Reuters: Mergers News: TEXT-Fitch may cut CaixaBank, may raise Banca Civica ratings

Reuters: Mergers News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

TEXT-Fitch may cut CaixaBank, may raise Banca Civica ratings Apr 2nd 2012, 13:41 Mon Apr 2, 2012 9:41am EDT April 2 - Fitch Ratings has placed CaixaBank, S.A.'s (CaixaBank) 'A-' Long-term Issuer Default Rating (IDR) and 'a-' Viability Rating (VR) on Rating Watch Negative (RWN). At the same time, the agency has placed Banca Civica, S.A.'s (Banca Civica) 'BBB' Long-term IDR and 'bbb' VR on Rating Watch Positive (RWP). The rating actions follow the approval by CaixaBank and Banca Civica's respective Boards of Directors, as well as of those of its savings bank shareholders, of an integration agreement whereby Banca Civica will be merged into CaixaBank. Caja de Ahorros y Pensiones de Barcelona's (La Caixa; CaixaBank's main shareholder with an 81.5% stake) 'A-' Long-term IDR and 'a-' VR have been maintained on RWN, while its Short-term IDR has been placed on RWN. A full list of rating actions is at the end of this comment. The integration agreement is still subject to approval by the merging banks' shareholders and the savings banks' general assemblies, as well as regulators. Fitch will resolve the rating watches on CaixaBank and Banca Civica once it has undertaken a deeper review of the transaction and the risk profile of the combined group. Fitch's review will concentrate on the quality and reserving of the group's loan book and its earnings prospects in light of the weak domestic economic outlook and stressed property market, liquidity and refinancing risks and the anticipated evolution of the group's capital position. The rating watches are likely to be resolved upon completion of the merger, expected in Q312. The RWNs on CaixaBank's Long-term IDR, VR and debt ratings reflect the risks to its credit profile of merging with an entity with higher risk profile and the weakening effect on its capitalisation and profitability, as well as integration risks associated with a relatively large merger. The Outlook on CaixaBank's Long-term IDR was Negative prior to today's rating action and its IDR and VR are sensitive to the challenges posed by the weak economic environment and evolution of the real estate market in Spain. On 28 March 2012, Fitch revised downwards its GDP forecast for Spain in 2012 to -1% and 2013 to +0.1% (see 'Global Economic Outlook' dated 28 March 2012 at www.fitchratings.com). Fitch has affirmed CaixaBank's Support Rating at '2' and Support Rating Floor (SRF) at 'BBB+'. This reflects a high likelihood of sovereign support, if needed, whether or not the merger proceeds, given the bank's large domestic market shares. CaixaBank's SRF currently limits the downside risk to its Long-term IDR to one notch. For the same reason, Caixabank's Short-term IDR has been affirmed at 'F2' because it is only at risk of a downgrade if Fitch revises CaixaBank's SRF downwards. The most likely threat to CaixaBank's SRF would be a further downgrade of the Kingdom of Spain ('A'/Negative). The RWPs on Banca Civica's ratings reflect the upside potential from potentially merging with a stronger and higher rated institution. The Outlook on Banca Civica's Long-term IDR was Negative prior to today's rating action. Given the challenging operating environment in Spain and the bank's high exposure to real estate, the IDR could be vulnerable to negative rating action following Fitch's review if the merger does not proceed. The transaction makes strategic sense for CaixaBank as it will enhance its market shares in Spain to around 15% in key retail products, accelerating the market penetration strategic goal it had set for end-2014. It significantly boosts the bank's presence in the regions of Navarra, the Canary Islands, Andalusia and Castilla-Leon, where the main savings bank shareholders of Banca Civica have a strong foothold. Another positive driver of this transaction will be the estimated yearly cost savings of EUR540m that CaixaBank expects to derive by end-2014. Fitch's review will assess the achievability of these cost synergies, which equate to around 12.5% of the combined bank's cost