CORRECTED-UPDATE 2-BBVA to buy Spain's bailed-out Catalunya Banc

Mon Jul 21, 2014 6:30pm EDT

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(Corrects to clarify offer price could be cut "by" and not "to" 267 million euros in paragraph 4)

By Jesús Aguado

MADRID, July 21 (Reuters) - Spain will sell Catalunya Banc, one of the last lenders still in state hands after the financial crisis, to the country's second-biggest bank BBVA for just under 1.2 billion euros ($1.6 billion), said bank restructuring fund FROB on Monday.

The government had failed twice to offload the bank in previous auctions, even after granting the Barcelona-based lender 12 billion euros ($16.23 billion) in aid to rebuild its capital and cleansing it of its soured real estate loans.

This time, Catalunya Banc, one of several banks rescued in the aftermath of a 2008 property market collapse, was slimmed down further before the disposal. Last week it sold a bumper 6.4-billion-euro portfolio of mortgages, most of which were problematic, to U.S. private equity firm Blackstone, in a transaction backed by more state aid.

BBVA said late on Monday, however, that it would cut its offer by 267 million euros if by the close of the deal - expected by the first quarter of next year - it did not have clarity on how Catalunya Banc's so-called deferred tax assets will be treated.

Spanish banks have chalked up billions of euros of such tax assets, usually incurred when they make losses, and the government recently allowed for some of these to be turned into state-backed tax credits that can still be counted towards their capital under stricter international rules.

The purchase of the Barcelona-based lender is the latest for BBVA in the northern Spanish region of Catalonia after the real estate market collapse that felled many smaller rivals and savings banks.

The Spanish government was forced to ask Europe for 41.3 billion euros of aid in 2012 to help the weakest, and after Bankia, which is still majority-owned by the state, Catalunya Banc needed the most money.

BBVA had bought Catalonia's Unnim for one euro in 2012. This time it beat rivals Santander and Caixabank, which had also submitted bids last week to buy Catalunya Banc, sources familiar with the process had said.

BBVA said it expected over 1.2 billion euros of synergies from the acquisition, which will contribute positively to its earnings from 2016. It added it did not need to raise capital to fund the deal, which would knock about 0.55 percentage points off its capital ratio. That stood at 10.8 percent in March.

STATE FUNDING

While Catalunya Banc's soured loans had put buyers off in previous auctions - potential bidders had balked at buying it without further state aid - the wealthy region of Catalonia is an attractive market for Spanish banks.

This sale was also seen as one of the last opportunities for healthier lenders to pick up some of the spoils of the crisis at a bargain price, and grow further at a time when many are struggling to ramp up earnings.

Most of BBVA's revenue comes from overseas markets such as Latin America, but like top rival Santander it is also betting on a recovery at home as Spain emerges from a deep recession.

Catalunya Banc, about 60 percent owned by FROB while another 33 percent sits with the country's deposit guarantee fund, has about 63 billion euros of assets and just over 4,500 employees.

Spain still has a majority stake in small Banco Mare Nostrum (BMN), which has said it will start working on a stock market flotation next year. The state also started selling down its Bankia holding earlier this year, turning a small profit by placing a 7.5 percent stake in the market.

Aside from the Bankia sale, the government is unlikely to recover much of the money it plugged into ailing banks.

The FROB, the vehicle that manages the state's holdings in banks, said in a statement that the deal with BBVA did not include any state-funded protection against further losses on assets - a scheme it had offered buyers of some other bailed-out banks.

But it did say it included some guarantees, without disclosing how much these amounted to.

A source at FROB last week said these could cover any penalties for breaking insurance contracts that Catalunya Banc might incur as part of an acquisition. They would also likely cover any compensation Catalunya Banc might have to pay out to customers over the mis-selling of securities. ($1 = 0.7395 Euros) (Writing by Sarah White, editing by Julien Toyer, David Evans and Gunna Dickson)

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