December 20, 2012 / 5:50 PM / 5 years ago

BREAKINGVIEWS-Spain's exit plan for duff banks better than UK's

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By George Hay

LONDON, Dec 20 (Reuters Breakingviews) - Spain’s exit plan for its worst banks looks better than the UK’s. Madrid’s confirmation on Dec. 20 of a further 1.9 billion euros for Caja3, Banco Mare Nostrum, Banco Ceiss and Liberbank brings the country’s total bank bailout costs to almost 39 billion euros. But setting a deadline for returning the banks to the private sector is the right move.

When Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) were semi-nationalised in 2008, the UK government outsourced the business of selling down its stake to an “arm’s length” body, UK Financial Investments. Its remit was to sell by maximising value, not by a certain time. In contrast, the Spanish equivalent, the Fund for Orderly Bank Restructuring, is legally forced to sell or list its new bank stakes by 2017.

That might seem pointlessly constrictive. The Spanish economy is in recession and sustainable growth may be way off. Meanwhile, news that foreign investors like Deutsche Bank (DBKGn.DE) have invested in Sareb, Spain’s new “bad bank” for toxic property loans, doesn’t mean investors have become optimistic: the minimal sums being invested signal that foreign banks with branch networks in Spain just want to keep their regulator on side. If the economy was still wheezing in 2016, Spain would be forced to sell its lenders at knockdown prices.

Yet Madrid has chosen the right option. The law compelling the FROB to sell hasn’t been imposed by the European Commission. If they absolutely had to, Spanish legislators could change it.

Certainty of exit has benefits. When and how RBS will be returned to the private sector has become a political football kicked in different directions by UK leaders, depending on the shifting public mood. Any administration selling out at a loss will be accused of wasting public money. Legitimate arguments for getting the banks back in the private sector, even at a loss, thus become inaudible. In giving investors a firm deadline, Madrid has also given them a better idea of when its maligned banking sector will have to get back in shape again.





- The European Commission said on Dec. 20 that it had approved restructuring plans for Caja3, Banco Mare Nostrum, Banco Ceiss and Liberbank. The four lenders will collectively receive 1.87 billion euros in new capital.

- The amount is less than the shortfall recorded for these so-called “Group 2” banks by Oliver Wyman, the consultant, in its recent stress test of the Spanish banking sector, partly because problem assets have been transferred to Sareb, the Spanish bad bank, and partly because the creditors of Group 2 have had their debt bailed in.

- Overall, banks have now received 38.8 billion euros, compared to 52.5 billion identified in the Oliver Wyman stress tests.

- Banco Mare Nostrum will be majority-owned by Spain’s Fund for Orderly Bank Restructuring (FROB), but it is planned to list the shares before the end of 2017.

- Bank of Spain release, Dec. 20:

- Reuters: EU approves second phase of Spain’s banking overhaul [ID:nL5E8NK6HV]

- For previous columns by the author, Reuters customers can click on [HAY/]

(Editing by Pierre Briançon and Sarah Bailey)


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