By Jesús Aguado and Karin Strohecker

MADRID (Reuters). –Spanish BBVA (MC.) on Monday offered to purchase the remainder of Garanti at a price of up to 2.25 Billion Euros (2.6 Billion). The offer was made in an attempt to take advantage of a drop in the lira, raising concerns that other foreigners could snap up these assets.

Garanti’s remaining 50.15% stake was offered in cash for $12.20 Turkish Lira ($1.22) each share. This represented an increase of 15% over Friday’s market price.

This proposal would allow BBVA to potentially purchase 51% Garanti at a fraction of the cost it paid for the 49.85% stake.

BBVA has struggled to generate money from mature European markets like Santander, (MC:). Instead it is expanding into emerging markets that offer greater growth potential.

However, other major foreign banks have been withdrawing from Turkey. UniCredit’s remaining stake in Yapi Kredi was sold to Kok Holding last week for 300 millions euros.

JP Morgan stated in a note to clients that it expects some weakness in share prices due to “back of economic and political risk associated with Garanti’s larger stake”.

However, the U.S. broker stated that Garanti shares were more profitable in terms earnings per share than buying back shares for 1.4 million euros. This was equal to the capital impact.

Shares of BBVA dropped 3.6% while Garanti shares rose about 10% in the wake of the news.

Carlos Torres, Chairman of BBVA, tried to discredit market fears by stating Monday that the lira’s depreciation as well as a possible economic deterioration were “already priced-in because the returns have been so positive”.

BBVA has taken advantage of Turkey’s policy mistakes by taking 300 basis points off the interest rate. This is despite an inflation rise to almost 20%. The central bank in Turkey has slashed rates by 300 basis point since September, and it is likely to reduce again this week.

The dollar has fallen sharply over the past months, hitting a new record low of 10.05.

BBVA has been hedging in foreign currency markets for protection of its capital and earnings from Turkey’s headwinds. Bank executives stated Monday that they would continue doing so.

ASSETS IN TURKEY LOW PRICES

Torres indicated that the deal’s entry cost in euros was attractive, and the price paid by minority shareholders in lire.

Turkey’s economists expressed concerns that foreign firms could buy up recently depreciated assets at extremely low prices.

Mustafa Sonmez, an economist from Turkey and columnist on Twitter said, “We say exports are getting cheap, tourism’s going cheap, and housing is becoming cheap by giving citizenship foreigners.”

“Now more companies will be taken over by the vultures with 10 Turkish Lira being the bank’s share, making it cheaper to buy dollars in dollars. Garanti is a good example. You can call it total impoverishment of the country.

To address the epidemic and low interest rates, BBVA has sold its U.S. businesses last year. The sale generated over 8 billion euro and allows BBVA’s shareholders to focus their efforts on Spain, cost cutting and increasing shareholder returns.

Spanish lender’s board recently agreed to buy 10% back of their capital, up to €3.5 billion. It left it with a proforma Capital Ratio of approximately 13.18 as of September 13, and an excess capital of about 3.6 billion euro thereafter.

BBVA expects to provide additional information at an investor conference later in the week regarding capital deployments.

Even if Garanti shareholders reject the offer but BBVA holds more than 50%, BBVA can increase its share without launching a bid for takeover.

BBVA calculated a minimum negative impact of about 46 basis points in core tier-1 full loaded capital ratio. It also estimated a around 13.7% accretion for its 2022 earnings/share and an approximately 2.3% accretion for its tangible book value/share.

BBVA received advice from Bank of America, NYSE:

This transaction should close by the end of the first quarter 2022.

($1 = 10.0153 liras)