* Restructuring to cost nearly 40 bln euros
* Banks to cut staff, bondholders face losses
* Balance sheets to be cut by more than 60 pct
* EU regulators to decide on other banks on Dec. 20
* IMF says financial reform on track
By Foo Yun Chee and Sonya Dowsett
BRUSSELS/MADRID, Nov 28 Three nationalised
Spanish banks will more than halve their balance sheets in five
years, cut jobs and impose losses on their creditor bondholders
in return for a euro zone rescue, while a fourth will be sold
off, the European Commission said.
The measures, approved by the Commission on Wednesday, are a
condition of 40 billion euros ($52 billion) in aid that offers
hope for an end to a banking crisis which has pushed Spain to
the brink of a sovereign bailout to keep the government afloat.
The plan sets in motion one of the biggest overhauls of any
European banking system since the financial crisis began in
mid-2007 with the near collapse of German lender IKB.
"Our objective is to restore the viability of banks
receiving aid so that they are able to function without public
support in the future," said European Union Competition
Commissioner Joaquin Almunia.
The Spanish state took over Bankia, Catalunya
Banc, Banco de Valencia and Novagalicia Banco - which
is also known as NCG Banco - after losses on lending during a
decade-long property boom left them dangerously short of
The four banks account for just under a fifth of Spain's
banking system. They must transfer 45 billion euros of soured
property assets to a "bad bank" as another condition of
receiving the aid.
The smallest of the four, Banco de Valencia, will be sold to
Caixabank for a symbolic one euro and cease to exist
as a separate entity, while the other three must cut their
balance sheets by more than 60 percent over the next five years.
Shares in Banco de Valencia, which had been suspended on
Wednesday morning, dropped by more than 16 percent after they
resumed trading, to 0.152 euro per share.
The International Monetary Fund (IMF) said on Wednesday that
Spain's financial sector reform is on track and all deadlines
have been met so far, but difficult steps remained while risks
for the economy and the country's lenders remain high.
Selling Banco de Valencia under a loss protection scheme
will be cheaper than winding it down, the Commission said. Spain
has also agreed to sell Novagalicia Banco and Catalunya Banc
within 5 years or liquidate them, Almunia said.
The nationalised banks will have to close up to half their
branches during the five-year overhaul, resulting in thousands
more job losses in a recession which has already pushed
unemployment up to 25 percent.
The biggest of the banks, Bankia, said it would lay off
6,000 staff - over a quarter of its workforce - and reduce its
branch network by around 39 percent under a plan to return to
profitability by 2013.
"Our clients can be totally reassured because we have a
viable and solid business in which they can be absolutely sure
of their savings," said Chairman Jose Ignacio Goirigolzarri.
Bankia, formed from the merger of seven savings banks in
2010 and taken over in May in Spain's biggest bank rescue, said
it would shed 50 billion euros of assets. These include stakes
in insurer Mapfre and airline International Airlines
Group plus its business in Miami in the United States.
Public debt holdings would fall to 30 billion euros from 40
billion now, Bankia said, while shareholders will contribute
10.7 billion to the clean-up. Bankia shares fell 4 percent.
Holders of Bankia's hybrid debt would contribute up to 4.8
billion euros to the recapitalisation through losses incurred by
swapping their holdings for shares, the bank said.
The Commission said the cost to hybrid and subordinated
bondholders in the restructuring of all four of the nationalised
banks will come to about 10 billion euros.
Many hybrid debt holders are retail customers who say they
were conned into buying complex financial instruments that
buoyed the banks' capital levels, instead of putting their money
into fixed-term savings accounts.
The Spanish government, fearing a political backlash, fought
for these losses to be minimised, but Brussels insisted the
subordinated bondholders share the pain in order to keep the use
of taxpayers' funds to a minimum.
Almunia, a former Spanish government minister, said he would
decide on other Spanish banks with capital shortfalls on Dec.
20. Banco Popular has carried out a 2.5 billion euro
share and rights issue to avoid the need to seek state aid.