Spain plans a partial state takeover of its weakest savings banks as
it seeks to reassure investors a rescue will not weigh on its deficit,
sources and reports said on Friday.
A source familiar with the
matter told Reuters the government would force debt-laden regional
savings banks to become conventional banks and seek stock market
listings to persuade skittish investors that they are good investments.
The state-backed bank restructuring fund (FROB) would then take
stakes in the banks – known as cajas – that fail to attract private
investment, the source said.
Up to now the FROB has functioned as a lender to the cajas.
High
levels of bad property loans at the cajas is seen as a major risk for
Spain as it aggressively cuts its budget deficit to stave off fears it
will need an Irish or Greek-style rescue from the European Union and
International Monetary Fund.
Signs of greater transparency and a
definitive plan for the banks sent Spain’s 10-year benchmark bond to its
highest price since early December and shares in Spain’s biggest banks
jumped to three-month highs.
“I think it’s encouraging. One of the
root causes of the lack of confidence in the euro area is the fear that
Spain is the next Ireland,” BNP Paribas chief euro zone economist Ken
Wattret said.
Analysts’ estimates of the cost of recapitalizing
the savings banks range from €17-billion to €120-billion, with consensus
falling in the €25-billion to €50-billion range, though Economy
Minister Elena Salgado says it will be much lower.
If the clean-up
costs around €50-billion to €60-billion and the government’s plan is
credible, “that’s a net positive,” Fitch debt rating agency’s head of
sovereign ratings said on Friday.
Even in the absence of private
investment into the weak regional lenders, economists say Spain could
afford that level of rescue without seeking outside aid, which could
take pressure of the euro zone aid fund the European Financial Stability
Facility (EFSF).
Analysts say the EFSF could probably not cope
with a full bailout of Spain – covering all its debt obligations to
mid-2013 – without extending the fund’s scope.
Even if the bulk of
the bank restructuring bill eventually ended up back with the state,
certainty about what it amounted to would help calm investor jitters
about Spain’s liabilities.
The Bank of Spain forced the cajas last
year into a round of mergers, reducing their number to 17 from 45. Five
of them failed Europe-wide stress tests on banks last year.
They
must reveal by Jan. 31 more details about their bad loans and property
holdings. Only one caja has done so far, but once all the reports are
in, the Bank of Spain will be able to give a clear idea of the total
recapitalization needs.
Spain’s borrowing costs have soared over
the past year on concerns that its high deficit and stagnant economy
will force it to seek outside help, but a series of aggressive cost cuts
and economic reforms have already calmed fears somewhat.
A bank
recapitalisation worth €50-billion amount to about 5 per cent of Spanish
GDP, which could endanger the goal of cutting the budget deficit to 6
per cent of gross domestic product this year.
The FROB would have
to raise debt on the market to purchase the bank stakes. In theory, the
books would be balanced by the stakes in the savings banks to avoid a
deficit impact, although the risk is those stakes dwindle in value.
Taking
stakes in the banks “will increase the government’s debt needs and that
is one of the problems because we still don’t know ... how much the
cajas are going to need,” said Josep Soler, general director of
Financial Studies Institute.
The FROB would invest in the cajas at market rates subject to EU anti-trust approval, a government source told Reuters.
While
some of the biggest cajas are seen as attractive investments, investors
have shied away from smaller ones, notorious for being used by local
politicians to fund pet projects from casinos to airports.
The cajas plan a March trip to Asia, including China, following similar road shows in Europe and the United States.
Spain
could change the law to make it easier for the savings banks to seek
private investment, the FROB said in a statement on its website on
Friday.
The aim would be to speed up the separation between their financial business and their social activities, the FROB said.
