EC gives go-ahead for Spanish recapitalisation plans

The European Commission (EC) says recapitalisation and resolution plans for four Spanish banks under Frob control do not violate state aid rules; the ruling paves way for capital injection in early December.

The EC has approved recovery plans submitted by the four Spanish banks with the weakest capital positions, currently majority owned by Spain’s Fund for Orderly Bank Restructuring (Frob). Three of the banks will be recapitalised with injections of funds and one will be sold.

In a judgement today (November 28), the EC said the plans were in line with European state-aid rules, which aim to prevent distortions to competition. The restructuring plans for BFA/Bankia, NCG Banco and Catalunya Banc would restore the financial viability of the institutions and included adequate contributions from the banks’ stakeholders.

The fourth bank, Banco de Valencia, will receive an injection of €4.5 billion ($5.8 billion) and will be sold to CaixaBank, following a “competitive tender process”, the EC said. “The Spanish authorities and the Commission concurred that the bank’s viability could not be restored on a stand-alone basis.”

The Bank of Spain said following the EC’s agreement that the disbursement of capital is likely to take place in the first half of December. This means the injections of capital are somewhat behind schedule, as the banks should have received funds by the end of November, according to a restructuring ‘roadmap’ agreed as part of a memorandum of understanding with the EC in July this year.

Nevertheless, the Bank of Spain said the agreement represented important progress. “A new milestone has been reached in the fulfilment of the requirements agreed in the memorandum of understanding,” the central bank said.

Under the terms of the plans, some of the banks’ “impaired assets” will be transferred to the Spanish asset management company. The resulting capital needs are €17.96 billion for BFA/Bankia, €5.425 billion for NCG Banco, €9.08 billion for Catalunya Banc and €4.5 billion for Banco de Valencia.

The next group of banks, which have a capital shortfall but are not under the control of the Frob, are due to be recapitalised starting in December, while banks that are able to recapitalise privately will receive an injection of contingent convertible bonds. A final group comprised of Unicaja, Sabadell, Bankinter, CaixaBank, Kutxabank, Santander and BBVA has no capital shortfall and will not receive assistance.

 

This article first appeared in Central Banker

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