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CAIXABANK / BANKIA: DETAILS ON THE MERGER (ANÁLISIS BANCO SABADELL)

Merger details. Targets above expectations. We reiterate BUY in CABK.
Yesterday CABK and BKIA approved their merger, the project of which has been presented today. The main details announced this morning are: (i) exchange ratio of 0.6845 shares in CABK x 1 share in BKIA and exchange price for BKIA € 1.41, with a +36% premium over the closing price from 03/09 (+20% over the base price taken from 17/09). This means a share of 74.2% CABK/25.8% BKIA and stakes for the FROB and Criteria of ~16% and 30%, respectively; (ii) annual cost savings of € 770 M (10% in 2021e; 90% in 2022e and 100% in 2023e) or ~42% of BKIA’s cost base, with associated restructuring costs reaching € 2.2 Bn; (iii) € 215 M of revenues synergies in savings products starting in 2025; (iv) CET1 ratio of 11.6% (after having absorbed € 2.2 Bn of adjustments from the initial integration and restructuring), meaning a buffer over MDA CET1 of >310bps; (v) +28% impact on CABK’s EPS’22e and RoTE of >8%; (vi) NPL ratio of 4.1% and coverage ratio of 64%. In the adjustments from the initial integration, € 700 M are earmarked for coverage with an impact of +2pp on the ratio; (vii) tentative calendar: EGM in October and execution in 1Q’21. In the absence of details on business forecasts, the impacts announced are better than expected, in cost savings (€~550 M BS(e), in line with the consensus), accretive impacts (RoTE and EPS, where we expected +14%), capital position and coverage levels. We welcome the operation, although it is not without risk, as we do not have all the details on the strategy, and the merger will take some time to be 100% completed. That said, all signs seem to indicate that much of the synergies (especially cost synergies) will materialise already in 2021 and we believe that CABK will have a comfortable position on the balance sheet level that would allow it to raise provisions if necessary.
We reiterate our BUY recommendation for CABK. We will revise our estimates and our valuation of the bank, with an expected impact of between +20%+25% (vs. +10% expected previously). As for BKIA, we believe that the share price will adjust to the swap equation, meaning that it will be subject to CABK’s performance.