Unicaja, Caja Espana seal state-backed merger

 

Former Spanish savings banks Unicaja and Caja Espana-Duero announced a state-backed merger agreement on Friday after months of negotiations to create the country's seventh largest bank.

Under the deal, smaller but healthier Unicaja will absorb Caja Espana-Duero, which was heavily exposed to Spain's real estate collapse, creating an entity with about €80 billion in total assets.

Spanish banks are undergoing a wave of mergers that will likely cut their number to 10 from 40 after the government made them write down losses on real estate investments that turned sour, leaving billions of bad assets on their balance sheets.

Caja Espana-Duero will hold 30% of the new bank and issue €475 million in contingent convertible bonds (CoCo bonds) to meet government capital rules, it said in a statement late on Friday.

It will also be responsible for €525 million of preference shares that are currently controlled by Spain's state-backed bank restructuring fund FROB.

Unicaja Banco will have access to up to 1 billion euros in CoCo bonds - instruments which automatically convert into equity capital when a bank's common-equity ratio drops below a certain level - if needed.

Spanish banks have to fill a capital hole of €52 billion related to losses on property investments under new government demands. Caja Espana-Duero, with assets of around €45 billion, accounts for €1.1 billion of this.