October 31, 2012 / 7:06 PM / 5 years ago

UPDATE 2-Spain clears Popular, Ibercaja capitalisation plans

* BMN, Caja3, Ceiss and Liberbank seen needing public aid

* Central bank says all lenders will be recapitalised by year-end (Adds details on lenders)

By Jesús Aguado

MADRID, Oct 31 (Reuters) - Spain's central bank gave the go-ahead on Wednesday to the private capitalisation plans of banks Popular and Ibercaja, though it said it expected four other lenders to resort to public support.

The Bank of Spain findings may mean the government could end up using more of the 100-billion-euro European credit line than the 40 billion euros ($51.83 billion) previously estimated.

The supervisor said Banco Mare Nostrum, Caja3, Ceiss and Liberbank were expected to require public aid and had submitted restructuring plans to the supervisor and the European Commission as required.

A September independent audit of the Spanish banking sector identified seven out of 14 banks as needing a capital injection in the case of a severe economic downturn. The results of the Oliver Wyman stress test found the banks needed 59.3 billion euros ($76.8 billion).

The banks had to present plans to Spanish authorities detailing how they would plug their capital hole, either by share issues, asset sales, forcing losses on junior bondholders or transfer of real estate loans and property to the bad bank.

The Spanish government is setting up an asset management company, or bad bank, for up to 90 billion euros worth of real estate assets sitting on lenders' books after a property bubble burst five years ago.

The bad bank is a condition for Spain to receive European aid for crippled lenders. Spain is also considering seeking additional EU help to lower its borrowing costs and improve its finances.

MERGED LENDERS

Banco Mare Nostrum, a merger of four savings banks with total assets of around 68 billion euros, was identified to have capital needs of 2 billion euros.

A three-way tie-up between small banks Liberbank, Ibercaja and Caja 3, aimed at helping the banks meet capital requirements, was abandoned in early October.

The audit revealed the potential merger had a combined deficit gap of 2.1 billion euros.

Once the merger plans collapsed, weaker banks Liberbank and Caja 3 became candidates to be taken over by the state and sold off since they were the most exposed with a capital hole of 1.2 billion euros and 779 million euros respectively.

Ibercaja has capital needs of just 226 million euros.

Separately, Liberbank said on Wednesday it would transfer assets into the Spanish bad bank and it would still meet capital requirements without turning to the state aid.

The planned merger between Unicaja, Caja Duero and Caja Espana (Ceiss) has also been cast in to doubt by the audit's findings.

As a group, the merger passed the stress test, but Caja Duero and Caja Espana alone have a capital shortfall of 2.1 billion euros.

Popular's planned 2.5-billion-euro rights issue is considered an important test of Spanish banks' ability to tap the market and fill, or reduce, the 3.2 billion euros capital hole identified by the test.

Analysts expect Popular's shares to be sold at a discount of 50 to 73 percent.

Spain's sixth-biggest lender needs to reduce its capital shortfall by around 2 billion euros, if it wants to avoid a public capital injection, by December.

In addition to selling new shares, Popular plans to raise more capital through sale of non-core assets.

Among the lenders that failed the test, four have already been nationalised: Bankia, Catalunya Caixa, NovaGalicia Bank and Banco de Valencia and identified as Group 1.

These banks are already in talks with Brussels and will be the first in line to receive funds in November.

The central bank said all lenders subject to the audit, which cost the banks 31.4 million euros to conduct, would be fully capitalized by the end of the year. ($1 = 0.7717 euros) (Reporting By Jesus Aguado; Editing by Paul Day, Helen Massy-Beresford and David Gregorio)

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