Bloomberg News

Spain to Take Over Three More Lenders, Spends $10.2 Billion

September 30, 2011

(Updates with economist’s comment in fourth paragraph, book-value details in seventh.)

Sept. 30 (Bloomberg) -- The Bank of Spain took over three more lenders after they failed to meet a deadline for new minimum capital requirements set by the government.

Spain’s bank rescue fund, known as FROB, will administer banks run by CaixaCatalunya, Novacaixagalicia and Unnim, the regulator said in a statement today. The cost of recapitalizing the three lenders and Caja de Ahorros del Mediterraneo, a failed savings bank seized in July, will be 7.55 billion euros ($10.2 billion), the Bank of Spain said.

Today’s takeovers are the culmination of a process that began in January when Finance Minister Elena Salgado announced plans to make lenders meet new capital requirements or risk being nationalized as the government sought to stem investor concern that the cost of bank bailouts to the public coffers. Bank of Spain Governor Miguel Angel Fernandez Ordonez didn’t comment today on whether Spanish banks should raise additional funds in line with proposals from the International Monetary Fund for another round of recapitalization of European lenders.

“I suspect that more recapitalizations will be needed,” Gonzalo Gomez Bengoechea, an economist at the IESE business school in Madrid. “The exposure to sovereign debt may be low, but the real-estate sector increases the uncertainty.”

FROB Control

Spanish lenders have gross holdings of 448 million euros in Greek sovereign debt and 232 billion euros to Spanish debt, according to the Bank of Spain. In the three years since the collapse of Spain’s debt-fueled property boom, lenders have made provisions of 105 billion euros, the regulator said today.

The drive to bolster capital identified a capital shortfall of 15.2 billion euros across Spain’s banking industry and spurred lenders that failed to meet the government-set limit to seek funds through share sales or from private investors. The final cost of the process was 13.4 billion euros, including the 7.55 billion-euro cost to the FROB and 5.84 billion euros raised from private investors, the Bank of Spain said today.

The FROB will own 100 percent of Unnim, 93 percent of Novacaixagalicia and almost 90 percent of CatalunyaCaixa, Ordonez, the Bank of Spain governor, said in a Madrid news conference. It bought Novacaixagalicia at 12 percent of book value, CatalunyaCaixa at 9 percent and Unnim for one symbolic euro, Ordonez said.

‘Quite Solid’

Two other lenders, the Banco Mare Nostrum group and Liberbank, are seeking private investment and have a 25-day extension to complete their recapitalization plans, the regulator said. They are “quite solid” lenders, Ordonez said.

By requiring a core capital level of only 8 percent for lenders that raised money by selling stock, the new rules coaxed Bankia, a merger of seven savings banks led by Caja Madrid, and Banca Civica, formed from four savings banks, to raise more than a combined 3.6 billion euros from initial public offerings in July.

Meanwhile, Unnim, CatalunyaCaixa, Novacaixagalicia and Caja de Ahorros del Mediterraneo have said that their first option would be to take money made available from the FROB in return for shares in their banking units.

--With assistance from Manuel Baigorri and Sharon Smyth in Madrid, Editors: Steve Bailey, Jon Menon

To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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