CaixaBank to Buy Barclays Spain Businesses for $1.1 Billion

Sep 01, 2014 8:11 am ET

(Updates with CaixaBank CEO’s comment in 14th paragraph.)

Sept. 1 (Bloomberg) -- CaixaBank SA, Spain’s third-biggest lender, agreed to buy Barclays Plc’s banking operations in the country for about 800 million euros ($1.1 billion) in cash to expand its business as economic growth picks up.

The sale includes consumer, wealth and investment management and corporate banking businesses, Barcelona-based CaixaBank said in a statement yesterday. The price represents about 47 percent of the book value, it said. Barclays, the U.K.’s second-largest lender, will report an after-tax loss on the sale of 500 million pounds ($831 million), the London-based bank said in a separate statement.

CaixaBank will add about 270 branches to its existing network of 5,695 and boost its client base by 550,000 to more than 14 million with the Barclays’s purchase. The purchase follows Banco Bilbao Vizcaya Argentaria SA’s decision in July to acquire nationalized lender Catalunya Banc SA as the country’s economic recovery spurs deals.

“The deal is relatively small for CaixaBank, but we value it positively,” Francisco Riquel and Rodrigo Vazquez of N+1, a Spanish investment bank, wrote in a research note to clients today. They said the transaction adds affluent clients and boosts CaixaBank’s presence in Madrid. N+1 has a strong buy recommendation on the lender.

CaixaBank shares were down 0.7 percent at 4.55 euros at 1:15 p.m. in Madrid. They have gained about 20 percent this year. Barclays fell 0.3 percent to 223.8 pence in London.

‘Further Progress’

Barclays Chief Executive Officer Antony Jenkins, 53, is cutting costs, shrinking assets at the non-core division and eliminating jobs to reduce the lender’s dependence on the investment bank in a bid to restore investor confidence. The bank yesterday completed the sale of its United Arab Emirates consumer banking business to Abu Dhabi Islamic Bank for an estimated pretax gain of 119 million pounds.

“I am pleased to be announcing further progress on Barclays non-core asset reductions through the transactions,” Jenkins said in the statement. “We remain on track to rebalance Barclays as part of our strategy to deliver sustainable returns for our shareholders.”

CaixaBank estimates 150 million euros in cost savings in 2016 from the deal, according to a presentation sent to the Spanish stock market regulator today. The transaction will contribute about 80 million euros to net results in 2016, with restructuring costs of about 300 million euros.

Bad Bank

CaixaBank’s capital ratio, which was 12.4 percent in June, will decrease by 75 basis points as a result of the transaction, the bank said.

Barclays’s operations in Spain have 18.4 billion euros in net loans and 9.9 billion euros in client deposits, the presentation shows. The bank operates branches in all main Spanish cities, with the biggest presence in Madrid.

Barclays earlier this year created a bad bank to dispose of 115 billion pounds of assets, including its European consumer arm. The lender bought Spain’s Banco Zaragozano SA, a consumer and commercial bank, in 2003 for about 1.14 billion euros to become the country’s largest foreign-owned bank.

“Barclays grew a lot during the Spanish economic boom, with very high exposure to the real estate sector and low yielding mortgages,” David Vaamonde, a bank analyst at MainFirst Bank in Madrid, said in an e-mail.

‘Efficiency Issue’

Between 2011 and 2013, Barclays’s assets in Spain dropped 23 percent to 22.6 billion euros, according to data from Spain’s banking association, known as AEB. Barclays’s Spanish business reported 742 million euros in combined losses in the period.

CaixaBank CEO Gonzalo Gortazar said in an analyst conference call today that Barclays business in Spain has a “significant efficiency issue.”

“It is a matter of scale, and in CaixaBank we have scale,” he said. “We are the largest bank so we can actually, in a very simple transaction, integrate the businesses and keep the very positive things Barclays have to offer and make it more efficient.”

The sale will decrease risk-weighted assets by about 8 billion pounds, Barclays said. Leverage exposure is seen declining 15 billion pounds.

The transaction is scheduled to be completed by the end of the year, subject to regulatory approval, Barclays said. The final price is subject to adjustment based on the activities’ net asset value at the end of the year, it said.

--With assistance from David Scheer in Seattle.