The Spanish Bank Bailout Begins

Tyler Durden's picture

It was only a matter of time before the next bank bailout began despite all those promises to the contrary. Sure enough, as math always wins over rhetoric and policy, earlier this morning the shot across the Spanish bow was fired after PM Rajoy did a 180 on "no bank bailout" promises as recent as last week. From Dow Jones: "Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday, signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. "If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn't rule out injecting public funds, like all European countries have done," Rajoy said in interview with Onda Cero radio stations. The weakness of Spain's banks is weighing on the economy that contracted 0.3% in the first and fourth quarters, meeting most economists' definition of a recession. The unemployment rate is at an 18-year high 24.4%, data showed April 27. Banks have sharply reined in credit in the face of rapidly growing bad debt and problems getting finance on international markets." And explicitly we learn that Spain will inject EU7 bln of public funds via contingent-capital securities to support BFA-Bankia, El Confidencial reports, citing Economy Ministry officials it doesn’t name. It actually sounds cooler in the native: "El Estado inyectará 7.000 millones de dinero público para salvar BFA-Bankia." So it begins. Which also means that the "Bad Bank" idea is about to be launched. So far so good... The only problem is that like the EFSF, like the ESM, like the IMF, all those "deus ex machina(e)" also had to find funding of their own... and failed: it is one thing to intend to rescue the system. It is another to find the cash to do it with.

In the meantime, the process has already commecned:

  • BANKIA SHARES FALL 4.8% IN MADRID
  • SPANISH PLAN FOR BANKIA TO BE ANNOUNCED IMMINENTLY
  • SPAIN TO CLEAN UP BANKIA, CHANGE MANAGEMENT, OFFICIAL SAYS 
  • SPAIN IS WORKING ON PLAN FOR BANKIA, GOVT OFFICIAL SAYS

From Reuters:

Spanish Prime Minister said on Monday he would use public funds to rescue the country's banks, but only as a last resort. He said an announcement on government plans for the banks would come on Friday.

 

Spain has already spent more than 18 billion euros ($23.61 billion) to clean up its banks, which were highly exposed to a property sector crash four years ago.

 

The banks have been forced into several waves of mergers and to recognize more than 50 billion euros in losses related to property lending and assets.

 

...

 

A Spanish government and Bank of Spain plan to reform Bankia will involve major changes at the bank's management, government and Bank of Spain sources told Reuters on Monday.

 

"The plan is being finalised by the Economy Ministry and the Bank of Spain. It will include major changes in the management," a government source said.

 

The source also said the Spanish government would approve on Friday the guidelines for setting up holding companies to park and sell off toxic real estate assets, including a framework to create 10- to 15-year "bad banks".

 

A source from the Bank of Spain said that the plan for Bankia, which is likely to stick to its stand-alone strategy after the intervention, includes the possibility of asset sales.

 

"The possibility of strenghtening the balance sheet through asset sales is on the table," the source said.

And more from DJ:

The ministry official added that the government and central bank are studying a specific clean-up plan for Bankia SA (BKIA.MC) and parent company Banco Financiero y de Ahorros SA, which could include a shake up of their management. Daily El Pais said Monday the government also plans an injection of state funds via convertible bonds with a rate of about 8%.

 

Bankia's parent, considered one of the weakest banks in the Spanish financial sector, recently carried out a EUR2.75 billion write-down of the group's assets by lowering the value of its real-estate holdings.

 

A Bankia spokesman declined to comment.

 

Spain's central bank estimates the country's banks' total exposure to the country's ailing real estate industry at EUR338 billion, of which it considers some EUR176 billion problematic.

 

In new evidence of a deepening downturn, the local statistics agency said Monday that industrial output fell by 7.5% in a calendar-adjusted annual rate in March, after falling by 5.3% in February and by 4.4% in January.

Translated: since this plan is a stillborn failure, the countdown is now officially on to the Spanish PSI. Only this time around, unlike in the case of Greece, one wonders how Merkel will spin the German funding in continent that no longer cares about "austerity", i.e., deleveraging, and is all bout "growth", i.e., ramping up debt issuance to the max.