financial markets

The Catalan capital is Europe's 8^th most attractive city to invest in and the highest-ranked city located in the southern part of the continent, according to the international consultancy firm Ernst & Young. London, Paris, Berlin, Frankfurt, Amsterdam, Brussels and Munich come first in the European ranking and are followed by the Catalan capital, ahead of Madrid, which comes in 10^th position. EY highlights the fact that Barcelona has attracted "enough" international business projects to confirm its place among Europe's top 10 most attractive cities for foreign investment. Catalonia ended 2014 with 108 direct foreign investment projects, a 27% increase on 2013 figures. These projects created 7,089 new jobs. EY stressed that none of the 7 cities ahead of Barcelona were able to transform direct investment into the creation of so many new jobs. London was the closest contender, creating 3,470 jobs, half of that of the Catalan capital.

Last April, Banc Sabadell filed a takeover offer on 100% of the shares of the UK lender TSB, partially owned by LLoyds. On Monday, the Catalan bank announced it had already exceeded the 75% minimum bid of the takeover offer, reaching 81.23% of TSB shares. However, this percentage is still likely to increase in the upcoming days, since there are 14 remaining days till the end of the takeover's acceptance period. In order to fund the transaction, the Catalan corporation will carry out a €1.61 billion capital increase (€1,607 million). Current shareholders have a preference call in this capital increase. Banc Sabadell, is one of the few banks to emerge stronger from a financial crisis that has redrawn Spain’s banking sector. Unlike many of its Spanish rivals, the bank is in good shape reporting a 50% increase in annual profits at the end of 2014 to €371.7 million. Since 2007, it has doubled in size and is now Spain’s 5^th largest bank. It achieved this mainly through an energetic programme of acquisitions in Spain and abroad. 

Last week, TSB announced Banc Sabadell's interest in purchasing all of the shares of the British bank, which is partially owned by Lloyd's. The board of the 6^th largest bank in the United Kingdom then said they would welcome the Catalan bank's takeover bid, which they set at £3.40 per share (equivalent to €4.80). This meant that Banc Sabadell would buy TSB for £1.7 billion, or €2.4 billion. At that time, the Catalan bank denied any definitive agreement had been reached and simply confirmed that there were some talks in progress. A week later, Banc Sabadell has finally announced and approved the takeover bid, on the same terms released last week. In order to fund the transaction, the Catalan corporation will carry out a €1.6 billion increase in capital. This purchase will significantly strengthen Banc Sabadell's internationalisation, dramatically increasing its presence in the UK and in London's financial circles.

TSB, which is the seventh-largest bank in the United Kingdom, confirmed on Wednesday that they have received a preliminary takeover bid of £1.7 billion (equivalent to €2.35 billion) filed by Banc Sabadell. The Catalan bank would have offered £3.40 per share (€4.80) and would be ready to buy the entire British financial entity, 50% of which is still owned by Lloyds. Sources from Sabadell have confirmed takeover talks, but they stressed that they are still preliminary in nature. After the news was released, shares of TSB increased by 26.4% while those of Banc Sabadell dropped by 7.5%, causing the Spanish Stock Exchange Authority (CNMV) to temporarily suspend trading in the Catalan bank. When Banc Sabadell returned on the stock market, its shares continued to decrease, dropping by 10.5%, but they partially recovered and ended the day with a 6.6% loss.

Barcelona’s office rental sector is improving after years of decline. Real estate company Inmobiliaria Colonial has set the tone by releasing 23 million new shares. Colonial is one of Europe’s leading companies in the office rental market and besides the new shares, they have also bought the main office of food multinational company Gallina Blanca. The property, positioned on L’Hopitalet del Llobregat’s Plaça Europa, one of Greater Barcelona’s business districts, has an area of almost 5,000 square metres and has been sold for €10.4 million. The shares and the purchase both belong to a new strategy to recover from the crisis and get the market back on track.

According to a study by the Professional Association of Economists of Catalonia (Col·legi d’Economistes), an independent Catalonia would obtain a much better grade from rating agencies than it currently gets, taking into account its diversified economy and higher GDP per capita than the European average. Specifically, it would obtain an A+ rating, 7 levels higher than the current BB ‘junk bond’, using Standard&Poor’s classification. The study highlights that without the current fiscal deficit with the rest of Spain, the rating would be “at least” that of the Basque Country and would enable the Catalan Government to access the international financial markets. Catalan taxpayers pay much more to the Spanish Government than the amount they get back in terms of services and infrastructure; a fiscal deficit equivalent to between €13bn and €17.5bn per year.

