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Bankinter moves to meet new solvency requirements

Lender to issue 406 million euros in convertible bonds

Bankinter is following the trend set by other Spanish commercial banks in launching a convertible bond issue to meet the new solvency requirements being imposed by the government.

In a statement to the National Securities Commission (CNMV), Bankinter said Tuesday it was issuing 406 million euros in bonds exchangeable for shares in the bank. The bonds are eligible to be included in banks' core capital whose minimum ratio of risk-weighted assets is being increased to 8 percent from 6 percent. Bankinter said the issue would boost its core ratio to 8.23 percent from 6.92 percent.

Banco Pastor and Banco Sabadell also recently announced convertible bond issues to boost their capital.

Chief Executive María Dolores Dancausa said Tuesday that Bankinter only needed to raise 333 million euros to meet the new 8-percent requirement but opted to tap the market for more in order pass the "most adverse" scenario in the stress test to be carried out on European banks in June. The new ratio for unlisted Spanish banks has been set at 10 percent.

The Bank of Spain is due to publish the banks' needs to meet the new requirements on March 10. However, Dancausa said the central bank is already not only informing lenders how much extra capital they will need to reach the new ratios, but also about their additional requirements for the stress tests in order for them not to have to tap the market twice.

She said after the convertible bond issue Bankinter would pass muster under the most adverse of scenarios envisaged in the tests, which includes the Spanish economy falling back into recession and an even more marked correction in the real estate sector.

Dancausa said it was a mistake to apply the same core ratio to all lenders. She said banks with a ratio of 10 percent might be less solvent than Bankinter with a ratio of 8 percent. "The quality of assets as a whole is key," she said. "That is to say, investment in risk assets and provisions made for these, not only the capital ratio," she added. "Bankinter is the most solvent institution in the system."

By way of example, she pointed out that Bankinter's exposure to the ailing property sector is below 6 percent, compared to between 14 and 21 percent, while its non-performing loan ratio is only 2.9 percent, compared with an average for its peers of 5 percent.

She ruled out following the path of other banks in selling assets to meet the new solvency requirements. "We don?t want to offload assets that will be very profitable in the short term."

Bankinter's convertible bonds will have a maturity of three years and carry a coupon of 7 percent, with one tranche to be exchanged for outstanding preference shares and another for holders of common stock. Between 100 million and 175 million euros has been set aside for current preference shareholders and 225-306 million euros for shareholders.

The maximum strike price for preference shares has been set at 5.70 euros per share and for holders of common stock at 4.55 euros.

A number of key shareholders have already committed to subscribing to the bonds, including Cartival and the Botín family, which holds 25 percent of Bankinter, and Masaveu, which has a 5.5 percent interest, financial director Gloria Ortiz said. French bank Crédit Agricole, which has a 25-percent stake, will make known its position on the issue within the next few days. "I am absolutely confident that [the convertible bond issue will be covered]. Shareholders are totally faithful," Dancausa said.

Ortiz said the issue will dilute earnings per share by between 10 and 13 percent in 2011 and 2012.