Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Major BEA Shareholder Under Stress In Front Of Merger: CaixaBank SA (CABK.SM), an 17.3% holder of Bank of East Asia’s (23.HK) [BEA] shares, and still has significant capital concerns. Combined with the acquisition of Bankia (BKIA.SM), pro forma CaixaBank’s (surviving entity) core CET1 target is 11.9%. With CaixaBank's restructuring charge only sufficient to fund EUR 1 bn in cost cuts, CaixaBank will need to find additional ways to manufacture capital in order to fund the restructuring - including asset sales, lower dividends, and/or capital raise; and*Expecting A BEA Offload: With an ownership value at EUR 786 mn, a capital charge of EUR 1.6 bn at pro forma CaixaBank under Basel III, the aforementioned solvency constraints at Caixabank, a fundamentally struggling BEA, and a resurgent mainland China, CaixaBank would have to finally be looking for an exit – which would be a massive overhang on the shares of BEA. The key terms of the CaixaBank/BEA Shareholder  Agreement likely cannot be upheld by the former given that its financial problems prevent it from fulfilling its responsibilities.

*Major BEA Shareholder Under Stress In Front Of Merger: CaixaBank SA (CABK.SM), an 17.3% holder of Bank of East Asia’s (23.HK) [BEA] shares, and still has significant capital concerns. Combined with the acquisition of Bankia (BKIA.SM), pro forma CaixaBank’s (surviving entity) core CET1 target is 11.9%. With CaixaBank's restructuring charge only sufficient to fund EUR 1 bn in cost cuts, CaixaBank will need to find additional ways to manufacture capital in order to fund the restructuring - including asset sales, lower dividends, and/or capital raise; and*Expecting A BEA Offload: With an ownership value at EUR 786 mn, a capital charge of EUR 1.6 bn at pro forma CaixaBank under Basel III, the aforementioned solvency constraints at Caixabank, a fundamentally struggling BEA, and a resurgent mainland China, CaixaBank would have to finally be looking for an exit – which would be a massive overhang on the shares of BEA. The key terms of the CaixaBank/BEA Shareholder  Agreement likely cannot be upheld by the former given that its financial problems prevent it from fulfilling its responsibilities.  

Bank of East Asia – How Much Longer Can Caixa Hold On?

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> 's EGM approved on 3 December the integration with <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a> , whilst Bankia's EGM did the same on 1 December.
The merger project establishes an exchange of 0.6845 new CaixaBank shares for each Bankia share. The swap means that CaixaBank shareholders will control 74.2% of the capital of the new entity, and those of Bankia 25.8%. The FROB, which has almost 62% of the current Bankia, will now control 16.1% in the combined entity.
<ul>
<li>Gonzalo Gortázar, CEO of CaixaBank, told shareholders that the integration will be profitable in less than three years.</li>
<li>The entities estimate restructuring costs of around €2,200 mn, equivalent to less than three years of the expected annual gross savings of €770 mn per year from 2023.
<ul>
<li>Roughly 42% of Bankia's cost base at end of FY 2019.</li>
</ul>
</li>
<li>Based on the market consensus, ROTE of the merged entity could rise to 8.2% within two years and EPS could improve 28%.
<ul>
<li>Vs. ROTEs of CaixaBank at 5% and Bankia at 1.9% at Q3 2020.</li>
</ul>
</li>
</ul>
This merger will close and the spread shows it.
<ul>
<li>Gross spread of 1.6% on 7 December.</li>
<li>I recommend keeping an eye on the spread: it often reaches c. 2% gross (c. 8% annualised) during intraday trading.</li>
<li>Recommendation is Long 1 Bankia / short 0.6845 CaixaBank.</li>
</ul>

CaixaBank SA (CABK SM) 's EGM approved on 3 December the integration with Bankia SA (BKIA SM) , whilst Bankia's EGM did the same on 1 December.
The merger project establishes an exchange of 0.6845 new CaixaBank shares for each Bankia share. The swap means that CaixaBank shareholders will control 74.2% of the capital of the new entity, and those of Bankia 25.8%. The FROB, which has almost 62% of the current Bankia, will now control 16.1% in the combined entity.

Gonzalo Gortázar, CEO of CaixaBank, told shareholders that the integration will be profitable in less than three years.
The entities estimate restructuring costs of around €2,200 mn, equivalent to less than three years of the expected annual gross savings of €770 mn per year from 2023.

Roughly 42% of Bankia's cost base at end of FY 2019.


Based on the market consensus, ROTE of the merged entity could rise to 8.2% within two years and EPS could improve 28%.

Vs. ROTEs of CaixaBank at 5% and Bankia at 1.9% at Q3 2020.



This merger will close and the spread shows it.

Gross spread of 1.6% on 7 December.
I recommend keeping an eye on the spread: it often reaches c. 2% gross (c. 8% annualised) during intraday trading.
Recommendation is Long 1 Bankia / short 0.6845 CaixaBank.


