Bankia Shakes Up Spanish Banking Sector On BMN Merger News

Bankia's strategic planBankia's headquarters

Bankia’s stock market gains after the news that it will takeover BMN exceeded market consensus: the lender’s share price closed the first day at 1,06 euros, over the 0,93 euros per share average target price estimated by at least 32 broking houses which monitor the stock. Without yet knowing the economic terms of the merger, the deal is considered to be foreseeable, reasonable and interesting for the majority of analysts. Their recommendations on Bankia are divided almost equally between the bulls, the bears and those who have a neutral stance.

Gesconsult Renta Variable – a Spanish equity fund with a top quality rating from Morningstar and an over 20-year investment record- has about 1 million euros invested in Bankia shares, or 2.40% of its assets worth 43 million euros. The fund’s analysts, who don’t make recommendations or establish target prices for the stocks in which they decide to invest, revised Bankia’s share price in the wake of last week’s mini rally. “We are positive on Bankia,” says Alfonso de Gregorio, director of asset management at independent fund manager Gesconsult. “Bankia is relatively cheap, trading at 0,60-0,70 times its book value, better than its peers and the sector average. Caixabank is trading at 0,98 times; Sabadell at 0,90 times…As long as the takeover price of BMN does not exceed 0,80 times book value, the transaction will be accretive for its shareholders,” de Gregorio explains. Analysts “have got very behind” with their banking sector valuations in general and with Bankia in particular, he says, given that, amongst other things, the bank “has really cleaned up its profit and loss and account and is, along with Liberbank, the Spanish bank which most benefits from the upward trend in interest rates.” The Gesconsult team is not going to change its position in Bankia “unless there are drastic changes in the economy or in interest rates”. It estimates its fair value in the market would be around 0,90 times book value. This would mean “a potential for revaluation of 20-30% with respect to its current trading price, which would not suprise me,” Gregorio adds.

Market consensus divided

The information for investors provided by Bankia itself on its webpage shows that scarcely 10 days ago the average target price of a group of 32 analysts who follow the stock was 0,93 euros per share, with a ceiling of 1,15 euros and a floor of 0,60 euros. This is a range used by domestic firms such as Santander and Sabadell and international banks like Morgan Stanley, Credit Suisse or Deutsche Bank. As far as their recommendations go, 38.24%, or 13 of this group of analyst firms, have a Hold; 32.35%, or 11 of the firms, prefer a Sell. The rest are more optimistic and believe that it is now the time to buy Bankia shares.

According to a statement from the FROB, the Bankia-BMN merger will generate synergies of some 616 million euros. Carax-Alphavalue recommends to Reduce. They prefer “other banks in the sector,” believing the merger shows that the absorbing bank “has not made the decision itself.” But they acknowledge that the current chairman  –José Ignacio Goirigolzarri– “is one of those who made Bankia’s current future more visible.” Pablo García, the firm’s managing director, believes the operation will be technically quick – “the path has been mapped out for some months, it will be almost ready and I don’t think it will take longer than three months.” He is betting on “an accelerated placement of 5-10% in the market,” after the merger is formalised, supported by attractive statements like “Bankia and BMN are worth more together than apart,” the potential for cost savings and synergies, the Spanish economy’s favourable performance and the upward trend in rates which will ease the pressure on banking sector margins.

Broking firms like Citi has a target price of 0,97 euros per share, while Renta 4, has a Hold recommendation and a target price of 0,95 euros per share. “From a business point of view, the deal could make sense, given that the distribution of branch networks in Spain is complementary. Bankia has offices throughout the country, the majority in Madrid, Cataluña, Valencia and the Canary Islands. BMN’s branches are concentrated in the south of the Peninsula, with the main regions being Andalucía, Murcia and the Balearic Islands,” says Renta 4.

The future of Bankia’s stock price in the short-term will depend on the small print and the ratios of the merger.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.