As part of its strategy to shrink continental European operations, Barclays PLC BCS is divesting its Italian retail operations to Italy-based Mediobanca SpA’s retail bank, CheBanca! The financial terms of the deal were not disclosed.
Deal Details & Implications
The transaction comprises Barclays’ 89 branches with 220,000 clients and 620 staff. The deal also includes residential mortgage loans worth €2.9 billion. Likely to close by the second quarter of 2016, the transaction is still subject to regulatory approvals.
Notably, the deal does not include Barclays’ investment banking and corporate banking businesses in Italy. Also, the company will continue to manage its remaining retail mortgage portfolio.
Additionally, the deal will produce a material impact on Barclays’ financials, though these would be dependent on several factors including foreign exchange movement till the time of closure and balance sheet position of the Italian business during completion. Nonetheless, based on Sep 30, 2015 data, the deal will lead to pro-forma decline in risk-weighted assets of nearly £0.8 billion at the time of completion.
Further, Barclays will record an after-tax loss of approximately £200 million in the fourth quarter of 2015. Upon closure of the deal, a modest decline is projected in the company’s CET1 ratio and tangible net asset value.
Road Ahead
Barclays has already sold its consumer banking businesses in Portugal and Spain. Last September, the Portuguese operation was sold to Spain’s Bankinter SA for about €100 million ($106 million), while its Spanish business was divested last year to CaixaBank SA. Additionally, Barclays is seeking buyers for its credit card operations in these two countries.
Further, Barclays’ French business is on the block for divestiture.
We believe that Barclays, despite balancing the increasing litigations and settlements with cost-saving initiatives as well as restructuring efforts, needs to improve its revenues, costs and capital performance for boosting its financial performance, going forward.
Currently, Barclays carries a Zacks Rank #3 (Hold). Better-ranked foreign banks include Banco Macro S.A. BMA, Westpac Banking Corporation WBK and Grupo Financiero Galicia S.A. GGAL. All these stocks hold a Zacks Rank #2 (Buy).
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