CriteriaCaixa, the unlisted investment company that controls a majority stake in Caixabank, Spain’s leading bank, has announced that, following discussions with the European Central Bank, it will seek to reduce its stake from over 52% currently to 40% before the end of 2017. CriteriaCaixa has sought to clarify with the ECB how it might be deemed to have lost control of Caixabank, so as to deconsolidate it for prudential purposes and avoid having the whole of CriteriaCaixa – which also holds big equity stakes in various Spanish and European utilities as well as banks outside Spain – regulated as a mixed financial holding company, with associated tough capital requirements.
The ECB has set the condition both of a reduction of CriteriaCaixa's stake to 40% and new investors being allowed into the Caixabank share register, without factoring in the asset swap announced in December 2015, whereby CriteriaCaixa took on Caixabank’s holdings in Bank of East Asia and Grupo Financiero Inbursa and paid for these stakes by transferring shares of Caixabank back to the bank itself to be redeemed as treasury shares. That deal cut CriteriaCaixa’s holding in the bank from 56.8%.
The ECB has now set the further condition that CriteriaCaixa must also not have representation on the Caixabank board or any of its committees in excess of 40% of directors. Caixabank must appoint from among its independent directors a new lead director with extensive powers, including relations with shareholders in corporate governance matters.
It’s a measure clearly aimed to further clip the influence of Isidro Fainé, who for now – though not for much longer – remains chairman of Caixabank, chairman of CriteriaCaixa and chairman of the board of trustees of la Caixa Foundation, which controls CriteriaCaixa.
It’s not a great moment to announce new supply of bank equity, with Caixabank’s own first-quarter results disappointing because of pressures on net interest margins. On the same day that CriteriaCaixa announced its intention to sell down holdings in Caixabank, Banco Popular announced a €2.5 billion rights issue, equivalent to roughly half its market capitalization, to absorb higher provisions on non-performing assets. Its share price immediately fell by almost 25%.
Caixabank is in a much stronger position, with much lower non-performing loans, and its share price has barely responded to the news of forthcoming supply. However, executing the sell-down without hurting the share price will be tough. At least CriteriaCaixa has time.