Caja Madrid-Bancaja's bank seeks stock-market listing to boost capital

The commercial bank established by Caja Madrid, Bancaja and five other Spanish savings banks will seek a stock-market listing this year in order to meet the new capital adequacy requirements imposed by the government.

Grupo Banco Financiero y de Ahorros (BFA), set up by Caja Madrid and its partners to group together their banking businesses, will be the second major savings bank to list after the government announced last week the core capital ratio of lenders is being raised to 8 percent from 6 percent. Barcelona-based La Caixa is folding its banking activity into its listed investment holding company Criteria, which is to change its name to CaixaBank.

"The bank's intention is to tap the market, to list in order to comply with the government's new core capital levels," the chairman of Caja Madrid and BFA, Rodrigo Rato said on Monday.

BFA will begin the paperwork to list this month, and has already made contact with potential investors. With assets of 328 billion eurosand business volumes of 485.9 billion euros, it will be the third biggest lender in the Spanish stock exchange in terms of assets. The bank will list with a book value of 10.24 billion euros.

The bank said it has cleaned up its balance sheet, fully covering for potential losses to the ailing real estate/construction sector, whose non-performing loan ratio is 18 percent out of total credit awarded to the sector of 41.28 billion euros. BFA has set aside 9.2 billion euros in provisions to reach a core capital ratio of 7.04 percent.

As a result of the crisis in the sector, BFA has also become the largest property owner in Spain with assets of 11 billion, some 5 billion of which are in the form of land, due to foreclosures and acquisitions in lieu of the repayment of loans granted to creditors.

Market concerns about the cajas' exposure to the real estate sector and subsequent problems in tapping the wholesale fund markets was the main reason behind the government's push for a renewed makeover of the sector to restore investor confidence. After a period of wide-scale consolidation, the number of savings banks in Spain has been reduced to just over a dozen from 45.

The government has given the cajas until the fall to raise the capital needed to meet the new requirements. Economy Minister Elena Salgado said lenders that believe they will have problems attracting private funding can immediately tap the state Orderly Bank Restructuring Fund (FROB).

"Any institution that already knows, or believes that it will not be possible to raise the additional amount required in the capital markets can ask for state help as from now," Salgado said in an interview with ratio station Cope.

The government has said the weaker savings banks with limited access to private funding will require capital adequacy ratios of between 9 and 10 percent.

Rato, who is a former managing director of the IMF and Spanish economy minister, yesterday criticized the agenda the government has set to strengthen the solvency of the sector. "If the government draws up a more demanding calendar, we will comply with it. It is clear this has advantages but also significant costs," he said.

Rato said the plan is making the playing field in the sector less level. "This is bad and will have its consequences."

BFA's pro-forma attributable profit last year was 440 million euros. Its loan default ratio at the end of 2010 stood at 6.34 percent. Caja Madrid's net profit fell last year 3.7 percent to 256 million eurosfrom a year earlier when earnings dropped 68 percent.