BBVA presents an offer to take over half of the Turkish bank Garanti, which it does not control, for 2.249 billion euros.

BBVA will strengthen its position in Turkey to acquire 100% of the capital of Türkiye Garanti Bankası (Garanti), in which the CNMV owns 49.85%, as previously announced. The bank has submitted a takeover bid for the 50.15% of the capital it does not control, worth 2.25 billion euros. BBVA shares are down almost 3% on the Ibex 35 index.

The deal, recommended by Bank of America, was accepted by the market with a 5% drop in the first minutes of trading. The Spanish bank is offering a premium of 15%: 12.20 Turkish liras in cash for each share of Garanti (€1.06), so the maximum amount to be paid by BBVA will be 25.697 million Turkish liras (€2.249 million), assuming that all Garanti shareholders sell their shares. BBVA will pay the price with its current capital.

However, the purchase will not be immediate. BBVA’s acquisition of more than 50 % of Garanti’s capital is “subject to obtaining approval from various regulatory authorities”.

The Turkish Capital Markets Board (CMB) has confirmed to BBVA that it will not authorise the takeover bid until it receives confirmation from the bank that it has obtained the relevant regulatory approvals. The deadline for accepting the takeover bid will only commence once the transaction has been approved by the CMB. Given the deadlines and the need to obtain regulatory approval, BBVA estimates that the takeover bid will not close until the first quarter of 2022.

BBVA Chairman Carlos Torres Vila and Group CEO Onur Genç have assured analysts that BBVA’s risk profile will not change after the deal. They also explained that the offer creates “enormous value” for shareholders, eliminates capital inefficiencies and is in line with the group’s strategy to grow in its key markets. They highlighted Turkey’s “solid fundamentals” and “long-term growth potential”, despite the country’s short-term fluctuations.

The takeover bid was the only way for BBVA to increase its stake in the Turkish bank, which it entered 11 years ago and after increasing its stake to almost 50% in 2017; given that the target is 100% of the capital, BBVA can in any case subsequently increase its stake without having to make a takeover bid if it exceeds 50% as a result of the current offer.

“The sale of the US subsidiary provides us with a strategic opportunity to invest excess capital in our core markets, among others,” said Onur Genç.

“A great opportunity.

The group’s chairman, Carlos Torres Vila, said the transaction is a “great opportunity” to “create value for our shareholders”, as it will mean “a high return on the investment and a very limited capital consumption” thanks to the current treatment of minority shareholders. As for the price, Torres said it was “very attractive for Garanti BBVA’s minority shareholders”. Turkey is BBVA’s third largest market in terms of earnings and the bank can take advantage of the weak lira.

Torres told analysts that the risks of the current deal with Turkey are already discounted in the group’s share price.

The deal announced this morning will take place three days before Investor Day on 18 September.

BBVA estimates that, if the offer is accepted in full, BBVA’s earnings per share will increase by 13.7% in 2022 and tangible book value per share will increase by 2.3% in September 2021. In terms of solvency, the maximum expected impact on the CET capital ratio would be a decrease of 46 basis points. In the event of a dividend payment, BBVA “reserves the right to reduce or adjust the price of the voluntary offer” by the corresponding gross amount.

BBVA notes that the takeover bid does not include Garanti’s two subsidiaries, Garanti Faktoring and Garanti Yatırım Ortaklığı, which are listed on the Istanbul Stock Exchange. Each of these two subsidiaries represents less than 1% of the Garanti Group’s consolidated assets, and BBVA intends to apply to the CMB for an exemption from the obligation to submit mandatory takeover bids for these subsidiaries.

Since the acquisition of Garanti, BBVA has always defended this operation, although the supervisory authorities have warned in some cases of the risk of Turkey, but also of the risk of other holdings in Latin America in general.

BBVA, like its Spanish competitor Santander, has tried to grow in Europe, but in recent years it has focused more on emerging markets, where it finds greater opportunities.

BBVA’s commitment to Turkey is the opposite of what other banks are doing in the country. Last week, UniCredit sold its remaining stake in Yapi Kredi to Kok Holding for €300m.

BBVA has been hedging in the currency markets for several years to protect its profits and capital from the fall of the Turkish lira.

In this context, Torres said that the bank is well aware of the fall of the Turkish lira and the country’s macroeconomic situation, but argued that Garanti has been part of the group for more than a decade, so he knows the assets and their resilience in crisis situations well. “We have a BBVA model with multiple entry points that does not change, and in the extreme case, another risk of this investment is the investment itself, the 2.2 billion euros we are investing with a capital consumption of 1.4 billion euros,” he explained.

Analysts highlighted the political and macroeconomic uncertainty in Turkey, but executives stressed that BBVA’s multiple entry point model minimises risk and that Garanti is fully integrated into the group’s risk management framework.

The sale of the US subsidiary

In the United States, where the bank decided to exit the business, with the exception of the wholesale business, it followed the opposite approach. In March, it sold its US business, which generated revenues of 9.6 billion euros, and raised capital of more than 8 billion euros to focus on cost-cutting in Spain, where it implemented its first redundancy plan, and on boosting shareholder returns, buying back 3.5 billion euros, 10% of its capital.

Moreover, it explained that its intention was also to strengthen its presence in markets where it was already present, which led it to negotiate a merger with Banco Sabadell, which collapsed shortly afterwards.

After the share buyback, BBVA’s pro forma capital ratio stood at 13.18 in September, and the bank still had a capital surplus of around EUR 3.6 billion. BBVA has also just launched an online bank that has entered the Italian market.

BBVA is the largest private bank in Turkey, with a market share of 20% in loans and 19% in deposits. At the end of September it had 21,651 employees, 5,535 ATMs and 1,009 branches. Onur Genç comes from this bank

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