Investors revel in Spanish bank La Caixa listing plan

28th January 2011, Comments 0 comments

Shares in an offshoot of Spain's biggest savings bank La Caixa rocketed 25 percent Friday on news that it will be transformed into a major retail banking operation.

Investors reacted with glee to La Caixa's plan to transfer its entire 9.48-billion-euro ($13.0 billion) retail banking business into its listed investment arm Criteria, to be re-born as CaixaBank.

As a result, it would become one of Europe's top ten financial institutions by market capital.

Criteria shares leapt 25.83 percent to 5.60 euros in a matter of minutes as trading resumed for the first time since it was suspended for the announcement on Thursday afternoon.

La Caixa, with 27,000 employees, 10.5 million clients and 5,300 branches, is the giant of Spain's regional savings banks, many burdened with loans that turned sour when the housing bubble popped in 2008.

It is also the third largest financial institution in Spain.

The new CaixaBank business will get a good head start.

CaixaBank will not have to deal with La Caixa's doubtful property loans, which are to be siphoned off into a real estate branch, Servihabitat, managing director Juan Maria Nin told a news conference.

And 8.2 billion euros in net debt will be assumed by La Caixa instead of going to the new bank.

More than a century old, La Caixa's announcements place it at the vanguard of reforms being demanded by the government in the beleaguered savings bank sector.

As one of the healthiest savings banks, its manoeuvres also place a harsh spotlight on weaker institutions that have yet to act.

Economy Minister Elena Salgado this week announced new rules on the level of rock-solid core capital -- equity capital and retained earnings -- that the banks must have on their balance sheets.

Spanish lenders will have to have a core capital level equal to 8.0 percent of total assets by September, even higher than the 7.0 percent required under tough new, international "Basel III" rules agreed last year.

And the state-backed Fund for Orderly Bank Restructuring, or FROB, will step in to take temporary stakes in those savings banks that do not meet the new requirements by then.

"If I were a financial institution I would prefer not to have not to have to resort to the FROB; that would mean accepting a restructuring plan," Salgado said in an interview with El Pais.

"It is always better to go to the private sector for financing. That is one of the goals of the reform," she said.

There are three major steps in La Caixa's complex listing operation:

-- First, La Caixa will transfer its retail banking operations into its wholly owned affiliate Microbank.

-- Second, La Caixa will transfer all Microbank shares -- valued at 9.48 billion euros ($13 billion) -- into its listed investment banking arm, Criteria.

-- Third, Criteria will absorb Microbank and become a credit institution with the name CaixaBank.

At the end of 2010, La Caixa's doubtful loans, mostly made before the property bubble collapsed, rose to 3.71 percent of total assets from 3.42 percent a year earlier.

That level is still better than the average in the sector -- 5.68 percent in November.

La Caixa's core capital accounted for 8.6 percent of total assets, just down from 8.7 percent in 2009, it said.

On Friday, La Caixa said it had set aside 2.651 billion euros ($3.6 billion) in 2010 in case bad debts on the balance sheet cannot be recovered.

As a result, net profit dropped 13.4 percent in the year. Business overall was also down in the year, with net banking income declining 19.8 percent to 3.152 billion euros.

© 2011 AFP

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