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BBVA buys nationalised Catalunya Banc for €1.19 billion, meaning taxpayers will lose more than €11 billion

BBVA will pay €1.187 billion to the Fund for Orderly Bank Restructuring (FROB) for the nationalised Catalan bank, beating the other two offers in the final phase of the auction process presented by Santander and Barcelona-based CaixaBank. This means that Spanish taxpayers will lose €11.84 billion considering guarantees and due to the fact that the Spanish Government injected €12.622 billion into Catalunya Banc since it was nationalised in 2011. Catalunya Banc was a private bank owned by CatalunyaCaixa, the merger of three historical Catalan savings banks (Catalunya, Tarragona and Manresa). It could not face the deep restructuring process required to meet the new banking regulations. The bank had a weak financial position resulting from a high exposition to toxic real estate and mortgages assets, as well as suffering from poor management. The BBVA will become the second largest bank operating in Catalonia, doubling its past position.

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22 July 2014 08:57 PM

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ACN

Barcelona (ACN).- BBVA will pay €1.187 billion to the Fund for Orderly Bank Restructuring (FROB) for the nationalised Catalan bank, beating the other two offers presented in the final phase of the auction process by Santander and Barcelona-based CaixaBank. This means that Spanish taxpayers will lose €11.84 billion, considering guarantees and due to the fact that €12.622 billion of public money has been injected into Catalunya Banc since it was nationalised in October 2011. According to the FROB (the public fund managed by the Spanish Government and the Bank of Spain, owning Catalunya Banc) BBVA's offer for €1.19 billion is "a good price", since it was "impossible" to have the €12.6 billion back. Furthermore, it was "recommendable" to sell the Catalan bank as soon as possible in order to avoid future "deteriorations", they argued. Catalunya Banc is a private bank owned by CatalunyaCaixa, the result of the merging of three historical Catalan savings banks (Caixa Catalunya, Caixa Tarragona and Caixa Manresa) in July 2010. The bank, created in July 2011, could not face the deep restructuring process required to meet the new banking regulations and it had to be bailed out using public money. The bank had a weak financial position resulting from a high exposition to toxic real estate and mortgage assets due to the financial crisis and from poor management, as further investigations have showed. The bank was nationalised and, since then, the FROB and the Security Fund for Deposits own 98.4% of it. In fact, BBVA's offer is for 100% of the Catalan bank and, in case of only being able to buy 98.4% of it, the final price will be "adjusted accordingly". The final decision regarding this specific issue will be taken after having assessed the operation together with the European Commission, stated the BBVA. With this operation, the Basque bank will become Catalonia's second largest financial entity, after it already bought Unnim in March 2012. In fact, BBVA now owns 6 of the 10 Catalonia-based savings banks that existed before the financial crisis.


Catalunya Banc has passed once again to the private sector after being publically managed for almost three years and after two failed attempts of selling it. In the last few months parts of its business have already been taken away, such a group of toxic real estate properties that were handed over to the Sareb (Spain's public 'bad bank') in order to ease the sale of the Barcelona-based financial entity by making it more attractive and digestible. In addition, US firm Blackstone already bought the remainder of Catalunya Banc's real state division in June, as well as a €6 billion package of high-risk mortgages in July.

After these operations, Catalunya Banc's sale was easier, as it has been proved by BBVA's operation and the other two binding offers presented by CaixaBank and Santander. Banco Popular, Kutxa savings bank and Société Générale did not present a binding offer in the end. BBVA has purchased Catalunya Banc in the first binding round of the third auction launched. The tender's conditions specified that in order to reach a definitive decision in the first round, the winning offer had to be €200 million higher or 50% higher than the second best.

BBVA to invest 450 million in 2015 and 2016 to restructure the Catalan bank

BBVA, which is one of the world's finance giants, plans to complete the integration of Catalunya Banc by the first quarter of 2015. It also plans to invest €450 million in 2015 (80% of the amount) and 2016 in order to complete the restructuring process. In this second year the Catalan bank should already be profitable, and by 2018 it should bring in a profit of €300 million, according to BBVA's calculations. This entire operation should only decrease BBVA's core capital, standing at 10.6% by March 2014, by 55 basic points. The bank will entirely finance the purchase and restructuring with its own resources, without undertaking any capital operation or enlargement.

Trade unions welcome the Basque bank's purchase since it ends "the uncertainty" about Catalunya Banc's future. Furthermore, they hope not to go through further mass layoffs, considering that between December 2012 and December 2013, the Catalan bank's staff was reduced by 2,340 employees, a 33% reduction. In addition, 390 branches were shut down, reducing the number of offices in Catalunya Banc's network by 34%.

BBVA, the second largest bank in Catalonia

With this purchase the Basque bank will become the second largest financial entity operating in Catalonia, doubling its past position. By buying Catalunya Banc, BBVA will add 1.5 million clients, passing from 12.3% of the client market share in Catalonia to the 26.1%, just below CaixaBank's. In addition, it will go from managing 15.8% of Catalonia's total loan volume to 24.4%. Finally, its share within the client resources market (deposits plus pension and investment plans) will increase from 12.4% to 22.8%. In addition, BBVA will also significantly increase its presence within the entire Spanish market; its volume of loans will grow by 14%, deposits will increase by 23% and the number of clients by 18%.

Political considerations

The Professor in Banking of Barcelona-based ESADE, which is one of the most prestigious business schools at international level, Robert Tornabell, stated that BBVA's win in the auction process was a "surprise". However, he added that the greatest "surprise" was that "taxpayers lost more than €11 billion". Tornabell highlighted that the figure equals the Spanish Government's total budget cuts in healthcare and education in Spain until 2013, a result of the economic crisis. Furthermore, the University Chair criticised the Spanish Executive for having only requested €40 billion to restructure the banking sector, while the European Union was initially offering €100 billion and while €108 billion had already been spent.

In Tuesday's press conference on the purchase of Catalunya Banc, the managers of BBVA were asked about Catalonia's self-determination process and how it affects their investments. Cristina Parias, BBVA's Director for Spain and Portugal, answered that "BBVA is making a clear investment in Spain's and Catalonia's growth and does not go into political considerations".

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  • BBVA's main offices in Barcelona (by R. Pagano)

  • BBVA's main offices in Barcelona (by R. Pagano)