Despite what was expected just 20 days ago, Unicaja and Liberbank managed to sign their merger agreement on December 29, the objective of which is to improve their profitability. The challenge is to improve the earnings per share by 50% and practically double the RoTE (return on equity of tangible assets) of the entities considered independently to exceed 6% as a whole.
For this, the combined entity must boost its efficiency, placing it below 50%, with a significant improvement compared to the current situation by 11 points. Now Unicaja’s efficiency is 67.2% and Liberbank (LBK) 56.5%.
Both entities estimate their restructuring at costs of 540 million, of which a large part corresponds to capacity adjustments (70%) that to a large extent can be associated with personnel exits and office closings.
The starting point is for Unicaja, which is more than 30% larger in size per asset than Liberbank, to reduce its cost base, which is now more than 50% higher than Liberbank’s, as a result of a larger staff and network of offices in relation to the volume of business, according to the analyzes carried out by the investment banks hired by the two former savings banks (Mediobanca and Deutsche Bank).
Unicaja starts with a turnover per employee of 12.5 million and 77.1 million per office, while Liberbank has a volume of business per employee of 16 million and 102 million per office. Therefore, productivities, according to these metrics, are 28% and 32% higher, respectively, in Liberbank (data from the quarterly financial reports as of September 30, 2020).
Equalizing the productivity between the two entities implies that the restructuring cost foreseen in the operation is mainly destined to improve Unicaja’s levels to bring them into line with Liberbank’s. Thus, based on the data on the volume of business per employee and branch, it is an oversize in Unicaja of just over 1,300 employees and of the order of 246 branches, which, applying the average cost of dismissal of an employee in banking, implies a restructuring cost of 378 million euros.
Therefore, it can be said that to a large extent the restructuring costs are to adjust the current overcapacity of Unicaja, explain financial sources with data from the analysis of investment banks hired by both entities.
But that does not mean that all the adjustment that will be made falls on the entity chaired by Manuel Azuaga. The adjustment will also affect the offices and staff from Liberbank. In fact, the firm headed by Manuel Menéndez has a workforce of 3,680 employees, of which slightly less than 700 are on paid leave in part. This group has early retirement ages (they were born between 1960 and 1964), so everything indicates that they are candidates to leave after the creation of the new entity in mid-June or early September, according to several sources.
And although the duplication of networks between Unicaja and Liberbank is scarce, only notable in Cáceres, Ciudad Real and Madrid, the future bank, which will maintain the Unicaja brand, will also carry out the closure of small branches to create other larger offices, as is now the trend.
In this way, the total departure of the workforce will add about 1,900 employees of the 9,929 that currently add up, which means that an adjustment of 19.15% of the total workforce will be carried out. While 400 offices will close, of the 1,591 that add up between both.
All analysts highlight the complementarity of both entities, and the strengths of each one separately (although it remains to be seen, as in the entire sector, the consequences of bad debts and other impairments due to the Covid effect. Their solvency is one of the most high in the sector, with ratios of 14.1% CET 1 for Liberbank, and 14.6% for Unicaja, “which allows the operation costs to be easily addressed”, explain the analysis of investment banks.
Already in the presentation of the data of the two entities on December 30, the low asset risk profile of both firms stood out, with a predominance of the mortgage portfolio and public administrations, and their low weight in consumer loans. Its liquidity also stood out, with a loan-to-deposit ratio of 80%.
Since 2016, both entities have made an effort to reduce non-performing assets (NPS) and doubtful assets (NPL). At the end of 2016, Unicaja had an NPA ratio of 17%, while in Liberbank it was 24%. At the end of the third quarter of 2020, Unicaja had reduced NPA by 8.4 points, bringing the ratio to 8.6%, while Liberbank reduced this ratio to 7.5%. Non-performing assets coverage rate of 67%, the highest in the sector.
Call. While steps are being taken to complete the merger of Unicaja and Liberbank, litigation between the unions and the entity headed by Manuel Menéndez continues. The CC OO union section in Liberbank has appealed to the entity’s staff to complain if they have been affected by the unilateral measures imposed before next Friday, January 15. “We have considered that it is the moment to take action and start the claim process, both of the amounts not received until now and of those that are generated until the final judgment, as well as of the rights suspended due to the unilateral measures that we have been suffering since January 1, 2020, ”he says.
Case. The union refers to the case in which the Social Chamber of the National Court declared last September the nullity of the wage cuts applied unilaterally by Liberbank at the beginning of this year to save 16.3 million euros per year in the next three years, estimating the class action lawsuit filed. The court ruling upheld the claim and declared the nullity of the measures adopted by Liberbank and the reinstatement of the affected persons to the previous situation. However, the entity filed an appeal, so the sentence is still not final.