Thursday 21 September 2017

Spain to reveal reforms for finance sector

SPAIN said it will unveil its banking reforms on Friday. The announcement came after the government finally owned up to the extent of its banking problems with a €10bn rescue plan for Bankia, the country's fourth-biggest lender that is saddled with a huge toxic property portfolio.

The government is hiving off property assets from banks' balance sheets as well as pumping cash into Bankia, in a fourth attempt in three years to reassure investors on the health of the sector.

"[It's] a step forward in the recognition phase of the problem for the government, which is in itself a positive," said Goldman Sachs.

But what is still unknown is exactly how the Bankia rescue, involving €7bn to €10bn of public cash, will work and what will be the mechanics of a system to separate property holdings from banks.

Spanish banks have effectively become the country's biggest real-estate agents after a devastating property crash in 2008, and investors fear losses could strain the public finances, dragging the country further into the eurozone debt crisis.

Rodrigo Rato stepped down as chairman of Bankia on Monday, to be replaced by Jose Ignacio Goirigolzarri, a former chief executive of Spain's second biggest bank, BBVA.

Investors in Spain's larger banks were relieved that the government was itself stepping in to sort out Bankia rather than forcing healthier banks to foot the bill.

Shares in Santander, BBVA and Caixabank all gained for a second day yesterday while Bankia dived another 5pc.

"This is the sort of thing you should do over a weekend, not let out by press leaks on a Monday with vague promises of a resolution on Friday," said one banking analyst.

Rescue

For months the new government, elected late last year, had said it would not put more public money into rescuing the banks. The Bankia rescue plan, confirmed by government sources on Monday, marked a change in direction under pressure from the country's major banks, the IMF and ratings agencies.

The government said yesterday the Bankia operation was not a state takeover, but a restructuring aimed at guaranteeing the bank's viability. Bankia holds a tenth of the deposits in the Spanish banking system.

Economy Minister Luis de Guindos said all depositors and borrowers at Bankia could be absolutely sure the bank was solvent. A source at the bank said there had been no sign of people withdrawing their money.

In the reforms, banks will form property units where they will park their real estate assets. Unlike a bad bank, the government aims to make these units work without public money.

Bankia is likely to receive its injection of up to €10bn in public cash, in the form of loans or direct funding, in order to write down the bank's losses related to bad property investments. (Reuters)

Irish Independent

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