Barclays' Spanish disposal a "welcome positive", says Deutsche Bank
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The agreement to dispose part of Barclays' Spanish operations to Caixabank is a "modest but welcome positive", according to Deutsche Bank which retained a 'buy' rating for the UK bank on Tuesday.
The retail banking, wealth and investment management, and corporate banking businesses in Spain will be sold for €800m (around £630m) in cash. However, the sale will be at a loss of £500m to Barclays.
Deutsche Bank highlighted that the units were included in the non-core division in the May strategy announcement and press reports since had prepared the market for a potential sale. However, some may have been disappointed with the price given that the businesses is being sold for just 0.5 times book value.
Analysts Jason Napier and David Lock said: "The disposal price achieved may be lower than some hoped at 0.5x book value amidst a Spanish economy which has turned the corner and with market expectations rising for a more encouraging stance from the European Central Bank."
Nevertheless, they said that given the shape of the business' book and the field of buyers the deal should be seen positively.
"We think the stark reality for Barclays in this deal was that it was looking to sell a Spanish business which is simply too mortgage-heavy/low yielding to produce enough revenue in a low rate environment to cover its costs adequately. The bank needed a buyer which brought significant cost cut potential - the upside from which the buyer need not share with the seller, particularly in a relatively narrow field of potential acquirers."
Napier and Lock said they had forecast ongoing losses from the said businesses and pointed out that the deal will - whilst reducing tangible net asset value by about 1% - will lead to higher capital ratios and 2-3% upgrades to earnings estimates for 2015.
Deutsche Bank maintained a 285p target price for Barclays' shares, were which up 0.3% at 224.7p by 11:21 on Tuesday.
BC