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Capital hit the price of victory as CaixaBank looks set to win BPI

Aftera boardroom struggle that dragged on for more than a year, Spain's finally looks setto take control ofPortuguese lender Banco BPISA, but some analysts argue the price of victory may outweigh thegains.

Aclause preventing CaixaBank from exercising more than 20% of voting rightsdespite its 44.1% stake in BPI was removed at a shareholders' meeting Sept. 21,after Isabel dos Santos, the daughter of Angola's president and Africa'srichest woman, reportedly abstained from voting. Dos Santos, who owns 20% ofBPI, snuffed out an attempt by CaixaBank to take over Portugal's fifth-biggestbank by assets last year by blocking a change to the voting rules.

CaixaBankhas now offered roughly €880 million in cash to purchase all the BPI stock itdoes not already own, following instruction from Portuguese regulators as aresult of the change to voting rules.

Yetanalysts are divided as to whether the long battle for BPI was worth it.Portugal has been struggling to get its banks in order, and its access tothe ECB's quantitative easing program could be suspended if its is loweredfrom investment grade by Canadian agency DBRS. At the same time, buying BPIwill eat into the Spanish bank's capital ratios.

"Tome this is not a good deal, as I do not see Portugal as a compelling country(and) banking market, especially as long as the eurozone crisis is notsolved," said an analyst who asked not to be named.

"Portugalcannot be seen as a way to reduce risk through geographical diversification, asSpain and Portugal's economies are closely interrelated," the analystsaid, although he added that buying all of BPI was better than the previousstatus quo in which CaixaBank had a large stake with disproportionately lowvoting rights.

CaixaBank'scommon equity Tier1 ratio, which was 12.28% at June-end, is also set to fall.

"IfCaixaBank were to take full control of BPI, this would clearly bring its fullyloaded CET1 ratio to below its current target of 11.0%, in which case we wouldexpect CaixaBank to commit to a capital increase to boost its capitalratios," said CreditSights on Sept. 22, noting that BPI was notparticularly profitable and the Portuguese banking environment was challenging.

Theimpact on capital could be worse if BPI does not lower its 51% stake inBanco de Fomento AngolaSA, the analyst warned. BPI has said it will sell a 2% share in theAngolan company to a company controlled by Dos Santos, giving her control.

Despitethe possible pitfalls, CaixaBank can still congratulate itself on picking upBPI more cheaply than it would have done if its first offer had not beenscuttled by Dos Santos, Pablo García, an analyst at Carax-AlphaValue in Madrid,said.

"Thisdeal has got a long and hard history. Isabel dos Santos fought quitehard," he said. "To have 44.1% was awful without control. It wasunmanageable."

Theanalyst foresaw a smooth integration process, thanks to CaixaBank's familiaritywith BPI and its operations.

"Evenif Portugal is not a huge market there is enough space to grow if the bankingsector improves," he said. "It's the best way to go for CaixaBank."