Caixa Bank BPI – Clarity Gained, Capital Action Taken

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UBS | The last couple of days have been crucial on CaixaBank’s tender process for BPI. Firstly, the “deal breaker” voting cap was removed by BPIs AGM on Wednesday. This makes CaixaBank’s offer launch mandatory and as a result the bid price increased slightly from €1.113 to €1.134 (volume weighted average price in the last 6 months). Secondly, once CaixaBank gained further clarity around the deal’s viability, it announced a placement of its own treasury shares near Thursday’s market close. This announced Treasury stock sale amounts to the 585m shares (9.9% of capital) which CaixaBank received as a result of the asset swap (involving BEA/Inbursa stakes) with Criteria in December last year.

Lower proforma post deal capital ratios, smaller dilution

In our latest note we assumed CaixaBank would maintain an unchanged c.11.5% FLCET1 after the acquisition of BPI, in the middle of management’s 11 -12% guidance, with an implied €1.35- 1.95bn capital increase depending on the final stake owned in BPI. The bank’s decision to place its Treasury stock implies the capital boost stands at €1.3bn, which means core solvency would remain below our previous estimates (20 -40bps, at 11.1-11.5% by YE16E), but also yielding lower EPS dilution (2- 6% vs. 5-7%).

Capital still the main area of debate, Angolan deconsolidation would help

We understand CaixaBank’s decision to favour the own -stock placement over a rights issue to fund the pending deal. However, this would leave FLCET1 ratios around 11% in a scenario of full BPI ownership, or c.10% if we add REP’s c.€0.9bn unrealised loss a nd remove €0.5bn sovereign bond gains. Some relief could be achieved if BFA’s deconsolidation (via a 2% sale to Unitel) materialises, with €7 -8bn RWA release likely boosting core solvency by 40-50bps.

Valuation: weakness should be short -lived, valuation is not demanding

We do not see BPI as a positive for CaixaBank as it offers limited earnings upside and increases exposure to a troubled banking market like Portugal. That said, the deal outcome looks modestly better than anticipated, especially if Angola is deconsolidated, and valuation at 0.7x PTBV and c.8x PE (both proforma of BPI) looks undemanding in light of our improved view about CaixaBank’s standalone returns, hence we believe the recent share price weakness should prove temporary. Our €2.4/share PT does not reflect any anticipated benefit from Angola’s potential deconsolidation.