TEXT-S&P puts Ibercaja Banco 'BB+' rating on watch negative
Overview -- On Nov. 29, 2012, the board of directors of Caja de Ahorros y Monte de Piedad de Zaragoza, Aragon y Rioja, the savings bank that owns Spain-based Ibercaja Banco S.A. (iberCaja), said iberCaja might acquire Banco Grupo Cajatres, S.A. -- We are placing our 'BB+' long-term counterparty credit rating on iberCaja on CreditWatch negative and affirming our 'B' short-term rating. -- The CreditWatch placement reflects the possibility that we might lower the ratings on iberCaja by one notch if we decided that the acquisition weakened our view of iberCaja's creditworthiness. Rating Action On Dec. 4, 2012, Standard & Poor's Ratings Services placed its 'BB+' long-term counterparty credit rating on Ibercaja Banco S.A. (iberCaja) on CreditWatch with negative implications and affirmed its 'B' short-term rating. At the same time, we placed all issue ratings on CreditWatch negative. Rationale The CreditWatch placement follows iberCaja's shareholders' announcement of a potential agreement to acquire Spain-based Banco Grupo Cajatres (not rated), and reflects our view that the acquisition could weaken iberCaja's standalone credit profile (SACP), and in particular its credit risk profile. Approval from Spanish and European authorities, and the general assemblies of the savings banks that own iberCaja and Cajatres is still pending. The agreement is also subject to approval by the authorities overseeing Cajatres's restructuring plan and capital support from the government, and the implementation of the conditionality attached to state aid. We believe that the acquisition could be concluded by the end of the first quarter of 2013. We believe that the acquisition of Cajatres would reinforce iberCaja's leading market position in its core markets in the northern Spanish regions of Aragon and La Rioja, and the province of Guadalajara. A merged group would also have strong market shares in the regions of Castilla Leon and Extremadura. However, the combined entity would account for less than 3% of the Spanish banking system's loans and about 4% of its deposits as it would still be smaller than large domestic peers. We currently believe that iberCaja's asset quality and credit loss experience is better than the system average. We understand that the potential acquisition of Cajatres would take place after the transfer of most of its real estate exposures to the Spanish asset management company for assets from the restructuring of the banking system. However, we think that the asset quality and the size of Cajatres's remaining loan book, which we estimate represented more than 30% of iberCaja's portfolio at the end of June 2012, could potentially weaken our view of iberCaja's risk position as "strong." We also think that if the acquisition went ahead our assessment of iberCaja's capital and earnings would likely remain unchanged. This is because we believe the transaction will probably have a limited impact on iberCaja's regulatory capital ratios. iberCaja is already taking specific measures to reinforce its capital--prior to any acquisition--to cover the higher minimum capital requirements. Additionally, our current risk-adjusted capital (RAC) ratio projection of 4%-4.5% by the end of 2013 provides a cushion within the 3%-5% standard range of our "weak" capital assessment. However, iberCaja has not yet announced what form of capital it will use to finance the transaction. We also think that the impact of the acquisition on our assessment of iberCaja's funding and liquidity would likely be limited because of Cajatres's more balanced funding structure--its loan to deposit ratio is better than iberCaja's. Moreover, following the transfer of the real estate assets to the Spanish asset management company, Cajatres will likely receive liquid securities that are eligible for discount at the European Central Bank (ECB; AAA/Stable/A-1+). CreditWatch We aim to resolve the CreditWatch placement on completion of the transaction and after we review a complete set of business and financial information on Cajatres and the combined group. We will assess the impact of the acquisition on iberCaja's financial profile, especially on its risk position. If as a result we were to lower our assessment of iberCaja's SACP by one notch, this could trigger a similar downgrade of the bank. If we saw no negative impact on iberCaja's SACP, we could affirm the ratings at their current level. We might also affirm our ratings on iberCaja and remove them from CreditWatch if the acquisition was not finally completed, and if our view of iberCaja's SACP remained unchanged despite the strategic challenges it faces in the increasingly consolidated financial system. Ratings Score Snapshot Issuer Credit Rating BB+/Watch Neg/B SACP bb+ Anchor bb+ Business Position Adequate (0) Capital and Earnings Weak (-1) Risk Position Strong (+1) Funding and Liquidity Average and Adequate (0) Support 0 GRE Support 0 Group Support 0 Sovereign Support 0 Additional Factors 0 Related Criteria And Research -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Bank Capital Methodology And Assumptions, Dec. 6, 2010 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Ibercaja Banco S.A. Counterparty Credit Rating BB+/Watch Neg/B BB+/Negative/B Certificate Of Deposit BB+/Watch Neg/B BB+/B Subordinated BB-/Watch Neg BB- Preferred Stock CCC-/Watch Neg CCC- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.