CaixaBank today approves an agreement of intent to merge with Banca Cívica, to create Spain's leading financial group

• CaixaBank will become the leading bank in the Spanish market by assets (342 billion euros), deposits (179 billion) and loans (231 billion).
• The 4 savings banks that are currently shareholders in Banca Cívica will become CaixaBank shareholders, while Caja de Ahorros y Pensiones de Barcelona, "la Caixa", retains its majority control with 61%, following conversion of all convertible bonds already issued as well as the repurchase of Banca Cívica preferred stock.
• The merger is expected to be completed in the third quarter of this year, generating 540 million euro in potential synergies as of 2014.
• CaixaBank confirms that it intends to maintain its dividend at 0.231 euro per share in 2012.
• The bank's Welfare Projects will be reinforced via partnership agreements in regions local to Banca Cívica shareholders.

The boards of directors of Caja de Ahorros y Pensiones de Barcelona, "la Caixa", and CaixaBank today approved an agreement of intent to merge Banca Cívica and CaixaBank, via the absorption of Banca Cívica. The move will see current Banca Cívica shareholders offered a swap of 5 CaixaBank shares for every 8 Banca Cívica shares.

The merger will create the leading bank in the Spanish market, with assets of 342 billion euro, stock market capitalization in excess of 16 billion euros, 14 million customers and an average Spanish market share in deposits of 14.0%, in customer loans of 13.4% and in total assets of 10.5%.

The share swap proposed by CaixaBank, which implies valuing the bank at 977 million euro at market value on 23 march (1.97 per share), has been agreed by the boards of directors of the 4 savings banks that are shareholders in Banca Cívica (Cajasol with 16.1%, Caja Navarra 16.1%, CajaCanarias 11.8% and Caja de Burgos 11.3%), and will be submitted for approval at their respective General Assemblies, as well as the "la Caixa" General Assembly and the annual general meetings of both entities (CaixaBank and Banca Cívica). Four regional advisory committees will also be set up in the local regions of Banca Cívica's shareholder savings banks.

The merger by absorption will be formalized following approval from the relevant regulators and is expected to be finalized in the third quarter of this year.

No state subsidies, appropriate risk coverage

The Banca Cívica merger will require no state subsidies nor come at any cost for the rest of the banking sector, thanks to the financial strength of CaixaBank and appropriate risk coverage by Banca Cívica, which will implement extraordinary provisions prior to the merger with CaixaBank. Furthermore, the 977 million euro that Banca Cívica received in financing via FROB (the Fund for Orderly Bank Restructuring) is expected to be returned within 12 months after the merger is completed.

The merger will help to consolidate the restructuring of the Spanish banking sector, by creating a leading bank in the Spanish financial system with an extensive regional presence, which will help support the country's economic development.

AZ Capital and Deloitte assisted CaixaBank as financial consultants, while investment bank UBS conducted the valuation of the operation.

Leadership and complementary businesses

The merger will see CaixaBank become the banking sector leader in 5 Spanish regions (Catalonia, Andalusia, Navarra, the Balearic Islands and the Canary Islands) and the second largest in a further five (Madrid, Castilla León, Castilla La Mancha, Valencia and the Basque Country). The two banks offer highly complementary networks, particularly in the Canary Islands, Navarra, Burgos, Seville, Huelva, Cadiz, and Guadalajara, where the merged bank will hold a stronger position in key industrial regions and areas of strong economic development.

Isidro Fainé, Chairman of CaixaBank, pointed out that "Banca Cívica's business model, geographic presence, staff quality, customer profile and social commitment are complementary with those of CaixaBank".

"I am confident", said the CaixaBank Chairman, "that the merger will further improve the excellent service provided to our nearly 14 million customers".

Fainé added that "the operation creates value for shareholders of both banks, generating a bank with solid growth potential and a stronger future for CaixaBank amid a particularly difficult market climate, while providing security to those benefitting from the community work run by both CaixaBank and Banca Cívica".

Juan María Nin, CaixaBank Vice-Chairman and CEO, explained that the transaction "will allow CaixaBank to meet the targets of its strategic plan by bringing forward anticipated organic growth by some years, generating significant synergies in the medium term, strengthening the balance sheet, driving up turnover, improving earnings per share and maintaining our dividends policy".

