Spanish lender Bankia agrees to buy BMN in all-stock deal

[MADRID] Bankia SA agreed to acquire Banco Mare Nostrum SA in an all-stock deal as Spain seeks to recoup the costs of bailing out the two nationalized lenders.

Spain's fourth-biggest bank will issue new stock amounting to 6.7 percent of its post-merger capital to the shareholders of Banco Mare Nostrum, the bank said in a statement Tuesday. The transaction values the unlisted BMN at 825 million euros (S$1.28 billion), or 0.41 times its book value, Bankia said.

"The integration of BMN is tremendously positive because it allows us to build out our franchise in some areas of strong growth in which we had a very limited presence," Bankia Chairman Jose Ignacio Goirigolzarri said.

Bankia expects the deal to eventually boost earnings per share by 16 per cent and to generate 155 million euros in savings, equal to 40 per cent of BMN's cost base.

The transaction will entail additional provisions and writedowns totalling 700 million euros for BMN's portfolio and loans and foreclosed assets. While Bankia said its coverage ratios - measuring its ability to absorb losses from bad loans -will be maintained at current levels, its common equity Tier 1 capital ratio will decline to 12 per cent from 13.4 per cent at the end of March.

"It's a positive deal for Bankia," said Ignacio Lopez, an equity sales trader at Ahorro Corp in Madrid. "The transaction is accretive for Bankia's earnings per share." Bankia's shares rose as much as 4.4 per cent and were trading 3.92 per cent higher at 4.19 euros at 9.20 am in Madrid, bringing this year's gains to 7.8 per cent.

The Spanish government is seeking to recover the 41 billion euros of European funds it received in 2012 to prop up lenders hit by the collapse in the country's real estate market. Bankia received 22 billion euros of state aid at the time, while BMN got 1.65 billion euros.

Spain owns about 65 per cent in each of the two lenders trough a bank-rescue fund known as FROB and the government will look to sell shares in the combined bank following the merger, it said in March when the plans for the merger were disclosed.

BLOOMBERG