(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Fiona Maharg-Bravo
MADRID, Sept 10 (Reuters Breakingviews) - Banco Sabadell’s
(SABE.MC) latest capital hike puts the heat on its Spanish
peers. The lender is raising up to 1.4 billion euros to bolster
its balance sheet ahead of tighter regulatory requirements.
Given that a cloud of uncertainty still hangs over Spanish
banks’ capital positions, Sabadell probably won’t be the last to
The biggest capital question concerns how Madrid treats
deferred tax assets (DTAs), where past losses can be used to
reduce future tax bills. Basel III capital reforms generally
seek to limit their use, but Spanish banks argue they are
justified because a portion are due to generic provisions
enforced by their own government.
It’s a high-stakes debate. DTAs account for one-third of the
sector’s core Tier 1 capital, according to the International
Monetary Fund. Sabadell has a bigger DTA headache than others,
because it generated loads of them after buying CAM, the
loss-making savings bank. At the end of June, DTAs accounted for
roughly 500 basis points of its core Tier 1 ratio of 9.5
The capital hike will boost the ratio to 11.3 percent.
Assume that Spanish banks eventually get credit for about half
of their DTAs – the current expectation – and Sabadell would
have a fully loaded Basel III ratio of just under 9 percent.
This isn’t high relative to European peers, but it gives
The DTA effect is less dramatic for other lenders, ranging
from 158 bps for BBVA (BBVA.MC) to 330 bps for Caixabank
(CABK.MC), Morgan Stanley reckons. But the government is hoping
to sell two nationalised lenders – NovaCaixaGalicia and
Catalunya Caixa – both of which have large tax credits. Bidders
will want some extra cushion to deal with these. Banks have
until 2019 to be fully compliant with Basel III regulations, but
investors aren’t that patient.
What’s more, Spanish banks face other regulatory hurdles, in
the form of increased provisions for refinanced loans, and the
forthcoming European-wide asset quality review (AQR). Santander
(SAN.MC) could face a near 2 billion euro capital shortfall
arising from the AQR alone, according to Deutsche Bank. With
Spanish bank prices surging amid increased optimism over Spain’s
recovery, other banks could soon follow Sabadell’s lead.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Spain’s Sabadell said on Sept. 9 it would carry out a
capital hike of up to 1.4 billion euros to strengthen its
balance sheet ahead of stricter regulatory demands. The bank
will raise 650 million euros through an accelerated bookbuild to
institutional investors, including Colombia's Itos Holding and
U.S.-based Fintech Investments. The rest will be offered to
existing investors through a rights issue.
- The lender said it hoped to take advantage of business
opportunities in Spain as the economy improves. Its core capital
would be around 11 percent following the capital increase.
Sabadell shares were trading up 0.3 percent at 1.80 euros a
share on the morning of Sept. 10.
- Reuters: Spain's Banco Sabadell to hike capital by up to
1.4 bln euros [ID:nL5N0H539P]
- For previous columns by the author, Reuters customers can
click on [BRAVO/]
(Editing by George Hay and Sarah Bailey)
Keywords: BREAKINGVIEWS SABADELL/
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