September 10, 2013 10:12 am

Sabadell share sale to bolster finances against soured loans

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Banco Sabadell is launching a share sale of up to €1.4bn as the Spanish lender seeks to bolster its balance sheet against soured property loans for the second time in a year-and-a-half.

The Catalonia-based bank said it was planning to sell shares in two blocks, the first a sale of €650m worth of shares to investors from Latin America through an accelerated book build, with the rest being sold to existing shareholders.

The collapse of Spain’s decade-long housing bubble took a heavy toll on its banking sector, forcing large parts of its savings banks industry into the arms of the state and compelling Madrid last year to request a European rescue to pay for the clean-up.

Sabadell, Spain’s fifth biggest bank by assets, has avoided nationalisation but has now launched two dilutive capital increases in just over a year and a half, having already raised €913m in February last year following its takeover of the bailed out savings bank CAM. Shares in the lender fell 2 per cent on Tuesday morning following the announcement.

Non-nationalised medium-sized banks in Spain have now raised new capital several times during the past two years with Banco Popular, Sabadell’s most direct rival by size, selling €2.5bn in new equity at the end of last year as they seek to mend balance sheets damaged by soured property loans.

The first part share sale, both of which are fully underwritten by Deutsche Bank and JPMorgan, will be sold at a price of €1.64, with the second part sold at €1.10 per share, compared with a closing price on Monday of €1.78.

The sale at €1.10 represents a 39 per cent discount to the closing price, and 34 per cent discount to the shares’ theoretical ex-rights price, or the price assumed after taking into account the dilution of the new shares if they are all bought in the sale.

Sabadell said the decision to conduct the capital increase in two parts was made to allow long-term international investors to take a stake in the bank.

Analysts have long expected Sabadell to require further capital as a result of rising provisions and incoming regulatory changes that would potentially sharply reduce its current capital buffers, and as a consequence of provisions made against rising bad loans.

Sabadell has had to prepare for incoming changes under the Basel III rules that prohibit banks from using so-called deferred tax assets (DTAs) that occur when a lender makes losses or provisions it can then book against future profits.

Sabadell has one of the highest ratios of DTAs to tangible book value of European banks, with analysts at N+1, a Spanish investment bank, earlier this year estimating this at 64 per cent.

Sabadell said the two capital increases would push its pro forma core tier one ratio, a measure of its strength, to above 11 per cent.

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