Spanish banks have agreed to downsize radically in return for a huge injection of public money, after the European Commission approved the restructuring plans yesterday.
Between them the banks will receive a €40bn (£32.2bn) recapitalisation boost, but must slash jobs and shrink their balance sheets by up to 60 per cent as part of the process.
The money is coming from Spain’s fund for the orderly restructuring of banks (FROB), which was financed by the Eurozone bailout fund.
The fourth largest lender Bankia is taking €18bn from the facility. It will cut 6,000 jobs and close 39 per cent of its branches under the programme.
Bankia itself was formed in 2010 out of seven failed institutions, before being nationalised. It will dispose of €50bn of assets which will sold or be taken on by the new “bad bank” being set up to wind down toxic holdings.
Junior debt holders will contribute €4.8bn to Bankia’s restructuring through losses on their investments – one condition imposed on the banks by the EC against the will of the Spanish government which wanted to preserve bondholders’ investments.
After losing €19bn this year, the bank hopes to rapidly become profitable once more, making money next year.
“Now our institution is financially sound, we shall focus on making it profitable because that is the best way to reward our shareholders and taxpayers, so they can recover their investment,” said Bankia chairman Jose Ignacio Goirigolzarri.
NovaGalicia Banco and Catalunya Banc join Bankia in shedding assets while Banco de Valencia is being sold to healthier rival Caixabank.
Meanwhile Spain’s economy deteriorated further, with official data yesterday revealing a 9.7 per cent fall in retail sales in the year to October.