base. Despite the integration challenges of a relatively large transaction, Fitch takes comfort from CaixaBank's experienced management team which has proven capable of growing organically and inorganically its franchise since the early 1990s to make it a leading bank in Spain. EUR3.4bn of fair-value adjustments, gross of taxes, will be charged against Banca Civica's equity prior to its integration into CaixaBank in anticipation of potential losses arising from loans, real estate and other contingencies. Together with existing provisions at Banca Civica, this would bring coverage of the potentially problematic portfolio of the combined bank (ie non-performing loans, foreclosed assets and potentially problematic loans) to 47%. Fitch's review will assess the adequacy of overall coverage levels and the potential for risks of the combined banks' entire loan book, including residential mortgages. The merger is expected to consume around 167 basis points of regulatory core capital. Fitch estimates this would have resulted in a pro-forma Fitch core capital ratio of around 8.8% at end-2011, which compares with Caixabank's 11% FCC ratio at that date. The RWN on La Caixa's ratings is linked both to the RWN on its main asset, Caixabank and to a further review by Fitch of its cash flow and leverage profile and its real estate and refinancing risks. The RWN could therefore be resolved in a two-step process and, ultimately, could result in Fitch downgrading and notching La Caixa's VR and Long-term IDR from those of CaixaBank prior to the close of the merger. Under such a scenario, La Caixa's ratings would likely remain on RWN until CaixaBank's RWN is resolved. As a holding company, La Caixa's main investment is its stake in CaixaBank (which will be diluted to 61% proforma once all hybrid instruments are converted into capital) and another subholding that owns real estate subsidiaries and stakes in utility companies. La Caixa has around EUR8bn of debt. EUR2bn in state guaranteed debt matured in Q112 and has mostly been refinanced through retail distributed subordinated debt. La Caixa's Support Rating of '5' and SRF of 'No Floor' reflect Fitch's belief that as a holding company, sovereign support cannot be relied upon in the event of need. The state guaranteed debt issued by Banca Civica and La Caixa has been affirmed at 'A', in line with the Spanish sovereign rating. It is only sensitive to changes in the Spanish sovereign rating. The rating actions are as follows: CaixaBank: Long-term IDR: 'A-' placed on RWN Short-term IDR: affirmed at 'F2' VR: 'a-' placed on RWN Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB+' Senior unsecured debt long-term rating: 'A-' placed on RWN Senior unsecured debt short-term rating and commercial paper: affirmed at 'F2' Subordinated debt: 'BBB+' placed on RWN Preference shares: 'BB' placed on RWN La Caixa: Long-term IDR: 'A-' maintained on RWN Short-term IDR: 'F2' placed on RWN VR: 'a-' maintained on RWN Support Rating: affirmed at '5' SRF affirmed at 'No floor' Senior unsecured debt long-term rating: 'A-' maintained on RWN Subordinated debt: 'BBB+' maintained on RWN State-guaranteed debt: affirmed at 'A' Banca Civica: Long-term IDR: 'BBB' placed on RWP Short-term IDR: 'F3' placed on RWP VR: 'bbb' placed on RWP Support Rating: '3' placed on RWP Support Rating Floor: 'BB+' placed on RWP Subordinated debt: 'BBB-' placed on RWP Upper Tier 2 subordinated debt: 'BB' placed on RWP Preferred stock: 'B+' placed on RWP State-guaranteed debt: affirmed at 'A' Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria 'Global Financial Institutions Rating Criteria' dated 16 August 2011, 'Rating Bank Regulatory Capital and Similar Securities' dated 15 December 2011', 'Treatment of Hybrids in Bank Capital Analysis' dated 11 July 2011, 'Evaluating Corporate Governance' dated 13 December 2011, and 'Bank Holding Companies' dated 16 August 2011, are available on www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria Rating Bank Regulatory Capital and Similar Securities Treatment of Hybrids in Bank Capital Analysis Evaluating Corporate Governance Bank Holding Companies Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions