Spain’s rescued banks to shrink, slash jobs

The Pak Banker - - Front Page -

MADRID

Spain’s four na­tion­alised banks will more than halve their bal­ance sheets in five years, slash jobs and im­pose hefty losses on bond­hold­ers, un­der plans ap­proved by the Euro­pean Com­mis­sion on Thurs­day.

The mea­sures open the door for nearly €40 bil­lion ($ 52 bil­lion) in Eu­ro­zone bail-out funds for the stateres­cued banks, of­fer­ing hope for an end to Spain’s bank­ing cri­sis which has pushed the coun­try to the brink of ask­ing for sov­er­eign aid.

The ap­proval sets in place one of the most far­reach­ing over-hauls of any Euro­pean bank­ing sys­tem or­dered by the Com­mis­sion since the start of a bank­ing cri­sis in mid-2007 with the near col­lapse of Ger­man lender IKB.

“Our ob­jec­tive is to re­store the vi­a­bil­ity of banks re­ceiv­ing aid so that they are able to func­tion with­out pub­lic sup­port in the fu­ture,” said Euro­pean Union Com­pe­ti­tion Com­mis­sioner Joaquin Al­mu­nia.

Bankia, NCG Banco, Catalunya Banc and Banco de Va­len­cia were taken over by the Span­ish state af­ter un­sus­tain­able lend­ing dur­ing the coun­try’s decade-long prop­erty boom left the lenders dan­ger­ously short of cap­i­tal.

The small­est of the four banks, Banco de Va­len­cia, will be sold to one of Spain’s health­i­est lenders Caix­abank, while the other three banks must cut their bal­ance sheets by more than 60 per cent over the next five years.

It was cheaper to sell Banco de Va­len­cia un­der a loss pro­tec­tion scheme than to wind it down, the Com­mis­sion said. Spain will sell NCG Banco and Catalunya Banc within 5 years or liq­ui­date them.

Al­mu­nia said the na­tion­alised banks would have to close up to half their branches dur­ing the five-year over­haul process.

The big­gest of the banks, Bankia, said it would lay off over a quar­ter of its work­force amount­ing to over 6,000 staff, re­duce its branch net­work by around 39 per cent and aim to re­turn to prof­itabil­ity by 2013.

Bankia, formed from the merger of seven sav­ings banks in 2010, said hold­ers of hy­brid debt would con­trib­ute up to €4.8 bil­lion to the re­cap­i­tal­i­sa­tion, through losses in­curred by swap­ping their hold­ings for shares.

The Euro­pean Com­mis­sion said the cost to hy­brid and subor­di­nated bond­hold­ers in the re­struc­tur­ing of the na­tion­alised banks will come to about €10 bil­lion.

Many hy­brid debt hold­ers at the na­tion­alised banks are re­tail cus­tomers who say they were conned into buy­ing com­plex fi­nan­cial in­stru­ments that buoyed banks’ cap­i­tal lev­els in­stead of fixed-term sav­ings ac­counts.

The Com­mis­sion said it would en­sure the banks use no more tax­pay­ers’ money than nec­es­sary and that they do not go back to un­sus­tain­able busi­ness prac­tices.

The Com­mis­sioner said he would de­cide on other Span­ish banks with cap­i­tal short­falls on De­cem­ber 20.

The ap­proval al­lows the Eu­ro­zone to dis­burse the funds from its per­ma­nent ESM bailout fund. Spain was given ap­proval to re­ceive up to €100 bil­lion from the ESM in the sum­mer.

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