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Banco Sabadell profits fall but may consider further caja acquisitions

Thu 27th Jan 2011

Josep Oliu, Spain's Banco de Sabadell executive chairman, stated today how the Spanish government's latest attempts to reform the country's troubled cajas is a positive move and something which is likely to result in more conolodation of financial institutions.

"I think it's very good news. It puts pressure (on Cajas) and sets a deadline for them to be transformed into businesses that can raise capital," He commented.

On Tuesday the Spanish government released details of their plans to reform regulations to the banking industry to enable the country's unlisted savings banks to raise capital from private investors. It set strict new capital ratios that have to be met by the September.

Cajas with a core Tier 1 capital ratio below 8% will be able to turn to private investors for funds. Those that are unable to do this can turn to Spain's state-backed Fund for Orderly Bank Restructuring, or FROB, for assistance.

Spain's Finance Minister, Elena Salgado. said the Bank of Spain estimates the capital needed by the banks will not exceed EUR20 billion. "Some (Cajas) will be able to raise capital in the markets and that will save the government from having to step in," Oliu said. "Some others won't and the FROB will inject capital. In any case, it will make these lenders into more flexible vehicles, and the process is likely to create another wave of consolidation (in the banking sector)."

Sabadell has been a major consolidator in Spain over the last few years. Last year, it purchasing a Basque Caja - Banco Guipuzcoano. Oliu said how recent difficulties among Spanish banks have also created the possibility of winning market share without making acquisitions. "We'll look at opportunities that may arise," he said, but added that it was currently too early for the bank to get involved in deal making with cajas.

He affirmed how the bank's capital levels were "adequate" and that although new international rules under Basel III will shave 0.5 percentage points off its ratios, it expects to make this up by disposing of assets.

"The last three years have been based on managing liquidity and solvency and on improving the balance sheet. We'll continue doing that but we feel that by the end of the year that will be over."

Oliu estimates that loan defaults will peak later this year and forecasts fewer provisions against real-estate losses from next year. He stated how the property market is likely to remain depressed for the next few years but that the bank is managing to sell some of the property on its books.

"We've carried out a huge exercise in the last three years to bring down the value of the real-estate on our books by 30% compared with current independent market valuations. And we are able to sell those assets without taking further losses," he said.

Sabadell also reported that it's fourth-quarter net profit for 2010 decreased 27% to EUR39.7 million, hit by lower lending margins and higher costs due to its recent acquisition of Banco Guipuzcoano.

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