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BANK

Spain banks don’t need more rescue cash: EU

Spain will likely need no more money from Brussels to fix its financial industry after receiving €41.4 billion ($54 billion) to shore up banks hammered by a 2008 property crash, the European Commission said on Tuesday.

Spain banks don't need more rescue cash: EU
President of Bankia, Jose Ignacio Goirigolzarri, at a press conference in Madrid on May 26th 2012. Photo: Dani Pozo/AFP

Spain secured a loan of up to €100 billion from its eurozone partners last year to help rescue the banks, brought to their knees by a mountain of bad debt built up when the property bubble burst.

Under the programme Spain has received two payments to recapitalize lenders and fund a "bad bank" known as Sareb to absorb the soured property assets of bailed-out lenders.

"There is at present no reason to foresee further programme disbursements," the commission said in a review of the bank rescue programme.

"Two disbursements were made so far in a total amount of about €41.4 billion for the recapitalization of state aided banks and the capital injection into Sareb."

Other Spanish banks either found money from private sources, or they were not identified as needing extra capital when the authorities examined their books under various stressed scenarios, it said.

The European Commission cautioned that a "robust and credible" business plan was needed for Sareb, which is expected to eventually take on €55 billion in problem loans and assets.

In exchange for the European rescue loan, Spain agreed to clear up its financial sector.

The International Monetary Fund said on Tuesday Spain was close to completing the agreed measures and urged it to continue with its reforms of banking supervision.

"The clean-up of undercapitalized banks has reached an advanced stage, and key reforms of Spain's financial sector framework have been either adopted or designed," it said in a report.

"The bulk of all of the measures for the entire programme have now been completed."

At the same time, Madrid is struggling to curb its budget shortfall in line with European Union agreements and the latest report suggested Brussels could again give Spain more time to meet its commitments.

Spanish Prime Minister Mariano Rajoy's conservative government has vowed to lower the public deficit to 4.5 percent of gross domestic product this year and down to 2.8 percent in 2014.

Spain managed to reduce the public deficit to 6.74 percent of economic output in 2012, down from 9.4 percent in the previous year, but still wide of a European Union-agreed target of 6.3 percent.

The European Commission predicts Spain's deficit will hit 6.7 percent of economic output in 2013 and 7.2 percent in 2014, well above agreed targets.

Brussels has already extended the deadline for Spain to bring its deficit under an EU limit of three percent of economic output by one year to 2014.

In its latest report the European Commission hinted it could show even more flexibility. While Spain's public deficit in 2012 fell further than many expected, meeting the 2014 limit "appears very challenging" and a revision "cannot be excluded", it said.

Almost half of the banking rescue loans from Brussels — €18 billion — went to one lender, the BFA-Bankia group, which was nationalized last year to rescue it from a mountain of bad loans.

Bankia's chairman José Ignacio Goirigolzarri was optimistic about the outlook, however.

"I would like to see real value in Bankia from 2014, 2015 and for the privatization process to begin," Goirigolzarri said at a conference organized by Spain's Europa Press news agency.

Bankia reported a loss of €19.1 billion in 2012 but said it hoped to start turning a profit in 2013, targeting a net profit of €1.2 billion in 2015.

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BANKING

Spain has a new ‘mega bank’ as La Caixa and Bankia merger approved

Directors from CaixaBank and Bankia Thursday approved their merger into Spain's biggest lender in a move which will transform the landscape of Spanish banking.

Spain has a new 'mega bank' as La Caixa and Bankia merger approved
Photos: AFP

A source close to the deal said the board of directors of both banks approved the merger, details of which will be made public on Friday.    

The negotiations involved Bankia's biggest shareholder, the Spanish government.

The merger creates the country's largest bank with combined assets of around €664 billion ($787 billion) in Spain, Renta 4 Banco analysts say, putting the new entity ahead of Santander or BBVA, both of which have a more international presence.

Under terms of the deal, shareholders in CaixaBank, Spain's largest domestic bank, would hold 75 percent of the new entity, while Bankia shareholders would take the remaining 25 percent.

The Spanish state, which currently holds just under 62 percent of Bankia, will hold a 14-percent share in the new group, press reports said.   

In 2012, the Spanish government stepped in to save Bankia from collapse, spending 22 billion euros ($26 billion at current exchange rates) to bail out a bank that was seen as a symbol of financial excess at a time when the Spanish economy was mired in crisis.

The huge merger comes in a very difficult economic context for Spain which has been particularly badly hit by the coronavirus pandemic, with gross domestic product collapsing by 18.5 percent in the second quarter.

The deal should enable the two banks to reduce costs and offers them “a way of trying to improve profitability,” said Xavier Vives of the IESE Business School.

 

Job cuts loom

Another advantage of the merger is the geographical footprint of each bank, with Bankia more present in Madrid and in the centre of the country, while CaixaBank is well-established in the northeastern Catalonia region, said Robert Tornabell, a banking specialist at ESADE business school.

The financial structure of the deal will allow CaixaBank to access tax breaks worth “several billion” euros, thus providing the new bank the wherewithal to “finance staff restructuring and branch closures,” he said.

Press reports suggested the takeover would result in nearly 8,000 jobs being axed. The two banks currently employ 51,000 staff spread across 6,000 branches.

Despite the staffing issues and the competition concerns raised by the deal, which will create a bank that will manage nearly a third of all Spain's home loans, the Spanish government has welcomed the tie-up.

“There is a process under way,” Economy Minister Nadia Calvino said last week, pointing out that the European authorities have long been encouraging consolidation in the banking sector.

 

Recovering taxpayers' money

“With this deal, the government is getting rid of one big headache,” the Cinco Dias business daily said recently.

Since the Bankia bailout, the government has been trying to offload its 61.8 stake in the bank but economic context has never been right. For now, it has only managed to recover 3.3 billion euros of the 22-billion payout.   

Even if its stake in the new entity will be reduced to just 14 percent, that should bring in more money to the state coffers because the new bank will be much more profitable.

However, it will take “several years” for the state get back a sum which will not end up being very much, Tornabell said.   

The tie-up will mean the name Bankia disappears from the high street — a name associated with multiple scandals, particularly that of its floatation in 2011 which attracted thousands of small shareholders who faced ruin several months later when the share price collapsed.

Several months later, the government stepped in and the bank was nationalised.

Bankia's former management team is currently on trial for fraud and falsifying its balance sheet ahead of the failed floatation and if convicted over the scandal, former boss Rodrigo Rato is facing eight-and-a-half years behind bars.

The court is expected to reach a verdict soon.

By AFP's Emmanuelle Michel 

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