European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Liberbank (LBK SM) - Unicaja (UNI SM) Second Time Around

Liberbank (LBK SM): Running to Stand Still

Event-Driven

In previous notes, I have analysed potential combinations between <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a>, <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a>  and <a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a>, the three banks with the lowest profitability (ROE) among the eight listed Spanish banks (due to the negative interest rates).
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At the same time, these three banks have got the highest excess capital, in terms of both CET1 (fully loaded) and total capital ratio. This excess capital could potentially be used for M&amp;A, restructuring or distributed as extraordinary dividends. 
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<a href="https://www.smartkarma.com/entities/unicaja-banco-sa" target="_blank" data-smartkarma-citation="entities:28379:1" rel="noopener">Unicaja Banco SA (UNI SM)</a> shows a CET1 (fully loaded) ratio of 14%; that of <a href="https://www.smartkarma.com/entities/liberbank-sa" target="_blank" data-smartkarma-citation="entities:21279:1" rel="noopener">Liberbank SA (LBK SM)</a>is 13% and the one from <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a> is 13.02%.
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Bankia has now a healthier balance sheet and has excess capital: in terms of solvency, it generates capital organically and reaches a CET1 Fully Loaded ratio of 13.02%, an increase of 63 bps vs. December 2018, and a total excess on EUR 795 million. In a previous note, I mentioned that this excess capital could be deployed for M&amp;A (see <a href="https://www.smartkarma.com/insights/liberbank-lbk-sm-running-to-stand-still" target="_blank" data-smartkarma-citation="insights:33929" rel="noopener">Liberbank (LBK SM): Running to Stand Still</a> ). The current market cap of Liberbank is EUR 973 million.
Liberbank was in play in 2019: it negotiated a (failed) merger with Unicaja, and received an approach from Abanca, at EUR 0.48 per share of Liberbank, which was not formally launched. 
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I consider that a merger between Liberbank and Unicaja is highly likely (see <a href="https://www.smartkarma.com/insights/liberbank-lbk-sm-unicaja-uni-sm-second-time-around" target="_blank" data-smartkarma-citation="insights:34900" rel="noopener">Liberbank (LBK SM) - Unicaja (UNI SM) Second Time Around</a> ). Such a merger would have the blessings of the Bank of Spain, and would allow for both cost synergies to arise and improve the efficiency ratios.
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My core recommendation is long Liberbank because it has the highest probability of being taken over.
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<li>The median share price target of the analysts that cover Liberbank is EUR 0.4, a 29% upside vs. last closing price.</li>
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The closing of the <a href="https://www.expansion.com/empresas/banca/2020/01/23/5e29da9be5fdea71328b45a4.html" target="_blank" rel="noopener">sale of a majority stake in Caser</a>, an insurance company, is an incoming catalyst.
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<a href="https://www.smartkarma.com/entities/helvetia-holding-ag" target="_blank" data-smartkarma-citation="entities:22375:1" rel="noopener">Helvetia Holding Ag (HELN SW)</a>, a Swiss insurer, has reached an agreement with the Board of Caser to <a href="https://www.expansion.com/empresas/banca/2020/01/23/5e29da9be5fdea71328b45a4.html" target="_blank" rel="noopener">purchase a 70% stake for EUR 780 million</a>.
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Bankia shows in its accounts a book value of EUR 113 million for its 15% stake in Caser, and will sell its stake for 167 million, a capital gain of EUR 54 million, or EUR 40.5 million after taxes (equivalent to a positive impact of 12 basis points in its solvency ratio).
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Liberbank intends to reduce its 12.2% stake to 9.99%. Liberbank will obtain EUR 24.5 million (Liberbank does not disclose in its accounts how much this stake was accounted for). Using Bankia's valuation, it would be c. EUR 16.6 million, and therefore the capital gains, after tax, would be c. EUR 6 million (EUR 0.2 cents per share).
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In previous notes, I have analysed potential combinations between Bankia SA (BKIA SM), Liberbank SA (LBK SM)  and Unicaja Banco SA (UNI SM), the three banks with the lowest profitability (ROE) among the eight listed Spanish banks (due to the negative interest rates).

At the same time, these three banks have got the highest excess capital, in terms of both CET1 (fully loaded) and total capital ratio. This excess capital could potentially be used for M&amp;A, restructuring or distributed as extraordinary dividends. 


Unicaja Banco SA (UNI SM) shows a CET1 (fully loaded) ratio of 14%; that of Liberbank SA (LBK SM)is 13% and the one from Bankia SA (BKIA SM) is 13.02%.


Bankia has now a healthier balance sheet and has excess capital: in terms of solvency, it generates capital organically and reaches a CET1 Fully Loaded ratio of 13.02%, an increase of 63 bps vs. December 2018, and a total excess on EUR 795 million. In a previous note, I mentioned that this excess capital could be deployed for M&amp;A (see Liberbank (LBK SM): Running to Stand Still ). The current market cap of Liberbank is EUR 973 million.
Liberbank was in play in 2019: it negotiated a (failed) merger with Unicaja, and received an approach from Abanca, at EUR 0.48 per share of Liberbank, which was not formally launched. 


I consider that a merger between Liberbank and Unicaja is highly likely (see Liberbank (LBK SM) - Unicaja (UNI SM) Second Time Around ). Such a merger would have the blessings of the Bank of Spain, and would allow for both cost synergies to arise and improve the efficiency ratios.


My core recommendation is long Liberbank because it has the highest probability of being taken over.


The median share price target of the analysts that cover Liberbank is EUR 0.4, a 29% upside vs. last closing price.


The closing of the sale of a majority stake in Caser, an insurance company, is an incoming catalyst.


Helvetia Holding Ag (HELN SW), a Swiss insurer, has reached an agreement with the Board of Caser to purchase a 70% stake for EUR 780 million.


Bankia shows in its accounts a book value of EUR 113 million for its 15% stake in Caser, and will sell its stake for 167 million, a capital gain of EUR 54 million, or EUR 40.5 million after taxes (equivalent to a positive impact of 12 basis points in its solvency ratio).


Liberbank intends to reduce its 12.2% stake to 9.99%. Liberbank will obtain EUR 24.5 million (Liberbank does not disclose in its accounts how much this stake was accounted for). Using Bankia's valuation, it would be c. EUR 16.6 million, and therefore the capital gains, after tax, would be c. EUR 6 million (EUR 0.2 cents per share).




Liberbank SA

Bankia, Liberbank and Unicaja, Revisited