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EU approves phase 2 of Spain's banking overhaul

Source: Reuters - Thu 20th Dec 2012
EU approves phase 2 of Spain's banking overhaul

The EU has approved a cash injection of €1.87 billion into 4 Spanish savings banks, the 2nd phase of an overhaul of the country's banking sector.

In return for the funds, the 4 lenders, which ran into trouble when a decade-long property boom burst 5 years ago, will reduce their balance sheets by up to 40% by 2017.

The plans include at least 4,000 job cuts, on top of the around of 8,000 already announced in the first phase of Spain's banking clean-up.

The banks will have to refocus on retail and small business lending in their core regions and 2 of the banks - BMN and CEISS - will be nationalised. The other 2, Caja 3 and Liberbank, will receive temporary aid through contingent convertible bonds, known as Cocos.

Spain has committed to sell CEISS and have BMN and Liberbank listed before 2017. Caja 3 will cease to exist as a standalone entity and will be integrated into bigger lender Ibercaja.

This will leave Spain's banking industry with about 12 entities compared to the more than 50 which existed before the financial crisis began in 2007.

"The restructuring plans of BMN, Caja3, Banco CEISS and Liberbank will make these banks viable again, thereby contributing to restoring a healthy financial sector in Spain, while minimising the burden for the taxpayer," EU Competition Commissioner Joaquin Almunia said at a news conference.

An independent audit showed in September Spain's banking system needed around €60 billion to weather a serious downturn of the economy.

Spain has already received €39.5 billion of EU aid to prop up nationalised lenders Bankia, CatalunyaBanc, Novagalicia Banco and Banco de Valencia and to set up a so called bad bank.

Separately, 2 banks - Banco Popular and Ibercaja - raised money by themselves to cover their needs, while seven out of the 14 lenders tested were considered by the audit to be well enough capitalised.

Transfers of distressed property assets into the "bad bank" and losses imposed to shareholders and junior bondholders have reduced the final amount of public cash needed by around €20 billion.

The Bank of Spain on Thursday said junior bondholders in the four lenders would take haircuts ranging between 10 to 75%.

The rescued banks have also committed to sell a number of industrial stakes and subsidiaries and to limit the remunerations of the executives.

Liberbank, which has already sold its 5% stake in the gas operator Enagas, still has smaller stakes of 5 % in IT firm Indra or a 6.1% of the pulp company Ence.