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BBVA to sell Citic unit stake at a loss
From the Financial Times of Tue, 23 Dec 2014 17:39:27 GMT

BBVA said on Tuesday that it was shoring up its balance sheet by selling its near-30 per cent share in the Hong Kong-based bank Citic International Financial Holdings Limited at a loss.

The Spanish lender said the €845m sale of CIFH back to back to its parent company, China’s Citic Bank Corporation Limited (CNCB), would increase its capital position by €700m and cut its profits by €25m.

Tougher new rules on capital ratios and banks’ ownership of more than 10 per cent of other financial entities have forced banks to set aside more cash and sell some of their investments.

BBVA said that the sale would increase its fully-loaded common equity tier one capital — a test of financial strength — by 20 basis points, to 10.26 per cent. In the October European Central Bank stress tests of the balance sheets of European banks, the minimum CET1 requirement was 5.5 per cent and the average was 11.1 per cent.

The sale also lowers BBVA’s exposure to China, where bad loans have increased 30 per cent this year, to their highest since 2008.

BBVA first began investing in CNCB and CIFH in 2006 in an effort to gain access to a Chinese market whose potential for growth was among the best in the world, the bank said at the time. In total it invested €3bn to acquire 30 per cent of CIFH and 15 per cent of CNCB.

Facing a need for more capital and a slowdown in the Chinese economy, BBVA sold a 5.1 per cent stake in CNBC back to its parent company for €944mn in late 2013. At the time of the sale, it emphasised its continued ties to CNCB and said it hoped to open a BBVA branch in China. It still owns 9.9 per cent of CNCB.

The sale of its CIFH stake comes as BBVA is preparing to integrate its €1.2bn purchase of the nationalised Catalunya Banc. Analysts expect the fusing of the banks, which is slated for spring 2015, to cut BBVA’s capital by 50bp.

The deal is expected to close by the second quarter of 2015.

Shares in BBVA closed 1.7 per cent higher at €8.04. CNCB shares were down 0.5 per cent to HK$6.

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