The deal terms will see CaixaBank offer 0.6845 of its shares for every Bankia share, according to a release published Friday. The newly created lender, which will keep the CaixaBank brand, will have assets of more than 664 billion euros ($786.7 billion), the companies said.
The merger plan still needs to be approved at the General Shareholders' Meetings of both companies and by the competition authorities. The banks said they expect this process to be concluded during the first quarter of 2021.
"With this operation, we will become the leading Spanish bank at a time when it is more necessary than ever to create entities with a significant size, thus contributing to supporting the needs of families and companies, and to reinforcing the strength of the financial system," Bankia Executive Chairman Jose Ignacio Goirigolzarri said in a statement.
Goirigolzarri will be the executive chairman of the new company, and current CaixaBank CEO Gonzalo Gortázar will be the CEO.
European lenders have been under significant pressure in the wake of the global financial crisis and the subsequent ultra-loose monetary policy. In addition, the shock created by the coronavirus pandemic earlier this year has exacerbated their issues and consolidation could be a solution to cut costs and make the business more profitable.
"CaixaBank's and Bankia's solid equity position will provide the capacity to absorb restructuring costs and valuation adjustments, with the combined entity achieving a CET1 ratio of 11.6%," the banks said in a statement.
The closely-watched CET1 ratio is a measure of capital strength, introduced following the global financial crisis.