Fitch: Spanish Banks Selling Equity Holdings to Bolster Capital

Reuters

LONDON, October 24 (Fitch) Spanish banks are optimising theircross-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 furtherscope for disposals to improve capital levels, particularly from non-core industrialportfolios. Basel III has made investments in financial institutions lessefficient as a bank will have to deduct 10%-50% holdings entirely from itsregulatory core capital. Several Spanish banks have already sold stakes orannounced sales to reduce such holdings to below 10%, so the number of further bankstake disposals may be limited. Caixabank is an example of an entity withremaining highly-capital consumptive stakes, including 16.5% in China'sThe Bank of East Asia, 46.2% in Portugal's Banco BPI and 20.7% in France'sBoursorama. But there may be strategic reasons, including shareholder agreements, tomaintain them. Nevertheless, the sale of bank stakes is an option should theSpanish banks seek to raise more capital.The sales of bank stakes help the banks to boost their Basel IIIcapital. 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 bookinga EUR2.3bn net loss. Caixabank also reduced its stake in Mexican GrupoFinanciero Inbursa to 9.01% in July, from 20%. We estimate the transaction will boostCaixabank's Basel III CET1 ratio by around 110bp on a fully-loaded basis. Banks have accelerated the sales of their holdings in industrialcompanies this year as they seek to raise capital. We believe furtherdivestments are likely as the banks reduce concentrations in, and manage down, theirequity portfolios. Stakes with the potential for capital gains are likely to gofirst, but even loss-makers may be sold if capital is tight or if stipulated inrestructuring programmes. Non-core industrial portfolios are common amongSpanish banks and the divestment of such holdings has been a requirement in therestructuring 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 issuingcontingent convertible debt instruments (eg BBVA in April and Banco Popular Espanol inOctober), optimising their cost base and limiting dividends. Improvementsto capital would benefit credit profiles, but asset quality and profitabilityremain 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 Juneprovided a EUR167m capital gain and was part of its European Commission-agreeddivestment plan. NCG Banco and Banco Mare Nostrum, and Kutxabank sold their 4.3% and5% respective stakes in NH Hoteles in September, netting capital gains. Contact: Erwin van LumichManaging DirectorFinancial Institutions +34 93 323 8403Fitch Ratings Espana S.A.U.Paseo de Gracia, 85, 7th Floor08008 BarcelonaCynthia Chan Senior DirectorFitch Wire+44 20 3530 1655Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153,Email: hannah.huntly@fitchratings.com; Pilar Perez, Barcelona, Tel: +3493 323 8414, Email: pilar.perez@fitchratings.com.The above article originally appeared as a post on the FitchWire credit market commentary page. The original article can be accessed atwww.fitchratings.com. All opinions expressed are those of Fitch Ratings.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS ANDDISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THISLINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLEON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'SCODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATEFIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLEFROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHERPERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN ANEU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUERON THE FITCH WEBSITE.

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