Juan María Nin emphasized that "thanks to CaixaBank's strong capital position, the merger will have an manageable impact, with ratios holding above the levels demanded by Basel II, Basel III and the European Banking Authority".
 
Antonio Pulido, Co-Chairman of Banca Cívica, pointed out the "vocation of leadership with which it has approached this transaction from the outset". "We share the same philosophy with regards to optimizing our welfare projects", continued Pulido, "which will be felt in the home regions of the savings banks that created Banca Cívica, in what is an unequivocal sign of commitment to our roots and history, now joined together with the country's leading bank".

Meanwhile, Enrique Goñi, Co-Chairman of Banca Cívica, underlined "the importance for the bank's thousands of shareholders of merging with an institution that has the size, solvency and strength required to sustain investment growth". For Goñi, "the entrance of Banca Cívica's founding banks into the IBEX 35 - via CaixaBank – is an achievement that was unthinkable just two years ago". The Co-Chairman of Banca Cívica stated that the merger provides "Banca Cívica, its employees, customers and shareholders the security that comes with being a leading bank at a time of significant financial turmoil".

Synergies of 540 million euro as of 2014

The merger of CaixaBank and Banca Cívica will generate synergies from the outset, which are set to total 540 million per year after the third year of integration. Restructuring costs are estimated at 1.1 billion euro net of taxes.

There will be a value adjustment for Banca Cívica assets of near 3.4 billion euro, which will be registered against reserves, meaning there will be no impact on earnings, while the provisions requirements established by Royal Decree-Law 2/2012 for Banca Cívica's real estate assets and other risks identified during due diligence will be met comfortably.

According to the terms of the offer, the resulting bank would have a "pro forma" Basel II core capital ratio as per December 2011 of 10.4%. In December 2012 the merged bank is set to comply with Basel III requirements without needing to make use of the transitional period, while the merger will not prevent "la Caixa" Group from meeting the EBA core capital ratio requirements of over 9% by June 2012.

The pro forma CaixaBank NPL ratio following the transaction will stand at 5.5%, below the 7.62% sector average, with a coverage level of 82%, compared to the Spanish sector average of 58.2%, according to data as at 31 December 2011. The merged bank's liquidity (24 billion euro) will allow to cover wholesale debt maturities due over the next three years, which will not be negatively affected by inclusion of Banca Cívica maturities into CaixaBank's financing structure.

Meanwhile, CaixaBank has confirmed its intention to maintain its 2012 dividend at 0.231 euro per share. Likewise, CaixaBank will maintain its quarterly shareholder remuneration policy for March, June, September and December, combining a cash dividend payment with its scrip dividend program.

"la Caixa" retains control over CaixaBank

Following the transaction, the shareholding of Caja de Ahorros y Pensiones de Barcelona ("la Caixa") will, including the conversion of mandatorily convertible bonds already issued as well as the repurchase of Banca Cívica preference shares, decrease to 61%, and "la Caixa" will retain control over CaixaBank.

The merger agreement includes the appointment of two proprietary directors to represent the Banca Cívica savings banks.

Following the conversion of all convertible bonds already issued and the repurchase of Banca Cívica preference stock, the free float will increase to 35.6%, and the savings banks that are currently Banca Cívica shareholders will become shareholders in CaixaBank, with 3.4% of capital (Caja Navarra (1.0%), CajaSol (1.0%), Caja Canarias (0.7%) and Caja de Burgos (0.7%).

The merger will strengthen Welfare Projects in each region

"The merger of Banca Cívica and CaixaBank is perfectly consistent with the commitment of both groups to sustain and strengthen Welfare Projects; there is no other financial institution in the Spanish market that so firmly shares Banca Cívica's commitment to social investment", says Isidro Fainé, Chairman of CaixaBank.

CaixaBank's capacity to implement welfare projects will benefit from a stronger bank and greater potential for growth and earnings, while projects will also be reinforced within the areas of influence of the savings banks within Banca Cívica. Such social work will be fostered via partnership agreement across Banca Cívica savings banks' local regions.

"la Caixa"'s community work currently has a 2012 budget of 500 million euro.