MADRID--Spanish lenders tapping the EUR100 billion worth of finance
the European Union is stumping up to shore up the country's troubled
banking sector could be forced to go through a painful restructuring
program as a condition for the bailout.
With few details so far made public, it could be weeks before the
market gets a true sense of which Spanish banks will have to make use
of the emergency funds.
The Spanish government and EU authorities agreed at the weekend to
provide a massive loan to support ailing banks through Spain's Fund
For Orderly Bank Restructuring, or FROB. But the euphoria in markets
was short-lived as Spanish government bonds turned south again and
bond investors fretted over the implications for the Spanish state's
finances, while Spanish banking shares reversed strong early gains.
Some analysts said mass layoffs, branch closures, dividend
suspensions, asset disposals, more bank mergers or even closures could
be the price of any FROB funding, accentuating an economic downturn
that has left Spain with the developed world's highest jobless rate.
"It's difficult to believe that there will be no conditionality, one
way or another, at least for those institutions that receive the
funds," said one London-based bank analyst, who declined to be named.
Since the beginning of the economic downturn, Spain has bailed out
eight lenders, the latest one being Bankia SA (BKIA.MC) and its parent
company Banco Financiero y de Ahorros SA, which needed EUR19 billion
of public funds.
Some savings banks, such as state-controlled savings banks
Catalunyacaixa and Novacaixagalicia will each need EUR4.5 billion to
cover new capital and provision requirements, according to people
familiar with the situation.
A formal Spanish request for the EU funds is expected later this
month. On June 21, a detailed report will be issued by two Spanish
government-appointed independent advisors on the capital needs of
Spain's banks. The government had previously insisted it wouldn't ask
for help until the publication of these reports, which are expected to
inform the government's banking recapitalisation strategy.
The focus will be on the impairment charges banks are forced to take
and the time they are given to adjust to those, analysts say.
Spain's big two global banks, Banco Bilbao Vizcaya Argentaria SA
(BBVA) and Banco Santander SA (STD), are expected to get by without
official funding, by selling shares at a discount if need be or by
leveraging off their huge Latin American operations.
Santander is planning a stock market listing of its fast-growing
Mexican unit later this year. The bank is seeking to launch an initial
public offering of 25% of Banco Santander (Mexico) SA and raise some
$3.75 billion.
"We maintain our view that BBVA and Santander should be able to avoid
any capital shortfall," said Daragh Quinn, a bank analyst at Nomura in
London.
Meanwhile, Banco Popular Espanol SA (POP.MC) said last month it is
negotiating the sale of a majority stake in its profitable Internet
bank and credit card operations, part of an effort to free up cash to
cover more stringent capital requirements set by the Spanish
government.
Spanish savings banks, or cajas, were particularly hard hit by the
implosion of the country's real-estate market more than four years
ago. Since it took power in December, the conservative Popular Party
government has advocated mergers in the sector in an attempt to create
fewer and bigger groups that, in theory, would have better access to
funding in bond markets.
But Spanish banks have been shut out of funding markets in recent
months because of concerns about the country's fragile fiscal
situation, leading to an unhealthy reliance on liquidity from the
European Central Bank.
Beyond Spain's regional savings banks, some of the country's
medium-sized listed banks are also seen by analysts as likely
contenders for FROB assistance.
"For domestic Spanish banks almost all should be facing some level of
recapitalisation need," said Quinn. "The implications for the majority
of Spanish banks will be a dilutive capital injection from the state,
with additional conditions from the EU," he added.
Catalan lender Banco Sabadell SA (SAB.MC) may be one possible
exception, Quinn said. The bank itself declined to comment in the wake
of the Spanish government's weekend deal.
Analysts at Societe Generale said they expected Banco Popular to seek
support from FROB, despite its assertion to the contrary earlier
Monday.
They also didn't rule out Caixabank (CABK.MC), Spain's third-biggest
bank, needing help. Caixabank said it was too early to comment on the
latest developments but was well placed to comply with the additional
provisions imposed on it in May.
"The listed banks will try to avoid getting any FROB money at all
costs and if they are forced to get any will try to pay it back
quickly. Getting FROB money can stigmatize them and the cost is likely
to be very high," said Ignacio Moreno, a London-based bank analyst at
Citigroup.
Write to William Kemble-Diaz at djmadrid@dowjones.com
(Pablo Dominguez and Santiago Perez contributed to this article.)
(END) Dow Jones Newswires
June 11, 2012 13:15 ET (17:15 GMT)
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