Spanish bank investors have just had a painful reminder of the real estate
mess that burdens the country’s banking system. Just a few months after Banca
Civica listed on the stock market, Caixabank is buying the smaller lender – and
its dud property loans – in an all-share deal priced at an 11 percent discount
to market value. Caixabank will reap savings from cutting costs, including its
own network. Without state support, though, the deal is still a risk.
Banca Civica was in a bind after the government recently tightened
requirements for impaired property loans. It needed to do a deal. For Caixabank,
already one of Spain’s biggest banks, the rationale is less straightforward. The
combined entity will become Spain’s largest lender by assets, with leading
positions in the wealthy regions of Catalonia and Navarra, and populous
Andalusia.
On paper, the deal makes financial sense, giving Caixabank a good excuse to
restructure its own bloated branch network. It says the combination will
generate 540 million euros in annual synergies, mostly from cost savings, which
have a net present value of 1.8 billion euros – nearly twice the 977 million
euro price the deal puts on Banca Civica’s equity. Caixabank reckons its
earnings per share will increase by more than 20 percent in 2014, excluding
restructuring costs.
The deal won’t stretch Caixabank’s balance sheet too far, either. It is
buying Banca Civica for a third of its 2.9 billion euro book value, and will
write down the lender’s real estate assets by 3.4 billion euros. After taking
into account various adjustments, including the conversion of preference shares,
the hit to Caixabank’s capital will be 167 basis points. That shouldn’t impede
it from reaching the 9 percent core capital ratio that European regulators
require it to hit by the summer.
