Sabadell to Buy CAM for One Euro, No Budget Impact, Spain Says

BLOOMBERG - By Charles Penty - Dec 7, 2011

Banco Sabadell SA will buy stricken Spanish lender Caja de Ahorros del Mediterraneo (CAM) for one euro ($1.34), and Spain’s industry-financed deposit-guarantee fund will guarantee its assets, the FROB bailout fund said.

The impact on Spain’s budget will be “nil,” FROB said today in a statement after approving the deal.

Spain’s deposit guarantee agency first will refinance the savings bank, which was seized by the nation’s central bank in July, investing 5.25 billion euros.

Sabadell and CAM were both halted for trading.

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One euro

Sounds expensive lol

Rod

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Sabadell gets 5.2 billion euros in assistance to acquire CAM

Deposit Guarantee Fund also to cover part of future losses

EL PAÍS - Í. D. B. / A. S. - Madrid - 07/12/2011

 

The Bank of Spain on Wednesday decided to award failed Banco CAM, which was taken over by the central bank in July, to Banco Sabadell.

The procedure for integrating CAM into Sabadell calls for the Deposit Guarantee Fund (DGF) to initially acquire CAM for 5.249 billion euros through a series of capital increases and subsequently transfer it to Sabadell for the nominal sum of one euro. The deal makes it the most costly bank rescue operation ever in Spain.

The total amount includes the 2.8 billion euros injected by the state Orderly Bank Restructuring Fund (FROB) into CAM when it was intervened by the central bank.

The DGF, which is funded by the country's banks, will also bear 80 percent of the losses that accrue from CAM's impaired asset portfolio for the next 10 years after CAM's provisions for these assets have been used up. That will mean that virtually all of the DGF's current funds of 6.593 billion euros will be absorbed.

The government changed the law this year to make the DGF responsible for covering losses from the injection of public money into banks. The purpose of this was to avoid taxpayers having to foot the bill for the recapitalization of the banking system and to prevent any further widening of the public deficit. "The orderly restructuring of Banco CAM is not expected to have any impact on the state budget," the FROB said Wednesday.

The FROB for its part will ensure CAM has sufficient liquidity. CAM owes 7 billion euros to the European Central Bank and has also to return a further 9 billion euros it borrowed in the wholesale market.

CAM came unstuck because of its exposure to the ailing property sector, which has been in a slump since the property bubble burst around the start of 2008. CAM posted a loss in the first nine months of the year of 1.731 billion euros and has a non-performing loan ratio of 20 percent.

Sabadell was the only bank to submit a takeover plan for CAM to the Bank of Spain after other interested parties, including Banco Santander, BBVA and La Caixa, dropped out of the race.

The absorption of CAM will allow Sabadell to displace Banco Popular as Spain's fifth-biggest bank, with a loan portfolio worth 124.785 billion euros, a network of 2,279 branches and staff of 17,042.

 

 

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Sabadell Buys CAM for 1 Euro as Spain Banks Bail Out Caja

BLOOMBERG - December 08, 2011, 4:38 AM EST

By Charles Penty and Emma Ross-Thomas

Dec. 8 (Bloomberg) -- Banco Sabadell SA agreed to acquire stricken Spanish lender Caja de Ahorros del Mediterraneo for one euro in a deal financed and guaranteed by Spain’s commercial lenders as an effort to shield the national budget from losses.

Spain’s deposit-guarantee fund, which is financed by the country’s banks, will first inject 5.25 billion euros ($7 billion) into Alicante-based CAM. The impact on Spain’s budget will be “nil,” as the deposit fund will also guarantee losses arising over the next decade, the state bailout fund said.

The deal will create a lender with 166 billion euros in assets, Spain’s fifth-largest, combining Sabadell with a savings bank that was seized by the Bank of Spain in July after souring property loans wrecked its business. Spanish bank mergers are gathering pace, with Banco Popular Espanol SA announcing a 1.35 billion-euro takeover of Banco Pastor SA in October.

“The first impression is that this may be quite a good deal for Sabadell,” said Antonio Ramirez, an analyst at Keefe Bruyette & Woods in London.

Sabadell said in a presentation today that the “game- changing deal” will save more than 300 million euros a year, increase its client base to 5 million and add to earnings per share. Sabadell may close about 300 branches, Chief Executive Officer Jaime Guardiola said on a conference call.

Sabadell shares rose 6.5 percent in Madrid to 2.92 euros at 9:35 a.m. local time, outpacing the 0.8 percent gain by Spain’s main IBEX 35 Index.

