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The European Commission approves restructuring plans of Liberbank, Caja3, Banco Mare Nostrum and Banco CEISS

12/19/2012
Commentaries

Within the wider context of the efforts for restructuring the Spanish financial sector and as foreseen in by the Memorandum of Understanding agreed between Spain and the Eurogroup in July 2012, the European Commission has announced their approval, including for the purposes of state aid rules, of the restructuring plans of Spanish banks Liberbank, Caja3, Banco Mare Nostrum (BMN) and Banco CEISS. Such approval will allow those institutions to receive aid from the European Stability Mechanism (ESM) in the framework of the financial assistance programme to recapitalise the Spanish banking sector.

According to the Commission, the restructuring plans will allow Liberbank, BMN and Banco CEISS to become viable in the long term.

The measures contemplated in the plans include:

- A substantial reduction of the balance sheets of Liberbank, BMN and Banco CEISS in 2017, as compared to 2010: over 40% for BMN, about 30% for CEISS and approximately 25 % for Liberbank.

- In the case of Caja3, it will be fully integrated into Ibercaja and cease to exist as an independent entity.

- The banks will refocus their business model on retail and SME lending in their historical core regions.

- Banks will exit from lending to real estate development, or maintain only a marginal activity in this field.

- Presence in the wholesale business will be limited.

- The transfer of assets to SAREB.

- The sale of Banco CEISS before the end of the restructuring period (2017)

- The flotation of BMN and Liberbank within the same timeframe.

- The absorption of losses borne by the four banks and their stakeholders (ie. holders of shares and hybrid capital) to ensure a satisfactory burden-sharing and an adequate own contribution to the financing of the significant restructuring costs.

- The divestment by the banks of a number of industrial equity stakes and subsidiaries.

- Limitations on remuneration for State-owned credit institutions.

- A ban on coupon payments until the burden sharing measures on hybrid instruments have been fully implemented.

- Restrictions on advertising the state support and using it for commercially aggressive practices.

- An acquisition ban on Liberbank, Banco CEISS and BMN.

Altogether, the programme funds for these four banks will amount to Euro 1,865 million:

- Euro 124 million in the case of Liberbank in the form of contingent convertible bonds (CoCos)

- Euro 407 million for Caja3 in the form of contingent convertible bonds (CoCos)

- Euro 730 million for BMN in the form of ordinary shares, and

- Euro 604 million for Banco CEISS in the form of ordinary shares.

The rest of the capital shortfall of these banks as identified in the stress tests will be covered by the burden sharing exercise (which will provide more than Euro 2 billion in capital), asset sales and other management actions (more than Euro 1 billion) and the transfer of impaired assets and loans to the asset management company, SAREB (around Euro 1 billion).

Press release from the European Commission Abre ventana nueva

Specific plans for each institution have not been announced by the Commission at this stage.

Garrigues has advised FROB on its dealings with the Commission regarding state aid regulation. The firm has acted in this capacity since the establishment of FROB in 2009 in all the bank restructuring processes initiated to this date.

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