The most significant cuts will be made by Bankia, the giant lender whose collapse and request for €19 billion, or $25 billion, in additional capital last May led Madrid to negotiate a banking bailout of up to €100 billion a month later.
The funds approved Wednesday are part of that negotiated amount and will come from the European Stability Mechanism, the bailout fund for the euro zone.
Joaquín Almunia, the European Union’s antitrust commissioner, said the approval of the restructuring plans of the four banks — Bankia, Novagalicia Banco, Catalunya Banc and Banco de Valencia — was “a milestone.”
Although Madrid can tap into more of the European funding to help other troubled banks stay afloat, the government has said it will not need the full amount in any case.
Presenting its restructuring plan on Wednesday, Bankia said it would lay off 6,000 employees, or 28 percent of its work force, as well as cut its branch network by 39 percent. The bank predicted it would return to profit next year and reach earnings of €1.5 billion by 2015.
Still, the Madrid government has yet to draw a line under its banking crisis. The next step is expected in December with the creation of a so-called bad bank, in which the government is trying to partner as equity holders with private investors. But the valuation of the bad bank’s assets has in itself proved a thorny issue because of the impact such valuations could have on other real estate assets.
Even though the future of the four rescued banks is now clearer, “our banking sector is still in the middle of a road to nowhere,” said Juan Ignacio Sanz, a professor of banking at the Esade business school in Barcelona. He noted that banks had not resumed lending, “as nobody trusts that Spain’s economy will recover in the near future.”
“Everybody is just waiting to see how the bad bank can operate, whether it will have any private investors and how it will affect the Spanish real estate market,” he said.
The government wants to limit the assets in the bad bank to €90 billion. Bankia said Wednesday that it was hoping to transfer bad property loans valued at €24.6 billion, a discount of 27.9 percent compared with their current book value.
The International Monetary Fund also highlighted the difficulties in setting up the bad bank amid an ongoing correction in the housing market. In a report issued Wednesday about finance sector in Spain, the fund said future transactions by the bad bank could “become reference prices for the market, given low turnover in the housing market.” After a prolonged recession, the I.M.F. predicted, Spain’s economy would grow 1 percent in 2014.
Meanwhile, Caixabank, one of Spain’s largest institutions, is set to acquire Banco de Valencia, one of the four rescued banks, for a symbolic euro. Banco de Valencia is due to receive €4.5 billion of the European bailout money approved Wednesday.
Of the four rescued banks, Banco de Valencia was the only one for which the conclusion reached in Brussels was that “the bank’s viability could not be restored on a stand-alone basis.” On the other hand, the commission, which is the executive arm of the European Union, said the other three banks had the potential to rebound once their balance sheets were cleaned. By 2017, the balance sheet of each bank will be reduced by more than 60 percent compared to 2010, the commission forecast.
The conditions set by Brussels are designed to ensure that the bailout does not distort competition in the banking sector. Mr. Almunia said the restructuring plans presented by the four banks were “very serious and very demanding.”
“I very much hope that the results that we expect to obtain from these decisions will allow the taxpayers — in this case the euro-area countries’ taxpayers who are also taking risks, not only the Spanish taxpayers — to get an adequate return for these efforts,” he said.
Over all, Spain’s banking industry could need as much as €59.3 billion in additional capital, according to an independent banking assessment published in September by Oliver Wyman, a consulting firm. Of the 14 banks assessed by Oliver Wyman at the government’s behest, half were not in need of any emergency funds, including the three leaders: Santander, BBVA and Caixabank.
Trading of shares in Banco de Valencia and Bankia was suspended Wednesday. Bankia’s collapse in May prompted lawsuits against the former management led by Rodrigo Rato, who had previously been managing director of the I.M.F. Disgruntled shareholders, who bought shares when Bankia floated last year, assert that the bank and its auditors produced an inaccurate listing prospectus for what was at the time one of the few successful initial public offerings in Europe.
Bankia and other banks are also facing legal action from holders of preference shares. These shares are a convertible debt instrument sold mainly to the banks’ own retail clients, many of them retirees who have staged regular protests outside the banks since May to try to recoup their money. Instead, Bankia said Wednesday that holders of its preferred shares should now expect to take a loss of 39 percent as part of the conversion to ordinary shares.
James Kanter reported from Brussels.
Article source: http://www.nytimes.com/2012/11/29/business/global/european-commission-approves-bailout-of-four-spanish-banks.html?partner=rss&emc=rss
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