OREANDA-NEWS. Last week's swap agreement between Caixabank and its holding parent company, Criteria Caixa, should be positive for Caixabank's equity risk exposure while related earnings implications should be manageable, Fitch Ratings says. At the same time, Fitch understands that the transaction will not significantly alter Criteria's controlling powers over Caixabank or the supervisory approach to the group.

On 3 December, Caixabank announced that it has agreed to transfer its 17.24% stake in Bank of East Asia (BEA) and 9.01% stake in Mexico's Grupo Financiero Inbursa (GFI) to its holding parent company, Criteria Caixa, in exchange for 9.9% of Caixabank's shares owned by Criteria and EUR642m of cash. In addition, Caixabank plans to submit to its AGM the proposal to redeem the treasury shares received. As a result, Criteria Caixa will reduce its stake in Caixabank to 52% (48.9% fully diluted) from 56.8% (54%) at present.

Fitch considers Caixabank's overall risk profile will benefit from the transfer of EUR2,651m bank stakes to its parent, thus reducing its exposure to market risk and concentrated equity investments. At the same time, Fitch understands that the transaction is capital neutral as we expect that Caixabank will maintain its capital ratios (fully loaded CET1 ratio estimated at 11.7% post-operation versus 11.6% at end-September 2015). With this transaction, Caixabank states that the bank meets its objective to reduce capital consumption from equity investments to below 10% ahead of its 2016 deadline.

However, from an earnings perspective, we believe that the estimated income loss derived from the transfer of its stakes in these banks (representing about 5% of the bank's annualised reported pre-impairment profit for 2015) will be another profitability headwind in 2016 and 2017, adding to earnings pressure related to the removal of interest rate floors, the low interest rate environment and still muted, albeit improving, lending volumes. Fitch takes some comfort though from Caixabank's earnings generation capacity from its leading domestic retail banking and insurance franchise, and, most notably, from anticipated lower loan impairment charges on the back of sustained asset quality improvements in view of Spain's economic recovery. Overall, therefore, the earnings impact of the proposed transaction should be manageable.

Following this transaction, Criteria will maintain its controlling stake in Caixabank with the latter remaining its main asset. Fitch also understands that despite not having a banking licence, Criteria will continue to be supervised and regulated by the banking authorities on a consolidated basis given its stake in CaixaBank. While the transaction is capital neutral, it slightly negatively affects Criteria's leverage, but this is expected to remain within tolerable levels.