BBVA to spend 1.2 billion euros to clean up Unnim’s operations

BBVA said Thursday it plans to spend 1.2 billion euros to absorb and restructure Unnim, the struggling amalgam of Catalan savings banks under the tutelage of the Orderly Bank Restructuring Fund (FROB) it was awarded the previous day for one euro.

BBVA plans to lay off 20 percent of Unnim’s current workforce and close 30 percent of its network of branches in Catalonia at a cost of around 200 million euros. The restructuring will allow Spain’s second biggest lender to shave 40 percent off Unnim’s current cost base.

After the restructuring, Unnim will have 1,048 offices and 6,238 employees. Unnim currently has assets of 29 billion euros and a million customers. The acquistion will boost BBVA’s share of assets in Catalonia to 16.6 percent from 11.1 percent, and its share of deposits to 12.1 percent from 6.4 percent.

“The absorption of Unnim will substantially increase the group’s position in Catalonia,” BBVA’s director for banking in Spain, Juan Asúa said. “BBVA is expanding in one of the most attractive markets in Spain.”

Under the terms of the acquisition, the Deposit Guarantee Fund will absorb 953 million euros. The fund will also absorb 80 percent of Unnim’s potential losses over a period of 10 years. Unnim has problematic loans worth some 5.5 billion euros.

BBVA said Unnim would make a contribution to BBVA earnings of around 100 million from 2014.

The government last month introduced a reform of the financial sector that requires banks to increase their coverage for potential losses from real estate assets on their books. The Bank of Spain estimates the banks hold some 175 billion euros in troubled property assets, with an additional 52 billion euros in provisions required for them.

The administration also expects the reform to spark another round of consolidation in the sector, with stronger players absorbing weaker ones.

The Orderly Bank Restructuring Fund (FROB) in December of last year awarded Banco Cam to Banco Sabadell for one euro under a smiliar arrangement as the sale of Unnim to BBVA.