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18th Apr 2021

Commission backs latest tranche of €39 billion Spanish bank rescue

  • Spain's banking sector needs a €39 billion taxpayer bail-out. (Photo: Carlos Blanco)

The taxpayer-backed rescue plans for four more Spanish banks have been approved by the European Commission.

In a report released on Thursday (19 December), the EU executive said that plans for BMN, Caja3, Banco CEISS and Liberbank complied with EU state-aid rules.

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The Spanish government has pumped in over €1.8 billion into the four banks representing less than 30 percent of the €6.2 billion capital shortfall identified in the stress tests carried out in September by the management consultancy Oliver Wyman.

The rest will be covered by shareholders' losses, asset sales and the transfer of bad debts and loans to the asset management company set up as a 'bad bank' by the Spanish government.

The cash will then be transferred from the eurozone bail-out fund, the European Stability Mechanism (ESM), into the Spanish Fund for Orderly Bank Restructuring (FROB) to recapitalize the banks. The Spanish government will then sell Banco and re-privatise both BMN and Liberbank. Caja3, meanwhile, will be taken-over by its rival Ibercaja.

In a statement, Competition Commissioner Joaquin Almunia said that "the restructuring plans will make these banks viable again, thereby contributing to restoring a healthy financial sector in Spain, while minimising the burden for the taxpayer".

Under the terms of the deal, the banks will be required to get out of the real estate market and return to conventional retail banking and small business lending. Dividend payments to shareholders will be banned.

They will also be expected to push through a plan of job cuts and spending reduction to "improve their cost base, by cutting on average about 30 percent of both staff and branches".

The banks are classified by the Commission under "Group one" heading of banks requiring government subsidies to cover their losses.

The terms of their aid agreement are less harsh than those faced by the "Group two" banks. Bankia, which holds over 10 percent of the deposits of Spanish savers, CatalunyaBanc, NCG Banco, Banco de Valencia, all of which have already been nationalised by the Spanish government.

Meanwhile, the EU executive claims that the total taxpayer funded bailout will, at €39 billion, be lower than the €57 billion shortfall in the September stress-tests. The additional money will be made up through €12 billion worth of shareholder losses, divestments, and by transferring devalued assets into the 'bad bank'.

Analysis

Spain's bailout dilemma: not if, but when and how

Markets rallied on Tuesday when two German lawmakers suggested Berlin is warming to the idea of a Spanish bailout. But the wait-and-see game in Madrid is likely to take a few weeks longer.

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