Bloomberg News

Spain Asks for $125 Billion Bank Bailout: Key Facts of Agreement

June 10, 2012

Spain asked euro-region governments for as much as 100 billion euros ($125 billion) to rescue its banking system. Following are the main details of the agreement, reached on June 9.

* The loan, worth up to 100 billion euros, will be channeled through the state’s bank-rescue fund, known as FROB, and extended to banks that need it. Amount includes “safety margin,” Economy Minister Luis de Guindos said in Madrid on June 9.

* FROB acts as “agent of Spanish government,” which “will retain the full responsibility of the financial assistance and will sign the MOU,” Eurogroup of ministers said.

* Conditions will be “focused on specific reforms targeting the financial sector,” Eurogroup said.

* Progress by Spain on structural reforms and deficit cuts “will be closely and regularly reviewed also in parallel with the financial assistance,” Eurogroup said.

* Only lenders that need capital will get it. Many won’t, de Guindos said.

* To be decided whether the European Financial Stability Facility or permanent successor European Stability Mechanism will be source of loan.

* Finland will demand collateral for the loans if they come from EFSF, rather than the ESM, whose loans are senior to other debt.

* Formal aid request due “shortly,” Eurogroup said.

* European Commission, after liaising with European Central Bank, the European Banking Authority and the IMF, to provide assessment.

* Interest rate on loan to be 3%, El Pais reported on June 10. De Guindos didn’t give details, saying only that the terms are “very favorable.”

* IMF says on June 8 Spanish banks need at least 37 billion euros to weather a weakening economy and that figure could rise. IMF official recommends building total buffer of 60 billion euros to 80 billion euros.

* 100 billion euros is equivalent of about 10% of Spain’s GDP. FROB debt counts as public debt, which amounted to 69% of GDP last year. Interest on loan will affect deficit, de Guindos said.

* Spain’s deficit was 8.9% of GDP in 2011. Aiming for 5.3% in 2012 and 3% in 2013. Government sees economy shrinking 1.7% in 2012.

* Spanish banks have 184 billion euros of what the Bank of Spain terms “problematic” assets linked to real estate.

* De Guindos’s two banking decrees this year ordered banks to make additional 84 billion euros of provisions and buffers, taking the coverage ratio of troubled real-estate assets to 54% and to 45% for all real-estate assets, according to Economy Ministry.

*FROB has already committed 18.7 billion euros to help struggling lenders. The industry-funded deposit-guarantee fund has agreed to pay back 3.7 billion euros of that, according to the Bank of Spain. Those figures exclude Bankia Group, which is seeking 19 billion euros of public funds.

*FROB previously had 5 billion euros in available cash, de Guindos said on May 11.

*Link to euro-region ministers’ statement *Link to Economy Ministry website: here

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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