The European Commission has approved the Spanish government's plans to restructure four troubled banks. Bankia, Banco de Valencia, NCG and Catalunya Banc were nationalised after experiencing heavy losses on loans to homebuyers and property developers. Banco de Valencia is to be sold to Caixa Bank, a privately owned lender.
The other three must cut their loans and investments by more than 60 per cent over the next five years, shut half their branches and shed thousands of staff. Bankia, the largest of the four, announced that it would lay off 6,000 employees-28 per cent of its workforce-and shut 39 per cent of its branches.
"Our objective is to restore the viability of banks receiving aid, so that they are able to function without public support in the future," the European Competition Commissioner Joaquin Almunia said. Trading in shares of Bankia and Banco de Valencia were suspended for the day on the Madrid stock exchange, to give investors time to digest the details of the announcements.
Shrinking banks
The Commission's approval opens the way for Spain's government to draw 37 billion euros from a 100 billion-euro (US$129 billion) loan facility made available by the eurozone's bailout fund specifically for the purpose of cleaning up the country's banks. Of that money, 18 billion euros will go to Bankia, nine billion euros to Catalunya Banc, 5.5 billion euros to NCG and 4.5 billion euros to Banco de Valencia.
Shrinking their size will help the banks repay rescue loans they have received from the European Central Bank, via the Spanish central bank. They will do this in part by selling their most problematic loans to Sareb-the Spanish government's "bad bank," which will be responsible for seeking to recover as much of their value as possible in order to mitigate the cost to taxpayers of rescuing the banks.
Bankia-which lost three billion euros last year and expects to lose 19 billion euros this year - said it would shrink itself by some 50 billion euros by selling assets to Sareb, and also by cutting back on lending and by selling off investments in Spanish industry, including a 12 per cent stake in International Airlines Group, the owner of Spanish national airline Iberia and of British Airways.
The banks will no longer be allowed to lend to property developers, and must refocus their business on loans to Spanish households and to small and medium-sized businesses. During the restructuring period, the banks will be banned from acquiring other companies, and employee pay at the banks will be capped. The three banks remaining in government ownership are meant to be sold off by Madrid before the end of the five-year period.
BBC