Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, will take a 2.3 billion-euro ($3.1 billion) charge for reducing its stake in China Citic Bank Corp. to free up capital.
BBVA is marking its 15 percent stake in the Chinese lender to market prices as part of the transaction, the bank said in a statement on its website today. The Spanish bank triggered the charge, equivalent to about 1.4 times last year’s profit, by agreeing to sell 5.1 percent of China Citic to its parent company for 944 million euros.
The bank will “maintain its commitment to the Chinese market” while reinforcing its capital levels, Chief Financial Officer Manuel Gonzalez Cid said in a webcast for analysts today. BBVA will cut its stake just below 10 percent to adjust to Basel III capital rules that punish banks for holdings in other lenders above that threshold.
“It just doesn’t make sense for them to hold such a big stake with the new rules,” said Daragh Quinn, an analyst at Nomura International in Madrid, who rates BBVA reduce. “Some investors would have been skeptical about how this investment fit into their strategy in any case.”
Spanish rival CaixaBank SA reduced its stake in Mexican billionaire Carlos Slim’s Grupo Financiero Inbursa this year for the same reason, Quinn said. Goldman Sachs Group Inc. and Bank of America Corp. have also been selling holdings in Chinese financial institutions in the wake of Basel III.
BBVA was on course to earn 4.3 billion euros, according to the mean estimate in a Bloomberg survey of 16 estimates.
“This transaction enables BBVA to move forward on the adoption of new Basel III capital requirements,” Gonzalez Cid said. The deal, which is set to close in the fourth quarter, makes BBVA confident its fully-loaded core capital ratio under Basel III will be “very comfortably” above 9 percent in 2013, he said.
Chairman Francisco Gonzalez started building BBVA’s stake in Citic companies in 2006 as it targeted China to diversify its business. The state-controlled Citic group, established in 1979 by Rong Yiren to further former Chinese leader Deng Xiaoping’s experiment with open markets, spans companies from banking to oil exploration and reports directly to China’s cabinet.
BBVA shares fell 0.1 percent to 9.23 euros at close of trading in Madrid, paring this year’s gain to 33 percent.
The bank’s Basel core capital ratio rises 72 basis points, or 0.72 percentage point, as a result of selling the stake. BBVA also sold a controlling stake in Chilean pension administrator Provida for $1.54 billion this month.
BBVA said in its second-quarter report in July that it expected earnings in the Chinese banking industry to “moderate their rise” after several years of high growth. Profit at the division that includes its Chinese banking stake fell an annual 26 percent in the first half of the year to 429 million euros, in part because of the lower contribution from Citic.
“Given the difficult environment in its home market, it appears prudent for BBVA to raise capital at this juncture,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong, wrote in an e-mail. “While they are trimming their holdings, they remain large shareholders.”
Foreign institutions have raised at least $14 billion from divesting shares in Chinese financial firms since the start of 2012, data compiled by Bloomberg shows.