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Second Wave of Spanish Banks Win EU Nod for $2.5 Billion Aid

Banco Mare Nostrum SA, Liberbank SA, Banco Caja 3 and Ceiss won European Union approval to receive 1.9 billion euros ($2.5 billion) in government bailouts after agreeing to shrink assets and sell units.

Mare Nostrum will reduce its balance sheet by more than 40 percent, Ceiss will shrink by about 30 percent and Liberbank will reduce by 25 percent, the European Commission said in an e- mailed statement today. Caja 3 will be “fully integrated into Ibercaja” to ensure it returns to viability within five years, it said. All lenders will sell subsidiaries and equity stakes.

“The restructuring plans of BMN, Caja 3, Banco Ceiss and Liberbank will make these banks viable again, thereby contributing to restoring a healthy financial sector in Spain, while minimizing the burden for the taxpayer,” EU Competition Commissioner Joaquin Almunia said in the statement.

Spain is creating a bad bank, called Sareb, as part of a European bank bailout it agreed to in June as it tries to cleanse troubled lenders of real estate assets following the collapse of a decade-long housing boom. EU regulators must rule on government aid to banks and may require them to sell assets or accept limits on business behavior.

Taxpayer Cost

The funds approved today bring to 52 billion euros the total cost to taxpayers of bailing out Spanish banks, Almunia said. That’s made up of 39 billion euros from the European bailout, which the government says banks will pay back, and 13 billion euros from previous Spanish rescue efforts. The total, equivalent to about 5 percent of Spanish gross domestic product, is “too high” and underlines the need to move toward coordinated banking supervision in Europe, he said.

Mare Nostrum will receive 730 million euros in public aid, the EU said, Ceiss will get 604 million euros while Caja 3 will get 407 million euros and Liberbank gets 124 million euros. The banks will also transfer impaired assets and loans to Sareb to reduce capital needs by about 1 billion euros.

Burden-sharing, or forcing investors to take losses, will contribute more than 2 billion euros in capital, while asset sales and other management actions will reduce the cost to taxpayers of the restructuring by more than 1 billion euros, the EU said.

Imposing those losses on junior debtholders is controversial in Spain, where lenders marketed preferred shares to retail investors who weren’t qualified to understand the risks, according to Economy Minister Luis de Guindos. Almunia said today that while some investors were “deceived, to put it mildly,” as they thought they were buying guaranteed deposits rather than loss-absorbing securities, EU funds can’t be used to compensate them.

Arbitration Process

Spain plans to create an arbitration process for such investors, de Guindos said on Dec. 18. Any compensation must come from the banks or Spanish authorities as European taxpayers can’t be expected to bear the cost, Almunia said.

Liberbank, Ceiss and Mare Nostrum face a ban on takeovers and, along with Caja 3, have also accepted a ban on coupon payments until burden-sharing measures on hybrid instruments have been fully implemented. The four lenders will also limit repayments to state-owned credit institutions and promise not to advertise the state support or use it for “commercially aggressive practices.”

The banks will refocus operations on lending to retail customers and small businesses in their “historical core regions,” quitting lending to the real estate industry and limiting their wholesale business, the EU said. This would reinforce their capital and liquidity and reduce reliance on wholesale and central bank funding, regulators said.

BFA-Bankia, the biggest Spanish bank receiving European bank bailout funds, won EU approval last month for a restructuring plan that will see it cut more than a quarter of its workforce, sell 50 billion euros of assets and force losses on subordinated debt holders. The bank will receive 18 billion euros in European funds.

To contact the reporters on this story: Aoife White in Brussels at awhite62@bloomberg.net; Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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