Banco de Valencia under pressure to speed-up restructuring plan

Troubled Spanish regional institution, Banco de Valencia, will need an injection of capital if it cannot raise sufficient funds to meet regulatory capital requirements.

Elena Salgado, Spain’s economy minister, said the bank may need more capital than it can raise on its own or from its main shareholders.
The bank is said to need some €600m which it will have to obtain either through an increase in share capital which would require the support of major shareholder Bankia, the country’s leading savings bank and third largest banking group,  selling the bank or providing it with state support.

It is not clear how much funding the bank will need, but Salgado said no tax payers’ money will be needed. Financing could come from the Frob, the special restructuring fund established to help resolve the banking crisis.

The bank’s restructuring wasmade more urgent  following its downgrade last Friday by the Fitch rating agency. The bank’s viability rating was cut to ‘b’ from ‘bb-‘ and placed on rating watch negative.

Fitch also placed the Banco Financiero y de Ahorros’s (BFA), Banco de Valencia’s major shareholder on rating watch negative. BFA has a 27.3% stake in banco de Valencia and a 52.4% stake in Bankia.

Banco de Valencia’s downgrade mainly reflects capital adequacy concerns and uncertainty regarding the amount of new capital which it may need, Fitch said. On 7 November, the bank announced that it was unable to quantify its provisioning or recapitalisation needs resulting from a Bank of Spain inspection.

The Spanish regulator, Comisión Nacional del Mercado de Valores (CNMV), temporarily suspended trading in the bank’s shares on November 7 to avoid “circumstances that could disrupt normal trading.”

The bank’s capital ratio stands at 7.36%, well below the 9.0% required under new European Union capital requirement rules. The Bank of Spain recently instructed the bank to set out a recapitalization and restructuring plan by the end of the year.

Given the weak prospects for Spain’s economic outlook and property market, the bank’s revenues and margins will continue to be affected by weaker volumes, a low interest rate environment and high retail funding costs, Fitch said.

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