By The Financial Times
Spain has approved a law obliging its banks to reinforce their capital by September or face partial nationalisation but has granted unlisted cajas or savings banks until March next year to organise stock market flotations.
Spain’s strict new law on “strengthening the financial sector”, approved by the cabinet on Friday, is the latest step in a plan to restructure a savings bank sector burdened by bad property loans.
As cajas and commercial banks jostle for position amid a welter of financial reforms, the new Spanish banking group led by Caja Madrid has signalled its intention to establish a “bad bank” to absorb non-performing property assets and make a stock market flotation more attractive to investors.
Banco Financiero y de Ahorros (BFA) – the joint banking unit of Caja Madrid, Bancaja and five other unlisted savings banks – said in a regulatory filing that its members had agreed an addendum to their merger agreement so that they could “define the perimeter of the listed banking business”.
This would “allow certain assets to be excluded from the company to be floated, with the aim of optimising its attractiveness to investors and its valuation”.
La Caixa, the big Barcelona-based savings bank, revealed three weeks ago that it would segregate a “bad bank” of repossessed properties and stakes in property developers and place it in an industrial holding group, thus increasing the likely value of the Caixabank banking business to be floated in the summer.
The socialist government of José Luis Rodríguez Zapatero, prime minister, has accelerated the restructuring of the Spanish savings bank system this year as part of a drive to improve Spain’s credibility in the sovereign bond markets.
Caja groups have already been reduced from 45 to 17 through mergers and the seizure of two faltering cajas by the authorities.
The new law says banks must have a core tier one capital ratio, a measure of financial strength, of at least 8 per cent of risk-weighted assets, rising to 10 per cent for those that depend heavily on wholesale markets for their liquidity and lack outside shareholders holding at least a fifth of their capital.
Financial institutions failing to meet these limits by March 10 have three weeks to tell the Bank of Spain how they plan to achieve the target; for example by realising capital gains on industrial holdings or by attracting new shareholders. The targets must be met by the end of September, although in exceptional cases the deadline can be extended to the first quarter of next year.
Elena Salgado, finance minister, on Friday reiterated her view that less than €20bn ($27bn) of extra money would be required to recapitalise Spanish lenders, on top of the €15bn already spent. “I think that’s the absolute maximum,” she said. Some analysts say the final bill could be more than twice as much. Caixabank, with a book value of €20.6bn, is expected to be the biggest newly listed Spanish bank by market capitalisation, and would be number three in Spain after Santander and BBVA.
BFA, which could be renamed BanCaja Madrid, was assessed as having a book value of €10.24bn and a core capital ratio of 7.04 per cent by Rodrigo Rato, its chairman, before taking into account any benefit from the new “bad bank” proposal. With total assets of €328bn, it is the third-largest Spanish bank by assets and says it is the biggest in terms of domestic business. Santander and BBVA have substantial foreign investments