By Foo Yun Chee and Jesús Aguado
BRUSSELS Dec 20 The European Union on Thursday
approved a cash injection of 1.87 billion euros ($2.48 billion)
into four former Spanish savings banks, the second phase of the
overhaul of the country's banking sector.
In return for the funds, the four lenders, which ran into
trouble when a decade-long property boom burst five years ago,
will reduce their balance sheets by up to 40 percent by 2017.
The cash injection means two of the banks - BMN and CEISS -
will be nationalised through the subscription of ordinary shares
by the Spanish state, while Liberbank and Caja 3 will receive
temporary aid through contingent convertible bonds, also known
The European Commission said the Spanish authorities
committed to sell CEISS and have BMN and Liberbank listed before
2017. Caja 3 will cease to exist as a standalone entity and will
be integrated into bigger lender Ibercaja.
"The restructuring plans of BMN, Caja3, Banco CEISS and
Liberbank will make these banks viable again, thereby
contributing to restoring a healthy financial sector in Spain,
while minimising the burden for the taxpayer," EU Competition
Commissioner Joaquin Almunia said in a statement.
An independent audit showed in September Spain's banking
system needed around 60 billion euros to weather a serious
downturn of the economy.
Spain has already received 39.5 billion euros of European
funds to prop up nationalised lenders Bankia,
CatalunyaBanc, Novagalicia Banco and Banco de Valencia
and to set up a so called bad bank.
Separately, two banks - Banco Popular and Ibercaja
- raised money by themselves to cover their needs, while seven
out of the 14 lenders tested were considered by the audit to be
well enough capitalised.
Transfers of distressed property assets into the "bad bank"
and losses imposed to shareholders and junior bondholders have
reduced the final amount of public cash needed by around 20
The rescued banks have also committed to sell a number of
industrial stakes and subsidiaries and to limit the
remunerations of the executives.