CatalunyaCaixa to receive 1,718 million euros from the Spanish Fund for Orderly Bank Restructuring (FROB)

Barcelona (ACN). - CatalunyaCaixa’s board unveiled its plan to increase its ‘core capital’ in order to reach the required 10% outlined by the new Spanish legislation for the sector. In a recent study from the Spanish Central Bank, CatalunyaCaixa needed 1,718 million euros of new capital. After weeks of guessing and speculation, the board of the Catalan savings bank announced it will get the much needed amount from the Spanish Fund for Orderly Bank Restructuring (FROB), managed by the Spanish Government and the Bank of Spain. It announced the measure to be “temporary” because they plan to attract private capital “in the medium-term”. However, the current environment and the situation of the bank do not recommend using the stock market to attract private investors at this present time. The board admitted they could turn to the stock market “in the medium-term”. In their previous board meeting, the decision to transfer all banking business to a new private bank was already taken. These agreements, together with the sale of its Repsol shares, will set CatalunyaCaixa’s ‘core capital’ at 10.4%, becoming “one of Europe’s financial entities with the highest solvency rates”, stated the bank’s board.

The future of CatalunyaCaixa, which is the second Catalan savings bank after the financial giant ‘La Caixa’, appears to be clearer than some weeks ago. CatalunyaCaixa’s ‘core capital’ was not meeting the future requirements of Spanish legislation, which is much stricter than Basel III. The Spanish rule require that, by next September, private banks to reach 8% of ‘core capital’ and savings banks to reach 10%, as they do not have private owners and therefore have more difficulties in accessing capital. In line with the rest of the savings bank sector, CatalunyaCaixa’s board took the decision to transfer all its banking business to a private bank, along with some of its shares and assets. CatalunyaCaixa was created in mid-2010 with the merging of Caixa Catalunya, Caixa Tarragona and Caixa Manresa. Several studies, such as the European stress tests or reports from the Bank of Spain, outlined CatalunyaCaixa’s weaknesses, in particular its ‘core capital’, deemed too small, and its exposure to the real estate market. The decision yesterday to request 1.718 billion euros from the FROB, means that the bank’s board has found a  solution to the main problems it faced and sets the new ‘core capital’ at 10.4%. “This, together with the positive effects felt from the sale of Repsol, will position CatalunyaCaixa with a ‘core capital’ ratio of 10.4%, becoming one of Europe’s entities with the highest solvency rates”, stated the board.

The board discarded the idea of trading on the stock exchange “in the short term”. It will however “immediately” start studying measures to attract private investors. The board’s plan is that private money will gradually substitute the public funds “in the mid term”. CatalunyaCaixa already took 1.25 billion euros from the FROB when the three former savings banks merged. The decision to become a private bank is expected to attract more private capital.

The 2010 merger delivers positive results

In addition, the board wanted to emphasise the efforts made so far in restructuring the bank. They were determined to stress that the integration process of the three previous savings banks is already at a very advanced stage. At the end of the first half of 2011, 25% of the bank’s branches will have been closed and there will be a 15% reduction in the number of staff in order to avoid redundancies and increase efficiency. “Thanks to these measures we will reach a significant increase in productivity and efficiency, which will generate synergies worth 130 million euros per year”. “This will contribute to a notable improvement of the entity’s results”, they added. In addition, since the merger, the savings bank increased by 160,000 the number of new clients, reaching more than 4.1 million clients. Finally, the bank’s board noted that in the last 12 months, the arrears rate has been reduced by more than 80 basic points compared to the sector’s average.