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Santander-Popular deal expected to spark drive for scale among Spanish banks
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    <strong>Artículo publicado en <a href="http://www.lacartadelbolsa.com">La Carta de la Bolsa</a> el Jueves, 22 de Junio en la sección: Articulos</strong>
    <h3 class="titulo_articulo">Santander-Popular deal expected to spark drive for scale among Spanish banks</h3>
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    <p><img alt="" class="ilustraciones" src="http://lacartadelabolsa.com/images/ilustraciones/sapopa.jpeg" style="border-style:solid; border-width:1px; height:100px; width:140px" />The recent fire sale of Banco Popular Español SA to Banco Santander SA is sparking hope that the long-awaited second round of banking consolidation in Spain is underway and that more tie-ups will take place in the coming year as smaller lenders in particular endeavor to gain scale.</p>

<p>In an environment of increased competition, weak profitability and low interest rates combined with high capital costs, further consolidation is long overdue, according to industry observers who think the Popular sale could be the sign of more to come.</p>
    <p><img alt="" class="graficos" src="http://lacartadelabolsa.com/images/ilustraciones/Captura_de_pantalla_2017-06-22_a_las_11.49_.36_.png" style="height:869px; width:610px" /></p>

<p>"The most important issue for Spanish banks is the concentration of the banking industry," Borja Rubio, head of brokerage at Orey Financial, said in an interview.</p>

<p>Spain undertook a vast restructuring of its banking sector in the wake of the financial crisis, reducing the number of savings banks to 11 from 45 between 2010 and 2015. However, observers say the country needs to do more to trim its sprawling banking retail network to turn around sagging profits. In a May 3 report, the Spanish central bank said it saw room for further consolidation in the industry as a means of boosting efficiency and profitability.</p>

<p>Strength and scale</p>

<p>"For the second round of mergers, the most likely scenario in the next year will be consolidation among the smaller banks," GVC Beka Finance analyst Javier Bernat said in an interview.</p>

<p>Midsize lenders such as Liberbank SA and Ibercaja Banco SA, which are themselves the result of savings bank mergers after the financial crisis, will likely be merger targets as the Spanish banking market becomes more concentrated through Santander's acquisition of Popular.</p>

<p>The upcoming deal between state-owned lenders Bankia SA and Banco Mare Nostrum SA, which were bailed out with public funds to the tune of €24 billion in 2012 and need to be sold by 2019, will also contribute to the trend. The combined lenders will have assets of €232 billion and will create Spain's fourth-largest banking group.</p>

<p>"That's the trend," Bernat said. "The banks that are regional and local will have problems regarding competition."</p>

<p>Liberbank has been linked to Ibercaja in the past and recently rattled investors due to concerns over its exposure to bad loans, a factor that was ultimately the downfall of Banco Popular. Liberbank's bad-loan ratio was 12.98% at the end of March, above the sector average of 8.87%.</p>

<p>As high capital needs due to bad debts and increased regulation put pressure on banks, smaller lenders such as Liberbank will find it hard to go it alone and would be wise to partner with similar-sized rivals to give them the strength and scale to be competitive, according to Miguel Bernal, a professor at the Instituto de Estudios Bursátiles business school in Madrid.</p>

<p>A combined Ibercaja and Liberbank would create a lender with €95 billion in assets. Liberbank had a return on average equity of 4.24% at the end of the first quarter, while Ibercaja's stood at 5.11%.</p>

<p>Unicaja Banco SA could also be in line for a tie-up despite its plans to list on the stock market — a goal that will prove difficult to achieve in the wake of Popular's rescue and the resulting market volatility, Bernal said.</p>

<p>He added that increased digitization is putting pressure on the sector and that the smaller banks do not have the capital to follow their larger peers in this respect. He also highlighted that there is a general push throughout Europe to create larger banking groups to remain competitive.</p>

<p>Larger banks</p>

<p>Larger Spanish banks may be interested in buying up smaller ones, particularly if they want to increase their scale now that Santander will have almost a fifth of the domestic banking market through the Popular acquisition, according to analysts.</p>

<p>Santander and its closest rival Banco Bilbao Vizcaya Argentaria SA derive most of their profits from operations outside Spain, but BBVA might decide to catch up domestically by buying a smaller lender.</p>

<p>"BBVA has less scale, but if the industry consolidates, they could want more scale," Luis Arenzana, partner at London hedge fund Ronit Capital, said in an interview.</p>

<p>The smaller banks tend to operate regionally, with a strong deposit base, and Arenzana said that Unicaja could be an attractive acquisition for a larger bank because of its strong presence in Andalusia in southern Spain. Liberbank, which has a presence across central Spain, would give a larger lender such as CaixaBank SA a "bigger footprint" across the country, Arenzana said.</p>

<p>"The most valuable asset [of smaller lenders] is the customer base, which is very loyal," Bernat said, adding that their customers were more likely to invest money in deposits rather than riskier instruments. "Quite a lot of them are locally or rurally based, with conservative customers," he added.</p>
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