Spain's Bankia to Take Over BMN as Bank Cleanup Accelerates

(Bloomberg) -- Bankia SA agreed to acquire Banco Mare Nostrum SA in an all-stock deal, allowing Spain to proceed with plans to sell its stake to recoup the costs of bailing out the lenders after the country’s property bust.

Bankia, Spain’s fourth-largest bank by market capitalization, will fund the deal by issuing new stock totaling 6.7 percent of its post-merger capital to the shareholders of Banco Mare Nostrum. The transaction values the unlisted BMN at 825 million euros ($924 million), or 0.41 times its book value, Bankia said in a statement Tuesday.

Europe is cleaning up its remaining troubled banks a decade after the financial crisis, taking advantage of strong stock markets and rising interest rates. The latest transaction comes just weeks after Banco Santander SA stepped in to take over Banco Popular Espanol SA, which was in danger of collapsing after refusing a bailout in 2012.

Bankia rose after saying the deal will boost earnings per share by 16 percent and generate 155 million euros in savings, mostly from cuts in the corporate center and offices. Spain, which owns about 65 percent in each of the two lenders through a bank-rescue fund, announced its intention to merge the two in March, with the goal of selling shares in the combined bank by 2019. That may now happen as soon as this year, Chief Financial Officer Leopoldo Alvear said.

“I think in the following months we will see some action from the government in that regard,” he said in an interview with Bloomberg TV. The state already sold a 7.5 percent stake in Bankia in February 2014 for 1.3 billion euros.

The takeover will entail additional provisions and writedowns totaling 700 million euros for BMN’s portfolio and loans and foreclosed assets. While Bankia said its coverage ratios -- measuring its ability to absorb losses from bad loans -- will be maintained at current levels, its common equity Tier 1 capital ratio will decline to 12 percent from 13.4 percent at the end of March.

“The integration of BMN is tremendously positive because it allows us to build out our franchise in some areas of strong growth in which we had a very limited presence," Bankia Chairman Jose Ignacio Goirigolzarri said.

Bankia’s shares rose as much as 4.8 percent and were trading 4 percent higher at 4.18 euros as of 12:44 p.m. in Madrid, bringing this year’s gains to 7.9 percent.

“It’s a positive deal for Bankia,” said Ignacio Lopez, an equity sales trader at Ahorro Corp. in Madrid. “The transaction is accretive for Bankia’s earnings per share.”

Popular was forced this month to sell itself to Santander for 1 euro in the first major action by the Brussels-based Single Resolution Board, set up in January 2015 to deal with euro-area bank failures and wind them down with minimal impact on taxpayers and financial stability. Unicaja Banco SA plans to sell about a 40 percent stake in an initial public offering to institutional investors. Proceeds will be used to repay about 604 million euros of contingent convertible securities the bank inherited from a nationalized lender it acquired in 2014.

In Italy, Intesa Sanpaolo SpA agreed over the weekend to acquire the good assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA with financial aid from the government, which committed as much as 17 billion euros to winding down the two lenders. Italy, which wants to avoid imposing losses on bondholders because many of them are mom-and-pop investors, is still in talks with European authorities to save Banca Monte dei Paschi di Siena SpA through a so-called precautionary recapitalization.

The Spanish government is seeking to recover 41 billion euros of European funds it received in 2012 to prop up lenders hit by the collapse in the country’s real estate market. Bankia received 22 billion euros of state aid, while BMN got 1.65 billion euros. The country’s bank rescue fund will hold about 67 percent of the new entity.

“The merger reinforces Bankia’s position as the fourth-largest bank in the Spanish market and comes at a time when the outlook for the financial system is improving, both in terms of expected business growth and as regards the foreseeable trend in interest rates,” Bankia said in its statement.

Shareholders of both lenders are expected to approve the deal in September and Bankia aims to complete the merger by the end of the year, Chief Executive Officer Jose Sevilla told analysts.

To contact the reporters on this story: Macarena Munoz in Madrid at mmunoz39@bloomberg.net, Esteban Duarte in Madrid at eduarterubia@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Cindy Roberts