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The European Commission approved, on 20 December, restructuring plans for four Spanish banks for a total amount of public aid of 1.87 billion within the context of a bailout of the country's financial sector.

After giving the green light, on 28 November, to an injection of 37 billion into four nationalised Spanish banks (Bankia, Novagalicia,aCatalunyaCaixa and Banco de Valencia - see Europolitics 4538), it has, in return for this aid, approved the restructuring plans for Banco Mare Nostrum (BMN), Caja3, Banco CEISS and Liberbank, which are in serious trouble. In this way it has taken a different course of action than it did with the other establishments, which received aid during the peak of the 2008 crisis - with which the EU executive is still negotiating restructuring plans.

"As planned in the memorandum of understanding concluded in July between euro area countries and Spain, we have managed to bring underway a thorough restructuring of eight banks in a matter of just a few months. 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," saidaCompetition Commissioner Joaquin Almunia.

This plan "will allow them to be viable in the long term without needing state aid," since the restructuring plans impose compensatory reforms which "provide sufficient guarantees to limit competition distortion caused by public aid". This envelope of aid falls within the framework of the protocol of the agreement signed between Spain and Eurogroup last July, establishing a credit line of 100 billion for Spanish banks. It will open up the possibility for the four newly subsidised banks to receive aid from the European Stability Mechanism (ESM) within the framework of the financial aid programme established to recapitalise the Spanish banking system.

These subsidies are conditional on the in-depth restructuring of the establishments concerned, with stricter obligations than those imposed on the four previous banks in November.

The first obligation is that banks should reduce their balance sheets by between 25% and 40% by 2017. BMN, which has just been nationalised, should cut its balance sheet by 40% by 2017, Banco CEISS by 30% and Liberbank by 25%. Caja3 will be fully integrated into Ibercaja.

The banks will also be obliged to refocus their business models on retail and SME lending in their historical core regions and exit lending to real estate development.

Banks are committed not to spend their dividends, and an acquisition ban will apply for Liberbank, Banco CEISS and BMN during the restructuring period. Madrid must sell Banco CEISS and list BMN and Liberbank on the stock exchange by the end of the restructuring period. Caja3 will cease to exist as an independent entity.

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Publication:European Report
Date:Dec 21, 2012

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