Bankia takes over BMN as bank cleanup accelerates

Bloomberg

Bankia SA agreed to acquire Banco Mare Nostrum SA (BMN) in an all-stock deal, part of a plan by Spain to recoup the costs of bailing out lenders following the country’s property bust.
Bankia, the country’s fourth-biggest bank by market capitalization, will issue new stock amounting to 6.7 percent of its post-merger capital to the shareholders of Banco Mare Nostrum, the bank said in a statement on Tuesday. The transaction values the unlisted BMN at 825 million euros ($924 million), or 0.41 times its book value, Bankia said.
Bankia rose after saying the deal will boost earnings per share by 16 percent and generate 155 million euros in savings, mostly from cuts in the corporate center and offices, Chief Financial Officer Leopoldo Alvear said in a call with analysts. The number of branches at Bankia will jump 36 percent following the merger to about 2,500.
Spain, which owns about 65 percent in each of the two lenders trough a bank-rescue fund, announced the merger plan in March, saying it will look to sell shares in the combined bank following the transaction. The government determined a merger would bring in 400 million euros more than selling stakes in separate banks, it said at the time.
The agreement is the latest in a series of transactions showing Europe is finally cleaning up its troubled banks a decade after the financial crisis, taking advantage of strong stock markets and rising interest rates. It comes just weeks after Banco Santander SA stepped in to take over Banco Popular Espanol SA, which was in danger of collapsing under a mountain of bad property loans after refusing a bailout in 2012.
“The integration of BMN is tremendously positive because it allows us to build out our franchise in some areas of strong growth in which we had a very limited presence,” Bankia Chairman Jose Ignacio Goirigolzarri said.
The takeover will entail additional provisions and writedowns totalling 700 million euros for BMN’s portfolio and loans and foreclosed assets. While Bankia said its coverage ratios — measuring its ability to absorb losses from bad loans — will be maintained at current levels, its common equity Tier 1 capital ratio will decline to 12 percent from 13.4 percent at the end of March.

Shares Rise
It’s a positive deal for Bankia,” said Ignacio Lopez, an equity sales trader at Ahorro Corp. in Madrid. “The transaction is accretive for Bankia’s earnings per share.”
Bankia’s shares rose as much as 4.8 percent and were trading 4.6 percent higher at 4.21 euros at 11:25 a.m. in Madrid, bringing this year’s gains to 8.6 percent.
Popular was forced this month to sell itself to Santander for 1 euro in the first major action by the Brussels-based Single Resolution Board, set up in January 2015 to deal with euro-area bank failures and wind them down with minimal impact on taxpayers and financial stability. Unicaja Banco SA plans to sell about a 40 percent stake in an initial public offering to institutional investors. Proceeds will be used to repay about 604 million euros of contingent convertible securities the bank inherited from a nationalized lender it acquired in 2014.
Italy’s Path
In Italy, Intesa Sanpaolo SpA agreed over the weekend to acquire the good assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA with financial aid from the government, which committed as much as 17 billion euros to winding down the two lenders. Italy, which wants to avoid imposing losses on bondholders because many of them are mom-and-pop investors, is still in talks with European authorities to save Banca Monte dei Paschi di Siena SpA through a so-called precautionary recapitalization.
The Spanish government is seeking to recover 41 billion euros of European funds it received in 2012 to prop up lenders hit by the collapse in the country’s real estate market. Bankia received 22 billion euros of state aid at the time, while BMN got 1.65 billion euros. The country’s bank rescue fund will hold about 66.6 percent of the new once the deal is completed.
“The merger reinforces Bankia’s position as the fourth-largest bank in the Spanish market and comes at a time when the outlook for the financial system is improving, both in terms of expected business growth and as regards the foreseeable trend in interest rates,” Bankia said in its statement.
Shareholders of both lenders are expected to approve the deal in September and Bankia aims to complete the merger by the end of the year, Chief Executive Officer Jose Sevilla said in a call with analysts.