MADRID--Spanish lenders tapping the EUR100 billion worth of
finance the European Union is stumping up to shore up the country's
troubled banking sector could be forced to go through a painful
restructuring program as a condition for the bailout.
With few details so far made public, it could be weeks before
the market gets a true sense of which Spanish banks will have to
make use of the emergency funds.
The Spanish government and EU authorities agreed at the weekend
to provide a massive loan to support ailing banks through Spain's
Fund For Orderly Bank Restructuring, or FROB. But the euphoria in
markets was short-lived as Spanish government bonds turned south
again and bond investors fretted over the implications for the
Spanish state's finances, while Spanish banking shares reversed
strong early gains.
Some analysts said mass layoffs, branch closures, dividend
suspensions, asset disposals, more bank mergers or even closures
could be the price of any FROB funding, accentuating an economic
downturn that has left Spain with the developed world's highest
jobless rate.
"It's difficult to believe that there will be no conditionality,
one way or another, at least for those institutions that receive
the funds," said one London-based bank analyst, who declined to be
named.
Since the beginning of the economic downturn, Spain has bailed
out eight lenders, the latest one being Bankia SA (BKIA.MC) and its
parent company Banco Financiero y de Ahorros SA, which needed EUR19
billion of public funds.
Some savings banks, such as state-controlled savings banks
Catalunyacaixa and Novacaixagalicia will each need EUR4.5 billion
to cover new capital and provision requirements, according to
people familiar with the situation.
A formal Spanish request for the EU funds is expected later this
month. On June 21, a detailed report will be issued by two Spanish
government-appointed independent advisors on the capital needs of
Spain's banks. The government had previously insisted it wouldn't
ask for help until the publication of these reports, which are
expected to inform the government's banking recapitalisation
strategy.
The focus will be on the impairment charges banks are forced to
take and the time they are given to adjust to those, analysts
say.
Spain's big two global banks, Banco Bilbao Vizcaya Argentaria SA
(BBVA) and Banco Santander SA (STD), are expected to get by without
official funding, by selling shares at a discount if need be or by
leveraging off their huge Latin American operations.
Santander is planning a stock market listing of its fast-growing
Mexican unit later this year. The bank is seeking to launch an
initial public offering of 25% of Banco Santander (Mexico) SA and
raise some $3.75 billion.
"We maintain our view that BBVA and Santander should be able to
avoid any capital shortfall," said Daragh Quinn, a bank analyst at
Nomura in London.
Meanwhile, Banco Popular Espanol SA (POP.MC) said last month it
is negotiating the sale of a majority stake in its profitable
Internet bank and credit card operations, part of an effort to free
up cash to cover more stringent capital requirements set by the
Spanish government.
Spanish savings banks, or cajas, were particularly hard hit by
the implosion of the country's real-estate market more than four
years ago. Since it took power in December, the conservative
Popular Party government has advocated mergers in the sector in an
attempt to create fewer and bigger groups that, in theory, would
have better access to funding in bond markets.
But Spanish banks have been shut out of funding markets in
recent months because of concerns about the country's fragile
fiscal situation, leading to an unhealthy reliance on liquidity
from the European Central Bank.
Beyond Spain's regional savings banks, some of the country's
medium-sized listed banks are also seen by analysts as likely
contenders for FROB assistance.
"For domestic Spanish banks almost all should be facing some
level of recapitalisation need," said Quinn. "The implications for
the majority of Spanish banks will be a dilutive capital injection
from the state, with additional conditions from the EU," he
added.
Catalan lender Banco Sabadell SA (SAB.MC) may be one possible
exception, Quinn said. The bank itself declined to comment in the
wake of the Spanish government's weekend deal.
Analysts at Societe Generale said they expected Banco Popular to
seek support from FROB, despite its assertion to the contrary
earlier Monday.
They also didn't rule out Caixabank (CABK.MC), Spain's
third-biggest bank, needing help. Caixabank said it was too early
to comment on the latest developments but was well placed to comply
with the additional provisions imposed on it in May.
"The listed banks will try to avoid getting any FROB money at
all costs and if they are forced to get any will try to pay it back
quickly. Getting FROB money can stigmatize them and the cost is
likely to be very high," said Ignacio Moreno, a London-based bank
analyst at Citigroup.
Write to William Kemble-Diaz at djmadrid@dowjones.com
(Pablo Dominguez and Santiago Perez contributed to this
article.)