Figures released by the Barcelona Chamber of Commerce on Monday showed that the economy of Catalonia is set to grow by 1.6% in 2014 and 2.1% in 2015. The Chamber also predicted that by 2015, there will be a 2% rise in Spain’s GDP and 1.4% in that of the Eurozone countries average. According to the President of the Chamber, Miquel Valls, the recovery of Catalan and Spanish economies is "solid", but he stressed that the "austerity in wages" must be maintained. This report comes after the success of all Catalan banks passing the stress tests issued by the European Banking Authority and the European Central Bank, which 25 banks across Europe failed. Related economic news is that the unemployment figures released for third quarter of 2014 set Catalonia’s rate at 19.1% and Spain’s at 23.67%.

The Catalan banking system boasts a strong image after the publication on Sunday of the 2014 EU-wide stress test results, issued by the European Banking Authority (EBA). All the financial entities based in Catalonia have sailed through the EBA stress test, showing they could face the most adverse economic developments with only their own resources. In the most difficult scenario, Barcelona-based CaixaBank – which is the largest bank in the Spanish market – reached a 9.3% equity ratio (CET1), Banc Sabadell got an 8.3% and Catalunya Banc an 8%. The minimum required was 5.5%, which was not reached by 24 of the 123 European banks analysed. Only one Spanish entity, Madrid-based Liberbank, would need additional capital in the worst case scenario.

The day before the massive pro-independence demonstration in Barcelona, the Spanish Prime Minister, Mariano Rajoy, once again rejected Catalonia's right to self-determination. Furthemore, Rajoy stated that a self-determination consultation vote or a unilateral declaration of independence would generate "a political problem and difficulties in the markets". Rajoy was answering to an MP from the centre-right pro-Catalan State coalition CiU, Josep Sánchez-Llibre. The Catalan MP stated that "what really threatens the [economic] recovery is that, in front of Catalonia's demands, [the Spanish Government] has not even issued half of a political answer that can allow the markets to believe in an agreement and not in it being on a collision course".

On Thursday, the Catalan Finance Minister, Andreu Mas-Colell, admitted that Catalonia will not be able to meet the strict 1% deficit target imposed by the Spanish Government for 2014. In fact, the Catalan Executive had previously warned on several occasions that this deficit target was not realistic, despite the great austerity efforts undertaken over the past four years. In addition, despite Spain's economic recovery of 2014 – which is led by Catalonia – and therefore the increase of taxable activity, the Spanish Government will reduce the Catalan executive's funds by €500 million this year while the deficit target becomes stricter. On Wednesday, the Catalan President, Artur Mas, already stated that, considering the austerity measures adopted since 2011, further budget cuts cannot be undertaken in 2014 without dramatically damaging basic public services such as healthcare and education. Instead of relaxing the deficit target or transferring pending funds and debts to the Catalan Government, the Spanish Finance Ministry will reduce the interest rate that the Autonomous Communities have to pay back to 1% for the loans of the Liquifidity Fund (FLA).

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.

CatalunyaCaixa (CX) on Thursday confirmed the sale of its portfolio of high risk loans to US investment company Blackstone, consisting mainly of mortgages with a nominal value of €6.392 billion and provisions of €2.205 billion. The transaction involved the transfer of funds to a portfolio of asset-backed securities for an amount equal to its book value, €4.187 billion, with €3.615 billion supplied by Blackstone and Spain's public Fund for Orderly Bank Restructuring (FROB) providing the remaining 572 million. With this divestment, the CX solvency ratio stood at 14.9% and coverage stands at 81.6%. After this sale, the liquid assets of CX will reach €16.848 billion and the company is now ready to face its full privatisation, after it was nationalised in 2012.  In addition, Blackstone had already bought CX's real estate business in June in a €40 million operation.

The Barcelona-based bank, which was totally nationalised in December 2012 and received a €9.08 billion bailout, has made profits of €532.2 million in 2013, which would represent €167.8 million without the extraordinary profits. In 2012, CatalunyaCaixa posted losses of €11.86 billion. In 2013, the operational costs were reduced by 13.1%, having drastically reduced the number of employees and branches. The bank's capital ratio is now 14.36% and the main capital following Basel III criteria reached 12.3%, which represents liquidity of €15.01 billion. With these figures, the Spanish Government is in a better position to sell CatalunyaCaixa, which forecasts profits also for 2014. This company was the result of merging the banking business of 3 savings banks in 2011: Caixa Catalunya, Caixa Tarragona and Caixa Manresa, which disappeared after a long tradition of social work. The operation was part of Spain's restructuring of the banking sector.