When executives of La Caixa, the unlisted Spanish savings bank, launched a revamp plan six months ago, they knew they would have to produce a structure that was sufficiently well capitalised to impress foreign investors.
Yet they could hardly have known how intense the pressure would become. With a core tier one capital ratio – a measure of balance sheet strength – of 8.7 per cent at the end of September, La Caixa is the best capitalised of all Spain’s major lenders, including Santander and BBVA. Even so, it does not meet the minimum requirements set this week by the Spanish government.
Elena Salgado, finance minister, said all financial institutions would need a minimum core capital ratio of 8 per cent by the autumn of this year but the number rises to 9 or even 10 per cent for unlisted savings banks with no outside investors and heavy dependence for funding on wholesale financial markets.
La Caixa’s plan – approved at a board meeting on Thursday and described to the Financial Times by people familiar with the details – is designed not only to meet Spain’s requirements but also to prepare the new bank for the stringent capital adequacy requirements of the forthcoming Basel III regime.
La Caixa, the brand with the biggest market share of retail banking in the domestic Spanish market, will technically remain a caja de ahorros, a traditional Spanish savings bank, but the structure beneath it will change completely.
By July, the organisation should have three main arms. The first is a listed bank, provisionally named Caixabank, with a book value of €20.6bn ($28.2bn) and a business including La Caixa’s current domestic bank operations and its stakes in foreign banks in Hong Kong, eastern Europe, Portugal and elsewhere.
La Caixa is taking steps to ensure that the bank – which is expected to be the 10th biggest in the eurozone by market capitalisation after Crédit Agricole – is exceptionally robust, and has calculated that it will have a core capital ratio of 10.9 per cent under current Basel II rules.
To achieve this, a “bad bank” of La Caixa’s repossessed properties will be hived off to the second arm, an industrial holding group. Caixabank will meanwhile grab the stakes in Repsol, the energy group, and in Telefónica, currently held by Criteria, the existing industrial holding group whose shares were suspended yesterday.
Caixabank will thus benefit from latent capital gains of more than €2bn in these two holdings as well as from their dividend streams. A further reason for retaining Telefónica is that La Caixa has been developing ventures jointly with the telecoms operator on banking through mobile telephones and the internet. Lastly, the new bank will reinforce its capital by selling €1.5bn in compulsorily convertible bonds to clients.
The second, industrial, arm of La Caixa will be an unlisted unit with a book value of €10.1bn. This part of the group will have the “bad bank” of real estate and keep the rump of the old industrial holdings of Criteria, including stakes in Gas Natural, infrastructure group Abertis, and leisure interests.
La Caixa’s third arm under the new structure will be the existing charitable work, which is funded out of profits according to long-standing practice and which receives about €500m a year. Those familiar with the complex operation say it should be completed by July. The listed Caixabank is to be about 80 per cent owned by La Caixa, with the rest as a free float, including existing minority shareholders of Criteria.
La Caixa executives say the new structure will allow their bank to buy assets as the rest of the Spanish banking sector is restructured, and will make it easier for them to explain themselves to foreign investors baffled by the system of cajas, opaque structures often influenced by regional politicians.
Above all, they hope the reform will give them capital strength. “We’re creating a bank because we think in the new scenario the regulatory requirements for capital will be so great, and profitability so much under pressure, that current profits would not allow us to continue growing,” said one person familiar with the negotiations.