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

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.