of further consolidation, and Bankia doesn't really have a core shareholder," said Carlos Peixoto, an analyst at CaixaBank. "Quite the opposite — they have a shareholder which is looking to dispose of its stake and that ultimately makes them more likely to be a potential candidate to be bought out."
He agreed with Goirigolzarri that a larger lender such as BBVA would be the likeliest candidate to buy the bank, as it could do so in cash even if it had to tap markets to raise the money. BBVA is Spain's second-largest bank by assets, just behind Santander, which is unlikely to bid for Bankia after the Popular takeover.

An acquisition by a smaller bank such as Banco de Sabadell SA, ranked fourth by assets, would be "tricky" because it would likely take place through a share swap, leaving the merged entity with the FROB as a major shareholder, he said. Goirigolzarri highlighted that risk in his interview with the FT, observing that state ownership carries with it stringent salary and bonus restrictions.
"It would be a shareholder with a relevant overhang over the stock," Peixoto said, echoing what Goirigolzarri told the FT. "I don't think anyone would want to be in that situation."
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Javier Bernat, an analyst at GVC Beka Finance, said another option for the state could be to whittle down its stake through block sales and then sell approximately 35% of Bankia to a single buyer, something he said could draw interest from institutions outside Spain. A foreign buyer could benefit from Bankia's strong commercial banking position in major cities such as Madrid, Bernat said, adding that at its current share price, a 35% stake would carry a relatively manageable €4 billion price tag.
Smaller lenders
Another lender that could be interested in Bankia is Spain's third-largest by assets, CaixaBank SA, said Javier Santacruz, an economist at the Instituto de Estudios Bursátiles who specializes in research on the Spanish banking sector. CaixaBank (another product of savings bank mergers) has a strong rural presence and has sought to expand lending to the agricultural sector, and Bankia too has a significant presence in the countryside, Santacruz said.
Should a potential buyer not materialize, Bankia may itself decide to buy a smaller bank such as midsized lenders Liberbank SA or Unicaja Banco SA, Bernat said, especially now that Bankia is no longer subject to EU restrictions on acquiring other entities.
Analysts also said they do not expect any merger activity until Bankia's 2020 strategic plan, unveiled Feb. 27, is well underway. The lender's targets for 2020 include net profit of €1.3 billion, up 62% from 2017, and a return on tangible equity, a key profitability metric, of 11%, up from 6.8%.
Santacruz said the bank had cleaned up its balance sheet since its bailout and that progress toward improved profitability would enhance its appeal to a possible buyer.
Peixoto said Bankia was trading in line with the average of Spanish banks, although slightly below larger rivals such as Santander and BBVA. It also trades at a slight discount to the European banking sector, which is generally valued at 1.0x book, he added.
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