Sabadell may seek M&As to strengthen weak balance sheet - reported rumour
24 APR 2018
The best options for Spanish bank Banco Sabadell [BME:SAB] for a takeover would be Abanca in Spain, OneSavings [LON: OSB] in the UK, and Inbursa [BMV: GFINBURO] in Mexico, Expansion reported, citing an analyst report from Bank of America Merrill Lynch.
BoA Merrill Lynch describes Sabadell as a bank with a weak balance sheet, ten years after the financial crisis and four years after the start of the recovery in Spain.
The report identifies three main issues for Sabadell. The first is that a significant portion of its capital is parked in its British subsidiary TSB, and that the UK regulator may not allow the repatriation of this money should Sabadell need it in Spain. The second is that equity in Spain is inflated thanks to deferred tax assets (loans to the tax authorities). The third is the group's high volume of problematic assets, including non-performing loans and foreclosed properties, which the report places at 11.1% of the balance sheet total.
One potential way for Sabadell to strengthen its balance sheet without damaging its growth strategy is to seek out mergers and acquisitions, the report said. The item points out that Sabadell's executives have a long history of acquisitions; in the last ten years, the bank has closed two major purchases: CAM in 2012 and TSB in 2015.
In the UK, the most profitable transaction according to the report would be the acquisition of OneSavings Bank, which would increase profit per share by 12% after increasing capital by EUR 1.1bn.
The second best option would be Virgin Money [LON: VM] (profit per share up 8%). Other options would be Close Brothers [LON: CBG] (6%), Paragon [LON: PAG] (5%), CYBG [LON: CYBG] (3%) and Metro Bank [LON: MTRO] (-13%).
In México, the best potential targets for Sabadell would be Inbursa (profit per share up 11%), Banregio [BMV: GFREGIO] (5%) or Bajio [MEX:BBAJIOO] (10%), the item said.
LInk to original source.