Last updated: November 2, 2010 7:47 pm

BBVA launches €5bn rights issue

BBVA, Spain’s second-biggest listed bank, has become the latest international lender to seek to strengthen its capital base, launching a €5bn ($7bn) rights issue following a deal to buy joint control of Turkey’s Garanti Bank.

The rights issue is the third by a big European bank since international regulators published details of a tougher capital regime, the so-called Basel III rules, in September. China Construction Bank also on Tuesday announced a $9.2bn rights issue to strengthen its capital ratios.

BBVA said that it was buying 24.9 per cent of Garanti for €4.2bn and would jointly manage the bank with Turkey’s Dogus group, a conglomerate.

Stronger Spanish banks such as BBVA are eagerly expanding abroad, especially in emerging markets, to reduce their dependence on domestic banking. But after surviving the global financial crisis in relatively good shape, they face pressure to raise capital to levels close to those of European peers.

Deutsche Bank raised €10.2bn immediately after the Basel III rules were announced, with a portion of the money earmarked for an acquisition like BBVA. Last month, Standard Chartered announced a £3.3bn ($5.3bn) issue to boost its capital ratios.

BBVA said its core capital ratio would rise from 8.2 per cent in September to 8.8 per cent on a pro forma basis at the end of the year following the rights issue and acquisition. Under Basel III definitions, which are tougher, the number falls back to 8 per cent.

BBVA is buying 18.6 per cent of Garanti from General Electric, which has been trying to sell its nearly 21 per cent stake, and 6.3 per cent from Dogus.

Dogus and BBVA will have identical stakes in the bank and will each appoint four directors to the board, with the chief executive appointed by common consent. However, after five years, BBVA will be able to appoint two-thirds of the board.

The BBVA rights issue will be a one-for-five offer at €6.75 per share, a 29 per cent discount to Friday’s closing price. Bank executives said the capital raising included a “top-up” element of up to €2bn, since BBVA would need only €3bn of new capital to cover the purchase under the existing Basel II prudential regulations, and a maximum of €4.2bn under the forthcoming Basel III rules.

BBVA has paid Dogus a hefty 24 per cent premium over Monday’s closing price for the shares it needed to win joint control, compared with a 23 per cent discount to Monday’s close for the shares bought from GE.

“BBVA wants to be in markets with the highest growth potential and Turkey, with a leading bank such as Garanti, is undoubtedly one of them,” Francisco González, BBVA executive chairman, said.

Garanti is one of Turkey’s biggest banks, with 9.5m clients and 837 branches.

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