Two of Spain's largest banks agreed to merge Friday in the first deal since much of Western Europe adopted a single currency.

The merger may well foreshadow increased consolidation throughout the continent, including more cross-border deals.

Banco Santander, Spain's largest bank, agreed to merge with Banco Central Hispanoamericano, its third-largest bank, in a transaction valued at an estimated 10 billion euros, or about $11.8 billion.

The combined company, to be called Banco Santander Central Hispanoamericano, would not only dominate Spanish banking but would be the largest bank in market value in any country that adopted the euro on Jan. 1. It would be among Europe's top 20 in assets.

"Through the new BSCH, Spain will be able to count on a financial institution with leadership capacity for the Europe of the 21st century," said Emilio Botin 3d, chairman of Banco Santander.

Analysts said the merger would greatly increase Spain's role in determining how the scramble for dominance in the European financial services business will play out.

Shares of other Spanish banks that trade on the New York Stock Exchange jumped Friday on the belief that the merger would fuel other deals. Banco Bilbao Vizcaya and Argentaria rose $1.3125, to $14.875, and $6.0625, to $54.1875, respectively.

The Santander/Central Hispanoamericano deal would be the latest and largest of several banking mergers that have taken place recently in the "euro zone."

Italian and German financial institutions have recently begun merging, and analysts say the deals are intended to lay the groundwork for future deals between companies from different countries. Now that most of western Europe has adopted a single currency, competition is increasing and the financial benefits of such mergers will be much more apparent to investors, analysts say.

Just how these mergers might shake out is starting to become evident through the alliances these banks are forming with one another.

For example, Banco Santander owns about a 5.5% stake in Instituto Bancario San Paolo-IMI, Italy's largest bank. Mr. Botin and another Santander executive are directors.

Banco Central's partners include Societe Generale and Dresdner Bank.

"We're at the stage now where companies can't do what they want directly, so they try to position themselves via alliances," said Derek Chambers, a banking analyst at HSBC Securities in London. "This merger will give the Spanish a significant say in how these alliances are formed and what they do."

Though by asset size the combined bank's $277 billion (239 billion euros) would fail to crack Europe's top 10, its combined market cap of $35.4 billion would be substantially greater than that of Deutsche Bank AG, the biggest European bank by assets.

BSCH would also be a major player in South America, where both companies for years have been snapping up market share.

The combined company would have a 25% market share in Chile, though analysts expect some divestitures may be required to satisfy authorities there.

The Spanish merger is being structured in a similar way to many recent big mergers of equals, even though Santander's $22.4 billion of market value is about $9 billion higher than that of Banco Central.

The deal, structured as an exchange of three Santander shares for every five of Banco Central, offers little premium to either company's shareholders. Plus, the companies' two chairmen have agreed to share duties initially, though Banco Central chairman Jose Maria Amusategui is to retire in 2002, leaving Mr. Botin as sole chairman.

Banco Central's chief executive officer, Angel Corcostegui, is to be the sole CEO of the combined company. He is given credit for the wrenching work of paring Banco Central's costs after it merged with Banco Hispanoamericano in 1991.

Banco Santander is no stranger to mergers, either, having acquired a 50% stake in the troubled Banco Espanol de Credito in 1994 and most of the rest a year ago. But HSBC's Mr. Chambers said Santander did not prove as aggressive in cutting costs as the BCH team.

Banco Santander was formerly a major shareholder in First Fidelity Bancorp., which First Union Corp. bought in 1996. The Botin family has since sold its First Union stake.

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