The fire sale goes on at Allied Irish Banks (AIB). On September 14 the company announced that it would sell its holdings in two Polish banks to Spain’s Banco Santander (STD).
The deal will raise $3.2 billion for Allied Irish. Bank regulators have told Allied Irish, Ireland’s second largest bank, to raise $9.5 billion in capital by the end of the year to avoid the government becoming the majority owner of the bank. The government already controls almost 20% of the bank after putting up almost $10 billion in taxpayer to rescue Allied Irish and the Bank of Ireland.
For Banco Santander, buying Allied Irish’s 70% stake in Bank Zachodni and its 50% stake in BZWBK AIB Asset Management continues the Spanish bank’s drive to build a diversified global bank. And it gives the bank a position in the only European economy not to dip into negative growth territory during the global financial crisis. On September 13 the head of the Poland’s central bank said that GDP growth could reach 4% in 2010 and on September 14 the European Commission tagged Poland and Germany as the two countries with the best growth prospects in the European Union in the second half of 2010.
Banco Santander will offer to buy the rest of the two Polish companies from shareholders after the deal with Allied Irish closes in 2011.
This won’t be the last part of Allied Irish to go on the block. The company is looking to sell a business bank in England and a consumer branch network in Northern Ireland, and its 22% stake in M&T Bank (MTB) in the United States. Banco Santander has been rumored as a buyer for M&T as well.
Santander has enough capital to buy Allied Irish’s Polish assets without needing to raise more capital. The deal will bring the Spanish bank’s Tier One capita down to a little over 8%. That’s enough to easily meet the new Basel III requirement of a 7% capital ratio. Buying M&T, however, would probably require Banco Santander to go to the financial markets to raise capital.
Banco Santander is a member of my Dividend Income portfolio. (To see the entire 10-stock portfolio follow this link http://jubakpicks.com/jubak-dividend-income-portfolio/ .) And I think it is one of the beneficiaries of the need for some banks to raise capital to meet the new requirements of Basel III. (For more on those rules see my post http://jubakpicks.com/2010/09/16/what-a-surprise-basel-iii-bank-regulations-arent-as-strict-as-fear-and-bank-stocks-rally/ )
Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.