Spain to overhaul banking sector

 29 Nov 2012 - 0:48


MADRID: Spain advanced yesterday with a major overhaul of its stricken banking sector after Brussels approved EU-funded restructuring plans, while nationalised Bankia announced 6,000 job cuts and forecast a huge loss.

Meanwhile the Bank of Spain delivered more bad news on the overall economy, saying the country appeared stuck in a job-killing recession in the fourth quarter.

The European Commission cleared the restructuring of four Spanish banks — Bankia, NCG Banco, Catalunya Banc and Banco de Valencia — paying the way for Spain to receive next month some ¤37bn ($48bn) of EU funds to help clean up their balance sheets.

The Commission said the restructuring of the four banks “will allow them to become viable in the long-term without continued state support” while the plans contain provisions to limit distortions to competition.

Banco de Valencia, whose independent future could not be secured, will be sold and integrated into CaixaBank, the Commission said in a statement.

“The approval ... is a milestone in the implementation of the (accord) ... Our objective is to restore the viability of banks receiving aid so that they are able to function without public support in the future,” European Competition Commissioner Joaquin Almunia said.

“Restoring a healthier financial sector capable of financing the real economy is indispensable for economic recovery in Spain” Almunia added.

Bankia, whose ¤20bn bailout by the government in May prompted Spain to seek funding of up to ¤100bn from its eurozone partners in June to help rescue its banks, is set to get ¤18bn of the latest funds. NGC will get ¤5.5bn of the payment, with Catalunya Banc ¤9bn and Banco de Valencia ¤4.5bn.

When combined with aid previously extended to the four by the Spanish government, Bankia will have received about ¤36bn, NGC ¤10bn, Catalunya Banc ¤14bn  and Banca de Valencia ¤7bn, or ¤67bn in all. Bankia, whose shares were suspended from trading by regulators, said after the Brussels announcement that it would cut 6,000 jobs, about 28 percent of its staff, by 2015 and close 39 percent of its branches.

The bank said it intended to return to profit in 2013, but warned that it expected to report a huge loss of ¤19bn this year.

The bank is symptomatic of the problems of the Spanish banking sector, and an example of the problems eurozone states face with helping banks.

Formed in 2010 from the merger of seven regional savings banks which expanded too fast and were shackled by a mountain of debt which went bad after the property bubble burst in 2008, Bankia posted a loss of nearly ¤3bn in 2011.