CaixaBank - Bankia: Merger Approval at the EGMs, Spread

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Banco Bilbao Vizcaya Argentari / Event-Driven

<ul>
<li>In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction</li>
<li>The attractive price tag of USD11.6bn (€9.7bn) provides <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November</li>
<li>The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%</li>
<li>Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020</li>
<li>BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting</li>
<li>The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report</li>
<li>Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle</li>
</ul>


In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction
The attractive price tag of USD11.6bn (€9.7bn) provides Banco Bilbao Vizcaya Argentari (BBVA SM) with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November
The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%
Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020
BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting
The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report
Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle


BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

*Major BEA Shareholder Under Stress In Front Of Merger: CaixaBank SA (CABK.SM), an 17.3% holder of Bank of East Asia’s (23.HK) [BEA] shares, has significant capital concerns. Combined with the acquisition of Bankia (BKIA.SM), pro forma CaixaBank’s (surviving entity) core CET1 target is 11.0%-11.5%. With CaixaBank's restructuring charge only sufficient to fund EUR 1 bn in cost cuts, CaixaBank will need to find additional ways to manufacture capital in order to fund restructuring  - including asset sales, lower dividends, and/or capital raise; and*Expecting A BEA Offload: With an ownership value at EUR 786 mn, a capital charge of EUR 1.6 bn at pro forma CaixaBank under Basel III, the aforementioned solvency constraints at Caixabank, a fundamentally struggling BEA, and a resurgent mainland China, CaixaBank would have to finally be looking for an exit – which would be a massive overhang on the shares of BEA. The key terms of the CaixaBank/BEA Shareholder  Agreement likely cannot be upheld by the former given that its financial problems prevent it from fulfilling its responsibilities.

*Major BEA Shareholder Under Stress In Front Of Merger: CaixaBank SA (CABK.SM), an 17.3% holder of Bank of East Asia’s (23.HK) [BEA] shares, has significant capital concerns. Combined with the acquisition of Bankia (BKIA.SM), pro forma CaixaBank’s (surviving entity) core CET1 target is 11.0%-11.5%. With CaixaBank's restructuring charge only sufficient to fund EUR 1 bn in cost cuts, CaixaBank will need to find additional ways to manufacture capital in order to fund restructuring  - including asset sales, lower dividends, and/or capital raise; and*Expecting A BEA Offload: With an ownership value at EUR 786 mn, a capital charge of EUR 1.6 bn at pro forma CaixaBank under Basel III, the aforementioned solvency constraints at Caixabank, a fundamentally struggling BEA, and a resurgent mainland China, CaixaBank would have to finally be looking for an exit – which would be a massive overhang on the shares of BEA. The key terms of the CaixaBank/BEA Shareholder  Agreement likely cannot be upheld by the former given that its financial problems prevent it from fulfilling its responsibilities.  

Bank of East Asia – Caixa Shake-Out Very Likely

<ul class="">
<li>The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.</li>
<li> The independent expert (BDO) has endorsed the exchange ratio,
<ul>
<li>
0.6845 new CaixaBank shares for each Bankia share.</li>
</ul>
</li>
<li>The FROB believes that the operation will have a positive effect on the recovery of the aid.</li>
</ul>
I recommend keeping an eye on the spread.
<ul>
<li>It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).
</li>
</ul>
Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).


The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.
 The independent expert (BDO) has endorsed the exchange ratio,


0.6845 new CaixaBank shares for each Bankia share.


The FROB believes that the operation will have a positive effect on the recovery of the aid.

I recommend keeping an eye on the spread.

It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).


Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).

Bankia - CaixaBank: Merger in Progress, Spread Attractive

Spain

Bankia, S.A. provides banking services. The Bank offers deposits, personal loans, e-banking, insurance, corporate finance, capital markets, asset management, and other banking services. Bankia serves customers in Spain.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Bankia SA (BKIA SM)

Bank of East Asia – How Much Longer Can Caixa Hold On?

BANK OF EAST ASIA: CaixaBank is a 17.3% holder of BEA, and still has significant capital concerns. CaixaBank needs to find additional ways to...

Thomas J. Monaco

CaixaBank - Bankia: Merger Approval at the EGMs, Spread

This merger will close, as the spread shows: it is 1.6% gross on 7 December. It often reaches c. 2% gross (c. 8% annualised) intraday....

Jesus Rodriguez Aguilar

BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

BBVA's sale of its US bank will give it excess capital to redeploy, in both share buybacks and potentially M&A too; we explore some potential M&A...

Victor Galliano

Bank of East Asia – Caixa Shake-Out Very Likely

BANK OF EAST ASIA: Pro Forma CaixaBank Is Under Severe Fundamental Pressure Prior To Its Bankia Merger And In Need of Capital. BEA's Stake Likely...

Thomas J. Monaco

Bankia - CaixaBank: Merger in Progress, Spread Attractive

I recommend keeping an eye on the spread. It closed today (27 October) at a gross 1.66%, an interesting level for a deal that will certainly close...

Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)