Bankia starts bank rehab with a bang

Fri Jan 10, 2014 11:44am EST

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LONDON, Jan 10 (IFR) - Bailed-out Bankia returned to the public funding market with a bang this week, ending a near two-year funding drought with the sale of EUR1bn of five-year senior unsecured debt and fuelling hopes that it can free itself from government ownership.

UK and domestic fund managers and hedge funds threw their weight behind Spain's fourth biggest lender, providing the bulk of the EUR3.5bn of orders the bond received despite a mere 3.5% coupon.

"This is such an important step for Bankia following its bailout," said Fernando Cuesta Blazquez, head of funding at Bankia.

"Our goal is to maximise value for our shareholders, but at the end of the day the decision regarding the future privatisation is up to the FROB," he said. "At this stage there has not been any formal conversation with them, and our job now is to bring about a turnaround of the bank."

Spain's government, which owns about 70% of Bankia through parent company BFA, has until 2017 to return the bank to private hands, though investment bankers in Madrid say that could happen earlier if its turnaround gains momentum, with the state possibly starting a sell-down towards the end of 2014.

Bankia's successful return to international funding markets marks a significant turning point after the country's banks were crippled by a 2008 real estate crash that led several into state bailouts.

In 2013, Bankia posted the biggest loss in Spanish corporate history, taking nearly EUR24bn of provisions on property loans in an attempt to wipe the slate clean.

Lenders, eyeing potential uncertainty in coming months from a Europe-wide check on banks' balance sheets and stress tests later this year, are raising funding at favourable levels while they can.

Bankia hired its own syndicate team, Bank of America Merrill Lynch, Commerzbank, Natixis and UBS to market the deal and priced at mid-swaps plus 235bp, 15bp inside initial price thoughts.

"This is the best wholesale funding level Bankia has been faced with in years as we are now pretty close to normalising our funding levels," said Cuesta Blazquez.

With so many questions about its future, the bank had been locked out of the market due to prohibitive funding costs since 2012, but that changed in the autumn of last year when Spanish sovereign yields stabilised and then rallied by more than 50bp from the end of December to this week.

"We were confident that the market would be supportive at the beginning of January but hadn't anticipated the rally we have seen this week," said Cuesta Blazquez.

Despite a supportive market backdrop, the issuer and syndicate bankers had done their homework and had met with investors at the tail end of last year with a view to getting in ahead of the pack in January.

Bankers decided a generous new issue premium of at least 20bp was needed to ensure the success of the deal.

In the wake of the transaction, Bankia says it has no immediate need to raise additional unsecured or secured funding, but will be monitoring the market closely for opportunities.

"We decided to sell a senior deal and will be keeping our covered bond collateral dry for times of stress or extending duration. Certain investors were encouraging us to issue Tier 2 or Additional Tier 1, so in the medium term that may be a possibility," said Cuesta Blazquez. (Reporting by Aimee Donnellan; additional reporting Sarah White; Editing by Helene Durand, Alex Chambers and Julian Baker)

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