Spain plans partial nationalization of savings banks
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.
A source familiar with the matter told Reuters on Friday 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 of last resort to the cajas.
Deputy Prime Minister Alfredo Perez Rubalcaba told reporters a new savings bank plan was coming soon and could include new laws, implying a reform of the FROB.
High levels of bad property loans at the cajas are seen as a major risk for Spain, working to slash its budget deficit to stave off fears it will need an Ireland-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 their highest level since November 1.
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 euros, with consensus falling in the 25 billion to 50 billion area, though Economy Minister Elena Salgado says it will be much lower.
Rubalcaba declined to provide details. Media reports said the economy ministry and central bank have not yet agreed on details of how the partial nationalization would be implemented.
SIGNS OF PROGRESS
If the clean-up costs around 50 billion to 60 billion euros 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 euro zone aid fund the European Financial Stability Facility.
Analysts say the 440 billion euros 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 January 31 more details about their bad loans and property holdings. Only two cajas have reported 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 its high deficit and stagnant economy will force it to seek outside help, but Socialist Prime Minister Jose Luis Rodriguez Zapatero's cost cuts and economic reforms have calmed fears somewhat.
RESCUE VS DEFICIT
A bank recapitalization worth 50 billion euros would amount to about 5 percent of Spanish gross domestic product, which could endanger the government's goal of cutting the budget deficit to 6 percent of GDP 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, said Josep Soler, general director of Financial Studies Institute. We still don't know ... how much the cajas are going to need, he said.
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, 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.
(Additional reporting by Elisabeth O'Leary, Nigel Davies and Robert Hetz in Madrid and William James in London; Writing by Fiona Ortiz; editing by Mike Peacock)
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