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Earnings

BFA-Bankia completes clean-up plan, after recording provisions totalling 26,845 million euros in 2012

At year-end 2012 the BFA-Bankia Group completed the financial restructuring plan announced on 25 May, after recording provisions and write-downs totalling 26,845 million euros, including the adjustments arising from the transfer of assets to Sareb.
Bankia Comunicación

By  Bankia Comunicación

Publish on 
27 February 2013

  • In line with expectations, the BFA Group recorded an after-tax loss of 21,238 million (19,400 million after the exchange of hybrids), 19,193 million of which are attributable to Bankia.

  • The Bank enters 2013 with a clean balance sheet and liquidity totalling more than 40,000 million euros, sufficient to meet maturities for the next six years.

  • The solvency ratio of the BFA-Bankia Group is 9%, rising to 9.44% (EBA core tier 1) after the exchange of hybrid instruments for shares.

  • The gross income of Bankia on a recurring basis remains around 4,100 million euros, despite the difficult macroeconomic environment, while cost containment pushes pre-provision profit up by 19.4%.

  • José Ignacio Goirigolzarri: "We start 2013 from a solid position, with a clean balance sheet, good solvency levels and an excellent liquidity situation. Our challenge now is to make Bankia a profitable institution that is able to return to society the support it has received."

At year-end 2012 the BFA-Bankia Group completed the financial restructuring plan announced on 25 May, after recording provisions and write-downs totalling 26,845 million euros, including the adjustments arising from the transfer of assets to Sareb.

Thanks to these provisions and write-downs, together with the capital injection approved on 28 November by the European authorities, BFA-Bankia starts 2013 with a clean balance sheet and a solid solvency and liquidity position.

As a result of heavy provisioning, affected by the transfer of assets to Sareb, the BFA Group posted after-tax losses of 21,238 million euros. The figure would fall to 19,400 million if the gains on the exchange of hybrid instruments were included. In the case of Bankia, after-tax losses amounted to 19,193 million.

After a year in which it faced the task of cleaning up its balance sheet, prompting it to request state aid in the amount of 17,959 million euros, BFA-Bankia expects to return to profitability in 2013, as a first step towards returning the public support it has received.

The exchange of the hybrid instruments issued by the savings banks that gave rise to the Group for shares of Bankia is expected to be announced by the FROB in March; and once the exchange is complete, the recapitalisation will have ended.

From that point on, depending on the requirements established by the commission set up for that purpose, the arbitration process will begin.

Clean-up, solvency and liquidity

Following the transfer of 22,300 million euros of real estate assets to Sareb, the assets of BFA, on an individual basis, are reduced to the companies in which it holds shares (marked to market), fixed income portfolios, and a scant 71 million euros of developer loans, with provision coverage close to 80%. The bulk of the Group's business, therefore, is the business generated in Bankia.

Bankia faces 2013 from a strong starting point. It has total credit portfolio coverage of 8%. The coverage ratio of provisions is 44.8% for developer loans, 14.8% for business loans, and 3.3% for loans to individuals.

The distribution of Bankia’s credit portfolio is as follows: 60% loans to individuals, 30% business loans, 7% public sector loans and barely 3% developer loans. At year-end 2011, in contrast, developers accounted for 17.2% of the total.

Turning to liquidity, the Group has more than 40,000 million euros of liquid assets, sufficient to meet maturities to 2020 and beyond. Of this total, 26,900 million belong to Bankia, covering maturities to 2018.

As regards solvency, if the effect of the exchange of hybrid instruments for shares of Bankia is included, both the BFA Group and Bankia ended 2012 with an EBA core tier 1 ratio of around 9.5%, in line with the projections contained in the recapitalisation plan.

Bankia chairman José Ignacio Goirigolzarri stated: "We start 2013 from a solid position, with a clean balance sheet, good solvency levels and an excellent liquidity situation. Our challenge now is to make Bankia a profitable institution that is able to return to society the support it has received".

2012 results

In 2012 Bankia posted net interest income of 3,198 million euros, up 16.6% on one year earlier. This figure does not include the cost of 109 million euros arising from the 4,500 million euro subordinated loan extended by BFA to Bankia in September 2012. Interest income declined in the second half of the year due to the fall in interest rates and balance sheet reduction, although the decline was dampened by spread management.