Budget Shielded

The sale allows Spain’s central bank to remove CAM from public ownership as it seeks to speed up consolidation in a financial system burdened by 176 billion euros of troubled assets linked to real estate. CAM ran up losses of 1.73 billion euros in the first nine months of the year.

Spain, fighting to rein in the euro region’s third-biggest budget deficit, said in October that any losses arising from its overhaul of banks would be borne by the financial industry’s deposit-guarantee fund rather than by the taxpayer. It followed up on Dec. 2 by increasing banks’ contributions to that fund in a move criticized by the Spanish Banking Association as “surprising and unjust.”

That deposit-guarantee fund will guarantee 80 percent of losses that may arise from 24.6 billion euros of problem assets, after existing provisions of 3.9 billion euros, Sabadell said.

Troubled Assets

Those troubled assets include loans to property developers, refinanced mortgage loans to individuals and some loans to small and medium-sized companies linked to the building and real estate industry, an official from the FROB said yesterday. He said independent auditors estimate losses of 5.5 billion euros at CAM, a lender that rose and fell with the Mediterranean-area real estate boom.

The FROB is providing liquidity guarantees of 12.5 billion euros, Sabadell said. Those would be used, for example, in the unlikely event that the European Central Bank stopped its liquidity operations, the FROB official said yesterday.

CAM faces debt maturities of 6.37 billion euros next year, 3.24 billion euros in 2013, and 4.36 billion euros in 2014, according to data compiled by Bloomberg.

Government Control

The central bank threw out CAM’s managers in July and placed the bank under administration of the government’s bank bailout fund, which injected 2.8 billion euros into its business and provided a further 3 billion-euro credit line to keep it operating. The figure of 5.25 billion euros to be provided by the deposit-guarantee fund includes that 2.8 billion-euro cost, FROB said.

CAM’s ratio of defaults to loans hit 21 percent in September, more than double the ratio it had last December, as more than half its loans to property developers went bad.

Mariano Rajoy, Spain’s prime minister-elect after winning elections on Nov. 20, has pledged to accelerate a cleanup of the country’s banks that has so far cost 17.7 billion euros. He has asked for at least two studies on how to create a so-called bad bank to buy soured assets from lenders at a discount, two people with knowledge of the matter said on Nov. 25.

The Bank of Spain seized Banco de Valencia SA, the latest of seven lenders to be either seized or taken over by the central bank, on Nov. 21. The lender with 24 billion euros of assets had been under inspection by the Bank of Spain because it had fallen short of new minimum capital requirements for lenders put in place by the government this year.

--Editors: Keith Campbell, Frank Connelly.

 

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Hi Johnzx

The Spanish Government does not guaranguee deposits It is the Deposits Guarantee Fund the one that does. This Fund is set up by Banks with contributions out of profits and not by the Government out of taxes. One of the problems with this acquisition by Sabadell is that the DGF will be practically wiped out if the DGF has to ultimately cover all of CAM's potential real estate risks and if a big bank fails in the future, it is not clear what would happen to minimum guarantees.

Another problem is the one you mention but that would only happen if CAM was merged into Sabadell and the two became the same Bank. I haven't read that this will happen in the short term but people with large investments in the two banks should keep an eye on events.

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Sabadell to take on the CAM bank.

 

From:  www.simplynetworking.es

08 / 12 / 2011

 

A massive bailout subsidy assures continued security for CAM clients.

 

The Banco de España has reached its decision regarding the future of the CAM bank, and it was announced last night that operations of the former Caja de Ahorros del Mediterráneo will be run in future by the Banco de Sabadell.

 

Banco Sabadell was the only remaining bidder willing to take on the clients and operations of the CAM, after the others who had initially expressed an interest pulled out of the race when they inspected the CAM's accounts. The takeover will be the biggest in Spanish banking history, with the total assets of the new combined bank valued at 167,000 million euros, 95,700 million from Banco de Sabadell and the remaining 71,300 million from the CAM. This raises the profile of Banco de Sabadell in the national banking sector, putting it roughly on a par with the Banco Popular.

 

The takeover will be possible only due to the initial subsidy given by the division of the Banco de España which has been running the CAM since earlier this year (the "FROB"), who will buy 100% of the CAM's capital for 5,249 million euros before selling it on to the Banco de Sabadell for the nominal sum of one euro.

 

This subsidy makes it possible for the Sabadell to assume a takeover of the operations and maintain branches and personnel, without being encumbered by the massive losses run up by the CAM. It´s actually a complete inaccuracy to portray this feat of creative accounting as a "sale of the bank", when the deal involves the injection of billions of euros of public funds.

