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Spain through the looking glass

Banks secure EC bailout

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The European Commission today agreed to a €37-billion bailout of four troubled Spanish banks but there are some serious strings attached.

The tough conditions imposed by the EU for the bailout mean the Banco de Valencia will soon cease to exist while Novagalicia Banco faces a sell-off within the next five years.

Meanwhile, the other two nationalised lenders – Bankia and Catalunya Caixa – will be forced to slash staff and branch numbers to meet strict cost-cutting requirements imposed by the EC.

In a move that Commission Vice-President in charge of competition policy Joaquín Almunia called “a milestone” in cooperation between the euro area countries and Spain, the EC has rubber stamped the restructuring plans of Spain’s four nationalised banks in Bankia, Catalunya Caixa, Novagalicia Banco and the Banco de Valencia.

In a press release earlier of today, the commission stated: ‘The in-depth restructuring undergone by BFA/Bankia, Catalunya Caixa and Novagalicia Banco will allow them to become viable in the long-term without continued state support. Moreover, the banks and their stakeholders [will] adequately contribute to the costs of restructuring.’

But the same press release also handed a death sentence to Banco de Valencia with the commission saying the viability of that institution ‘could not be restored on a standalone basis’. According to plans drawn up by Spain’s Fund for Orderly Bank Restructuring (or FROB) – the legal body charged with overseeing the overhaul of Spain’s banking sector – the bank will now receive €4.5 billion in funding before being sold onto giant CaixaBank for the less than princely sum of €1.

The EC deal also means the eventual sale of Novagalicia Banco with Spain committed to a sell-off of the institution by the end of the five-year restructuring period.

And while both Bankia and Catalunya Caixa have been handed stays of execution, they face a tough road ahead. The EC has given the lenders until 2017 to slash their balance sheets ‘by more than 60 per cent’ compared to 2010 levels. The banks will also have to stay well away from real estate lending and refocus their lending activities towards retail banking and loans to SMEs.

Under EC rules, the banks will also have to shed various industrial equity stakes and subsidiaries to limit a future need for aid. Bankia and Catalunya Banc will also have to wave goodbye to trading and treasury portfolio of fixed-income securities.

In Spain, the aftershocks of the announcement were felt almost immediately with Bankia quickly announcing dramatic plans to lay off 28 per cent of its workforce through the slashing of 6,000 jobs. The bank will also turn off the lights for the last time in over 1,000 offices as it rushes to meet EC requirements.

It was the failure of Bankia last May that initially led to Madrid to enter into negotiations with the EC for a €100 billion bank bailout.

The funds for the bank bailout will come from the eurozone’s European Stability Mechanism.

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Written by georgemills25

November 28, 2012 at 16:03

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