EU Commission Approves Restructuring Plans Of Spanish Banks

The European Commission said Wednesday it has concluded that the restructuring plans of the four Spanish banks BFA/Bankia, NCG Banco, Catalunya Banc and Banco de Valencia are in line with EU state aid rules.

The in-depth restructuring undergone by BFA/Bankia, NCG Banco, Catalunya Banc will allow them to become viable in the long-term without continued state support. Moreover, the banks and their stakeholders adequately contribute to the costs of restructuring. Finally, the plans foresee sufficient safeguards to limit the distortions of competition induced by the state support.

Because its viability could not be restored on a standalone basis, Banco de Valencia will cease to exist as an independent entity and will be sold and integrated into CaixaBank.

The restructuring plans were submitted for Commission approval as foreseen by the Memorandum of Understanding (MoU) agreed between Spain and the Eurogroup in July 2012. The Commission’s approval will allow the banks to receive aid from the European Stability Mechanism (ESM) in the context of the financial assistance programme to recapitalise the Spanish banking sector.

“The approval of the restructuring plans of BFA/Bankia, NCG, Catalunya Banc and Banco de Valencia is a milestone in the implementation of the Memorandum of Understanding between euro area countries and Spain. Our objective is to restore the viability of banks receiving aid so that they are able to function without public support in the future. We also make sure that banks use no more than what is necessary of taxpayers’ money to restructure and do not go back to unsustainable business practices. Restoring a healthier financial sector capable of financing the real economy is indispensable for economic recovery in Spain” said Commission Vice-President in charge of competition policy Joaquín Almunia.

In the case of BFA/Bankia, NCG Banco and Catalunya Banc, the Commission found that the proposed restructuring measures will ensure that the three banks return to long term viability as sound credit institutions in Spain.

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 assets to the asset management company “Sareb” will further limit the impact of additional impairments on the riskier assets and help to restore confidence. As regards NCG and Catalunya Banc, Spain committed to sell the banks before the end of the five-year restructuring period. Should a 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 EUR 10 bn.

Regarding Banco de Valencia, the Spanish authorities and the Commission concurred that the bank’s viability could not be restored on a stand-alone basis. Hence it will be resolved through a sale to another entity. The Commission concluded that the total cost of the sale, including other requested support measures, is lower than the cost of simply winding down the bank. Through a competitive tender process, CaixaBank has acquired Banco de Valencia. Banco de Valencia will be fully integrated into CaixaBank and will cease to exist as an independent bank.

All banks committed to divest 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.

Finally, all banks committed to the following measures: limitations on remuneration for State-owned credit institutions; a ban on coupon payments until the burden sharing measures on hybrid instruments have been fully implemented; not advertising the state support nor using it for commercially aggressive practises; and an acquisition ban.