Ottoman empire-building

20 November 2014 By Fiona Maharg-Bravo

The Spanish bank is raising 2 bln euros to buy an extra 14.9 percent stake in Garanti. BBVA gets a larger share of growing earnings and board control. But it could have achieved the latter by 2016 – at a much lower cost. And Turkey’s attractions come with obvious risks.

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BBVA has agreed to pay 2 billion euros for an additional 14.9 percent of Turkey’s Garanti Bank, taking its total stake to 39.9 percent. The deal values Garanti at 8.9 Turkish liras a share, in line with the market close on Nov. 19. The seller, Dogus Group, will retain a 10 percent share in Turkey’s largest bank by market capitalisation.

Simultaneously, the Spanish bank raised 2 billion euros via a capital increase at 8.25 euros a share, a 4.5 percent discount to the previous close. At 0930 GMT, BBVA shares were trading down 4.9 percent to 8.2 euros a share.

BBVA said the deal would boost group profit by 250 million euros in 2016 and would reduce its fully loaded core Tier 1 capital ratio by 48 basis points, or 1.9 billion euros. The capital will generate 58 basis points, which will have a net positive impact of 10 basis points. The pro-forma fully loaded ratio will be 9.6 percent, including the recent acquisition of Catalunya Caixa.

The lender will write down its investment by 1.5 billion euros, mainly due to the change in accounting method from equity method to full consolidation. The loss mostly reflects the depreciation of the lira against the euro since the initial deal in 2011.

Once the deal is complete, BBVA will appoint seven out of 10 directors on the Garanti board, up from four today.

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