Fitch: Spanish Banks Selling Equity Holdings to Bolster Capital

October 24, 2013

LONDON, October 24 (Fitch) Spanish banks are optimising their cross-holdings and selling stakes to boost Basel III capital, Fitch Ratings says, highlighted by BBVA's Citic Bank stake sale last week. We see some further scope for disposals to improve capital levels, particularly from non-core industrial portfolios. Basel III has made investments in financial institutions less efficient as a bank will have to deduct 10%-50% holdings entirely from its regulatory core capital. Several Spanish banks have already sold stakes or announced sales to reduce such holdings to below 10%, so the number of further bank stake disposals may be limited. Caixabank is an example of an entity with remaining highly-capital consumptive stakes, including 16.5% in China's The Bank of East Asia, 46.2% in Portugal's Banco BPI and 20.7% in France's Boursorama. But there may be strategic reasons, including shareholder agreements, to maintain them. Nevertheless, the sale of bank stakes is an option should the Spanish banks seek to raise more capital. The sales of bank stakes help the banks to boost their Basel III capital. BBVA gained 72bp on its fully-loaded Basel III common equity Tier 1 (CET1) ratio from cutting its Chinese bank stake to 9.9% from 15%, despite booking a EUR2.3bn net loss. Caixabank also reduced its stake in Mexican Grupo Financiero Inbursa to 9.01% in July, from 20%. We estimate the transaction will boost Caixabank's Basel III CET1 ratio by around 110bp on a fully-loaded basis. Banks have accelerated the sales of their holdings in industrial companies this year as they seek to raise capital. We believe further divestments are likely as the banks reduce concentrations in, and manage down, their equity portfolios. Stakes with the potential for capital gains are likely to go first, but even loss-makers may be sold if capital is tight or if stipulated in restructuring programmes. Non-core industrial portfolios are common among Spanish banks and the divestment of such holdings has been a requirement in the restructuring plans of the banks that received support. Spanish banks are also taking other options to boost capital, including raising fresh equity (eg Banco de Sabadell in October) or issuing contingent convertible debt instruments (eg BBVA in April and Banco Popular Espanol in October), optimising their cost base and limiting dividends. Improvements to capital would benefit credit profiles, but asset quality and profitability remain key risks. There are several examples of industrial stake sales this year. Bankia's sale of its 12.09% interest in International Airlines Group in June provided a EUR167m capital gain and was part of its European Commission-agreed divestment plan. NCG Banco and Banco Mare Nostrum, and Kutxabank sold their 4.3% and 5% respective stakes in NH Hoteles in September, netting capital gains. Contact: Erwin van Lumich Managing Director Financial Institutions +34 93 323 8403 Fitch Ratings Espana S.A.U. Paseo de Gracia, 85, 7th Floor 08008 Barcelona Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.