 

This subsidy includes the 2,800 million euros of losses already assumed by the Banco de España's guarantee fund. In addition, the CAM's current lines of finance will be maintained, and 80% of the losses incurred on "a defined asset portfolio" will be covered. This portfolio is the 24,000 million euros of real estate exposure considered to be at risk, including loans to developers and

promoters, mortgages, and loans to small and medium-sized construction companies, many of whom have either entered bankruptcy proceedings or already reached a stage of liquidation.

 

A provision of 4,000 million euros has already been made against the real estate exposure, leaving 20,000 million of doubtful debt. Of this amount, the Banco Sabadell will take on 4,000 million of risk, and the Banco de España's guarantee fund will cover the rest by means of a ten-year asset protection scheme.

 

However, there is some optimism that the losses could be restricted to 5,500 million euros, following the conclusions drawn by an Ernst & Young audit. This would cut the remaining exposure to "only" 1,500 million euros, of which 80% would be borne by the central bank.

 

It´s a virtually no risk situation for the Sabadell.

 

Josep Oliú, the president of Banco de Sabadell, is confident that the takeover will not weaken his bank, which will now have more than 18,000 employees working in over 2,300 offices and branches. This optimism comes despite the results of the first six months of this year, which yielded a profit of 207.4 million euros for the Banco Sabadell (down 39% compared to last year) and losses of 1,731 million euros for the CAM, which is suffering from a loan repayment default rate of 20%.

 

The announcement of the takeover will come as a relief to those who work for the CAM, following fears that no rescue package would be found after the bank was described by the governor of the Banco de España as "the worst of the worst".

 

Employees have already expressed their relief that the bank is not being broken up, but are resigned to the inevitability that the quantity of branches is likely to be cut as a new broom sweeps clean and cuts back on duplication.

 

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Banco Sabadell to tap markets for 1 billion euros for acquisition of CAM

Bank sees synergies from operation of 331 billion euros in 2014

EL PAÍS - Madrid - 08/12/2011

Banco Sabadell said Thursday it plans to raise 1 billion euros in the market to help it absorb Banco CAM.

In a presentation to analysts, Sabadell said even with the acquisition of loss-making CAM it will still meet the European Banking Authority's requirement of a minimum core capital ratio of 9 percent of risk-weighted assets. This assumes that the 870-million-euro preference share for common stock swap offer launched last week is fully accepted. Including the swap, Sabadell expects to be able to generate a further 2.1 billion euros from retained earnings and other sources that will not involve a capital increase.

Sabadell, which was the only bank to submit a takeover bid for CAM, said the operation would eventually generate annual synergies of over 300 million euros, including 112 million next year, 230 million in 2013 and 331 million in 2014. Chief Executive Jaime Guardiola said Sabadell may close about 300 branches as part of the merger.

Sabadell Chairman Josep Oliu said a team of 170 people had studied the situation at CAM for two months to identify the risks involved in the acquisition.

The Bank of Spain on Wednesday awarded ailing CAM to Sabadell for the nominal sum of one euro. CAM will first be sold to the Deposit Guarantee Fund (DGF) for 5.249 billion euros and then transferred to Sabadell. In this way, the Spanish banking system will effectively subsidize the takeover of CAM, which was taken over by the Bank of Spain in July after it sank under the weight of its exposure to Spain's ailing real-estate sector.

"The first impression is that this may be quite a good deal for Sabadell," Bloomberg quoted Antonio Ramírez, an analyst at Keefe Bruyette & Woods in London, as saying.

Sabadell's shares closed Thursday up 3.27 percent in a falling market, while CAM's participation certificates gained 6.35 percent.

However, analysts said the acquisition poses challenges because of the size of the deal, the problems at CAM and difficult market conditions. CAM's asset base is about three-quarters the size of Sabadell's.

The DGF will also absorb 80 percent of the potential losses deriving from CAM's problematic assets, which total 24.644 billion euros. Of this amount, the Bank of Spain estimates potential losses of some 5 billion euros. CAM has provisions to cover 3.882 billion euros of this amount.

The state Orderly Bank Restructuring Fund (FROB) will also guarantee Sabadell sufficient liquidity to meet its funding needs. Sabadell on Thursday estimated it would have total available liquidity of 34.4 billion euros, more than enough to cover CAM's maturing debt of 21.136 billion euros.

The deal will allow Sabadell to displace Banco Popular as Spain's fifth-biggest lender with total assets of 166 billion euros, including 71.3 billion from CAM. The combined entity will have deposits of 80 billion euros.

 

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