Gross income came to 4,010 million euros (-2.7%), with a relative increase in recurring income (interest and fees) and a relative decrease in income from equity investments. 2012 income was also affected by the increased contribution to the deposit guarantee fund due to penalties applied for super deposit interest rates, which will not exist in 2013. Net of the effect of the subordinated loan, gross income last year was 4,119 million euros (-0.05%).

Fee and commission income fell 6.5% to 992 million euros. If the fee and commission income arising from corporate transactions in capital markets are not taken into account, the most recurring income from the banking activity was down 3.3%, at 809 million euros.

Income from financial assets and liabilities in 2012 was 348 million euros, down 4.9%. Of this total, 229 million came from gains on the repurchase of own securities. During the second half, the capacity to generate income from financial assets and liabilities was limited by the negotiation of the Group recapitalisation plan.

Cost containment was significant last year and marks another path along which Bankia will act to strengthen its future profitability. Administrative expenses were down 12.0% in 2012, at 2,017 million euros, staff costs down 14.1% and other general expenses down 7.4%. Depreciation and amortisation expense also fell 7.7%.

As a result of all this, Bankia's profit before provisions came to 1,826 million euros, up 19.4% on 2011.

The total new provisions recorded by Bankia in 2012 amounted to 23,907 million euros as a result of the plan presented in May and subsequent amendments to the plan due to the transfer of assets to Sareb. In the BFA Group as a whole, provisions totalled 26,845 million euros.

For all these reasons, in 2012 Bankia recorded an after-tax loss of 19,193 million euros. The net result attributable to the Bank was a loss of 19,056 million euros. BFA had a loss after tax of 21,238 million euros (around 19,400 million if the impact of the exchange of hybrids is included) and an attributable loss of 10,791 million euros.

Bankia business performance

Business performance was affected by the transfer of credit assets to Sareb in December, totalling 16,405 million euros on a net basis. Bankia ended 2012 with net loans of 134,177 million euros, 27.1% less than the previous year.

On the liabilities side, narrow customer deposits totalled 98,524 million euros at 31 December, compared to 98,566 million in September and 113,050 million at the end of 2011.

The volume of deposits improved by 975 million euros, to 96,955 million, in the fourth quarter, while the volume of commercial paper decreased by 1,017 million euros, to 1,569 million. The Bank thus succeeded in reversing the negative trend that started in the second quarter of the year.

In 2012 as a whole, the outflow of narrow customer deposits reached 14,148 million euros, added to which was a decline of 378 million in the amount of commercial paper.

On-balance-sheet customer funds fell by 47,498 million euros over 2012 as a whole. Of this total, 24,096 million euros relate to lower non-resident funds, due to the decline in funding through European trading platforms and central counterparty clearing houses. Another 18,379 million euros came from debentures and other marketable securities, which includes the expiry of wholesale issues and the repurchase of mortgage and asset-backed securities issued by the Group.

Risks

The Bank's NPL ratio decreased in the fourth quarter of the year, from 13.3% in September to 13.0%, though still above the 7.6% level recorded at the end of 2011. The balance of non-performing loans fell in the fourth quarter, from 25,314 to 19,819 million euros, influenced by the transfer of assets to Sareb. The figure one year earlier was 15,311 million.

Following the provisions recorded by the Bank over the year as a whole, the NPL coverage ratio stood at 61.8%, compared to 60.2% in December 2011. In September coverage was 71.4%, but this was also affected by the transfer to Sareb.  

Other significant events in the fourth quarter

  • On 16 November Bankia announced the decision to integrate its private banking subsidiary.

  • On 28 November the BFA-Bankia Group received approval from the European authorities for its Restructuring Plan, after which it publicly presented the 2012-2015 Strategic Plan.

  • On 18 December Bankia announced an agreement with Aviva for the purchase of the 50% of Aseval that the Bank did not control.

  • On 21 December Bankia reached an agreement with IBM for the outsourcing of certain services.

  • On 27 December the Technical Advisory Committee of the Ibex Indices resolved to exclude Bankia from the Ibex-35.

  • On 27 December the BFA-Bankia Group received an injection of 17,959 million euros from the Fund for the Orderly Restructuring of the Banking Sector. Bankia issued 10,700 million euros of contingent convertible bonds, which were subscribed by BFA.

  • In December the BFA-Bankia Group transferred assets valued at 22,317 million euros to Sareb.

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