CaixaBank has agreed to buy state-controlled Bankia for 4.3 billion euros ($5.1 billion) in an all-share deal that creates Spain’s biggest domestic lender and signals consolidation among Europe’s struggling banks is picking up pace.

The merger will create the largest domestic bank by assets with a combined market value of more than 16 billion euros ($19 billion), in a deal underpinned by annual cost savings of 770 million euros, the banks said on Friday.

It comes as the coronavirus crisis puts more pressure on Europe’s banks to join forces to deal with rising bad debts and record-low interest rates. Italy’s Intesa Sanpaolo is taking over Unione di Banche Italiane, and Spain’s Sabadell has also held informal talks about a possible tie-up.

CaixaBank and Bankia did not say on Friday how many jobs would go or branches would close, but main trade union CCOO fears hefty cuts from a merged bank with over 6,300 branches and more than 51,000 staff in Spain.

The deal has been described as a merger, but is in effect a takeover by CaixaBank as it is almost three times as big as Bankia by market value and almost twice as big by assets.

CaixaBank will exchange 0.6845 new shares for every Bankia share, valuing the latter at 1.41 euros per share. That represents a 20% premium over Bankia’s closing price on Sept. 3, before news of merger talks emerged, or a premium of 28% over the average price of the last three months.

The valuation of Bankia is slightly below Thursday’s close of 4.4 billion euros.

Bankia shares, up almost 40% since news of the merger emerged, were down 1.5% to 1.419 euros, while Caixabank stock, which has risen about 14% since the talks surfaced, was up 0.5% to 2.075 euros.

The banks said in a joint statement they expected annual cost synergies of around 770 million euros by 2023 and new annual revenues of around 290 million euros over five years.

They also estimated 2.2 billion euros in restructuring charges next year, which they expected to be fully covered by ‘badwill’ - a paper profit that occurs when an asset is bought below its book value.

The banks expect to achieve a fully loaded core Tier-1 capital ratio - a key measure of financial strength - of around 11.3% in the first quarter after the transaction.

CaixaBank shareholders will initially represent 74.2% of the capital of the new entity, with Bankia’s holding 25.8%.

Criteria, controlled by the La Caixa foundation, will remain CaixaBank’s main shareholder with around 30% of the combined bank, while the Spanish state will hold 16.1%, compared with the 61.8% it held in Bankia.

Bankia was bailed out in a 22.4 billion euro state rescue in 2012 at the height of Spain’s financial crisis, and so far it has returned just 3.3 billion euros of state aid.

Analysts believe it could be easier for the state to get its money back from a bigger entity.

The executive chairman of the merged bank will be Bankia’s Jose Ignacio Goirigolzarri, but with limited powers, while the chief executive CaixaBank’s current CEO, Gonzalo Gortazar.

The legal headquarters of the merged bank will be in Valencia, with operating headquarters in Madrid and Barcelona.

Shareholders meetings at CaixaBank and Bankia will likely to be held in November to legally approve the deal, which the banks aims to close in the first quarter of 2021.

Meanwhile, Spain’s recovery from record recession will be slower than expected after a surge in coronavirus infections weighed on activity in the third quarter, likely delaying a return to pre-pandemic levels until 2023, the central bank said on Wednesday.

“The slower acceleration in 2020 than our forecast means a worse starting point for growth in 2021,” Oscar Arce, chief economist at the Bank of Spain, told a news conference.

The bank expects gross domestic product to rebound between 13% and 16.6% in the third quarter after it shrank a record 18.5% in the preceding three months, but it was still likely to be 9.5%-12.3% below year-ago levels.

The forecast is based on a scenario of smaller localised outbreaks and another one of a wider lockdown. The bank now expects the economy to contract 10.5%-12.6% this year, which compares to its previous central estimate of 11.6% in June.

Next year, it expects growth to be between 4.1% and 7.3%, down from its previous forecast of 9.1%.

“The third quarter has not been buoyant, we have gone from more to less ... We see more downside risks of ending up worse than the economic forecast interval,” Arce said, naming a no-deal Brexit as one of the key risks. The bank forecast a slowdown in growth in 2022 to 1.9%-3.3%.

Reuters