Newspaper article International Herald Tribune

European Commission Bails out 4 Spain Banks

Newspaper article International Herald Tribune

European Commission Bails out 4 Spain Banks

Article excerpt

The payment of EUR 37 billion is conditional on the banks' laying off employees and closing offices.

The European Commission approved Wednesday a payment of EUR 37 billion from the euro zone bailout fund to four Spanish banks on the condition that they lay off thousands of employees and close offices as part of their restructuring.

The most significant cuts will be made by Bankia, the giant lender whose collapse and request for EUR 19 billion, or $25 billion, in additional capital last May led Madrid to negotiate a banking bailout of up to EUR 100 billion a month later.

The funds approved Wednesday are part of that negotiated amount and will come from the European Stability Mechanism, the bailout fund for the euro zone.

Joaquin Almunia, the European Union's antitrust commissioner, said the approval of the restructuring plans of the four banks -- Bankia, Novagalicia Banco, Catalunya Banc and Banco de Valencia -- was "a milestone."

Although Madrid can tap into more of the European funding to help other troubled banks stay afloat, the government has said it will not need the full amount in any case.

Presenting its restructuring plan on Wednesday, Bankia said it would lay off 6,000 employees, or 28 percent of its work force, as well as cut its branch network by 39 percent. The bank predicted it would return to profit next year and reach earnings of EUR 1.5 billion by 2015.

Still, the Madrid government has yet to draw a line under its banking crisis. The next step is expected in December with the creation of a so-called bad bank, in which the government is trying to partner as equity holders with private investors. But the valuation of the bad bank's assets has in itself proved a thorny issue because of the impact such valuations could have on other real estate assets.

Even though the future of the four rescued banks is now clearer, "our banking sector is still in the middle of a road to nowhere," said Juan Ignacio Sanz, a professor of banking at the Esade business school in Barcelona. He noted that banks had not resumed lending, "as nobody trusts that Spain's economy will recover in the near future."

"Everybody is just waiting to see how the bad bank can operate, whether it will have any private investors and how it will affect the Spanish real estate market," he said.

The government wants to limit the assets in the bad bank to EUR 90 billion. Bankia said Wednesday that it was hoping to transfer bad property loans valued at EUR 24.6 billion, a discount of 27.9 percent compared with their current book value.

The International Monetary Fund also highlighted the difficulties in setting up the bad bank amid an ongoing correction in the housing market. In a report issued Wednesday about finance sector in Spain, the fund said future transactions by the bad bank could "become reference prices for the market, given low turnover in the housing market. …

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