Brussels, 28/11/2012 (Agence Europe) - On Wednesday 28 November, the European Commission approved the restructuring plans of the state run Spanish banks BFA/Bankia, NCG Banco, Catalunya Banc and Banco de Valencia. This approval will allow the banks to receive aid of €37 billion from eurozone countries, probably in mid-December, through the European Stability Mechanism (ESM) and the FROB(The Fund for Orderly Bank Restructuring) in Spain. Under the terms of the memorandum of understanding signed last July between Spain and Eurogroup, the Commission's approval at the end of November depended on ESM intervention in support of the four banks which would provide €18 billion for Bankia, €9 billion for Catalunya, €5.5 billion for NCG and €4.5 billion for Banco de Valencia.
The approved plans include a radical restructuring of BFA/Bankia, NCG Banco andCatalunya Banc, which will ensure that the three banks return to long term viability and become sound autonomous credit institutions in Spain without state aid. By 2017, the balance sheet of each bank will be reduced by more than 60% compared to 2010. In particular, the banks will refocus their business model on retail and SME lending in their historical core regions. They will exit from lending to real estate development and limit their presence in wholesale business. This will contribute to reinforcing their capital and liquidity positions and reduce their reliance on wholesale and central bank funding. The bank's transfer of €45 billion of assets to the asset management company “Sareb” will further limit the impact of additional impairments on the riskier assets and help to restore confidence. NCG and Catalunya Banc will be sold off before 2017, and should the sale fail, Spanish authorities will present an orderly resolution plan. Moreover, the absorption of losses borne by the banks and their stakeholders will ensure, together with the restructuring measures, a satisfactory burden-sharing and an adequate own contribution to the financing of the significant restructuring costs. This reduces the state aid needed to restructure the banks by about €10 billion. The Banco de Valencia will be sold for a symbolic €1 to CaixaBank into which it will become incorporated. The Commission and the Spanish authorities concluded that it the bank's viability could not be restored on a stand-alone basis, and that the total cost of the sale, including other requested support measures, is lower than the cost of simply winding down the bank.
Other commitments made by the banks include: (1) divesting a number of industrial equity stakes and subsidiaries, the proceeds of which will contribute to finance the restructuring and thus limit the need for further aid. The divestments will further limit the distortions of competition brought about by the aid. In addition BFA/Bankia and Catalunya Banc will divest their trading/treasury portfolio of fixed-income securities. Catalunya Banc will also divest all of its venture capital funds. There will also be limitations on remuneration for state-owned credit institutions; (2) a ban on coupon payments until the burden sharing measures on hybrid instruments have been fully implemented; (3) not advertising the state support nor using it for commercially aggressive practices; and (4) an acquisition ban.
According to the Commission, the public aid paid to the four banks since 2010 in the form of recapitalisation and impaired asset measures (including eurozone aid agreed in this programme) will rise to (including the aid that will be paid under the present programme) around €36 billion for Bankia, €10 billion for NCG, €14 billion for Catalunya Banc and € 7 billion for Banco de Valencia, a total of €67 billion. (FG/transl.fl)