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EU clears restructuring of Spanish banks

20 December 2012, 17:07 CET
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(BRUSSELS) - The European Commission cleared restructuring plans and aid for four small Spanish banks on Thursday as part of efforts to stabilise the country's stricken banking system and help its economy.

The move completes the state funding part of the restructuring plan, laying the foundation "so that the financial sector is not an obstacle to economic recovery," EU Competition Commissioner Joaquin Almunia said.

"Spanish banks are now adequately capitalised and able to withstand an adverse scenario, which we hope will not materialise," Almunia said.

"The decision marks a milestone in the Spanish banking sector restructuring process," the Bank of Spain said in a statement.

Banco Mare Nostrum, Banco Caja 3, Liberbank and CEISS were classed as Group 2 banks, meaning they were "unable to meet their capital shortfall without having recourse to state aid," a statement said.

The Commission said their restructuring "will allow them to become viable in the long-term without continued state support" while the plans contain provisions to limit distortions to competition.

Late last month, the Commission approved the makeover of major banks Bankia, NCG Banco, Catalunya Banc and Banco de Valencia under an accord agreed with Madrid in June, when Spain appeared on the brink of needing a full bailout.

The June agreement provided Spain up to 100 billion euros ($132.5 billion) from its eurozone partners to help rescue its banks, brought to their knees by a mountain of bad debt built up in a property bubble which burst in 2008.

On December 5, the European Stability Mechanism, the eurozone's new defence fund, released some 39.5 billion euros to FROB, Spain's debt agency, for the recapitalisation of the Spanish banks.

About 37 billion euros of that amount went to the four major lenders in Group 1, with the remainder going to fund SAREB, the recently formed Spanish 'bad bank' which will take on the lenders' soured assets.

The Group 2 banks will in turn get some 1.9 billion euros to cover their capital needs.

The restructured banks are all required to reduce their size significantly, by up to 40 percent in some cases, and concentrate on their home regions.

They will also have to exit riskier business areas such as real-estate and property development, and end their use of the money markets to raise funds for investment, relying instead on their traditional deposit base.

Almunia said there had been great progress, highlighting the speed with which the banks had been restructured and the fact the process proved less expensive than first thought.

Stress tests had showed Spanish banks needed 57 billion euros in new capital but fund raising, asset sales and other measures covered 18 billion euros, he said, although he noted Madrid had also provided 13 billion euros before the June accord.

Asked about holders of preference shares in the banks, usually seen as a cast-iron investment but who will lose out in the restructuring, Almunia said they had in effect been "swindled."

They had suffered from "abusive practices" but it was not up to the European taxpayers to compensate them and perhaps the Spanish authorities should find a way to do so, he added.


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