The Eurogroup approves this Monday the first tranche of the aid to the four nationalized banks
- Bankia will receive 17,960 million euros, Catalunya Caixa 9,080 million, Novagalicia Bank 5,425 million and Banco de Valencia 4,500 million.
- The unblocking of this aid is not free: it asks the Government to continue with the adjustments and further moderate wages in the labor reform.
- The demands of Brussels will oblige the entities to focus their business model on retail loans and loans to SMEs.
- The Eurogroup has another issue on its agenda: the Greek debt repurchase plan.
The finance ministers of the eurozone will approve Monday the injection of the first tranche of 39,500 million of the bank bailout for Spanish nationalized entities, which will begin arriving from December 7, Europa Press reported financial sources.
“The cost will be clearly below 1%, ” said Economy Minister Luis de Guindos, who stressed that it represents an important saving compared to the 4.3% that the Fund for Orderly Bank Restructuring had to issue. (FROB).
The EU aid is unlocked after the Commission and the European Central Bank (ECB), with the assistance of the International Monetary Fund (IMF), have verified that Spain meets the conditions required in the memorandum of understanding.
However, Brussels asks the Government to continue with the adjustments and reforms , and suggests in particular that it limit the application of reduced VAT, increase taxes on fuels and continue with the labor reform to guarantee wage moderation, as stated in the report on the bank rescue.
The aid to the ‘bad bank’ will arrive in February 2013 in the form of promissory note On Wednesday, the European Commission imposed a reduction in size of more than 60% to Bankia, Catalunya Caixa, Banco de Valencia and Novagalicia Banco until 2017 as a condition for receive between the four 37,000 million euros.
Specifically, Bankia will receive 17,960 million euros, Catalunya Caixa 9,080 million, Novagalicia Bank 5,425 million and Banco de Valencia 4,500 million. The aid will come in the form of 10-month bills and 18, 24 and 36 month bonds from the European Stability Mechanism (ESM).
In addition to these amounts, the rescue fund will inject a first tranche of 2,500 million euros to the Asset Management Company from the bank restructuring -Sareb, the so-called ‘bad bank’-, which has already been incorporated as a public limited company. an initial social capital of 60,000 euros. The aid to the ‘bad bank’ will arrive in February 2013 in the form of promissory notes, according to the sources of the Ministry of Economy.
Brussels has warned of the “difficulties” that will face the Sareb to sell their homes due to competition from entities that have not received public aid and also want to get rid of their real estate portfolio and can offer financing.
What Brussels asks in return
The demands of Brussels will oblige the entities to focus their business model on retail loans and loans to SMEs in their historic regions, abandoning credit lines in favor of real estate developments. They should also limit their presence in the wholesale market.
The profits must be devoted to the restructuring of the entities. All the banks have committed to cede some industrial and subsidiary holdings, which the Commission has avoided specifying. The proceeds of such transfers will help fund the restructuring and, therefore, will limit the need for additional assistance, in addition to reducing distortions of competition.
In addition, Bankia and Catalunya Caixa will transfer the fixed-income securities they hold in their portfolio of negotiable and treasury securities. Catalunya Caixa will also transfer all of its venture capital funds. The benefits should be devoted to the restructuring itself.
According to the restructuring plans approved by the Community Executive, the shareholders and holders of preferred and subordinated debt must also contribute to the restructuring plans. Your contribution will reduce the necessary state aid by around 10 billion euros, according to the calculations of Brussels.
Finally, all banks undertake to limit the remuneration of their executives according to what is already foreseen in Spanish legislation, not to pay coupon for hybrid instruments and not to publicize public aid or use it for aggressive commercial practices. In addition, they will be prohibited from making acquisitions.
The European Commissioner for Competition, Joaquín Almunia, announced that the next round of restructuring plans will be approved on 20 December – the Banco Mare Nostrum, Banco Caja 3, Liberbank and Ceiss – but he did not want to encrypt the ESM aid they will need
Greek debt repurchase plan
The Eurogroup will also focus this Monday on the rescue of Greece and on the element that was left open after the last meeting on the 26th, in which the program was remodeled and an aid of 43.7 billion euros was unblocked: the plan to repurchase Greek debt.
The ministers will know the price range and the schedule of the Athens program and whose success will depend on the continuation of the rescue of the International Monetary Fund (IMF).
The measures agreed include giving Greece two more years to reach a primary surplus and make the reduction in the level of debt more flexible. The eurozone recognizes that it has no “plan B” for Greece if it repurchases debt at a substantial discount from Greece. that country does not achieve sufficient voluntary acceptance on the part of private creditors.
However, he trusts that the process will end with the expected result, because otherwise they would have to make a “complete revaluation” of the rescue and create a “very, very complicated situation,” admitted a European source. The result of the debt repurchase will be expected in mid-December .
Among the measures agreed on Tuesday is to give two more years to Greece – up to 2016 – to reach a primary surplus – before interest payments – and make the reduction in the level of debt more flexible, which will have to decrease to 124% by 2020 compared to 120% previously established and less than 110% in 2022.
The repurchase of debt is part of the package of measures approved last Tuesday to make the debt Hellenic sustainable, which also includes a new reduction of interest on bilateral loans granted to Greece and the commissions that the country pays to the temporary rescue fund. for the credits.
A moratorium was also established on the payment of interest to the European Financial Stability Fund (EFSF) and an extension of the maturity of the bilateral loans and those of the fund, as well as the transfer to Greece of the benefits of the purchase of Bank bonds. European Central (ECB).
Finally, the Eurogroup will also analyze the future rescue of Cyprus , although it will not make any decision pending the publication of the results of the banking audit to recapitalize it at the end of next week or at the beginning of the following week and the impact of measures on debt sustainability, such as privatizations and the 2013 budget.