The future of the Spanish banks

The end of the instability of Spain’s financial industry is nigh. The €39.5 billion injection by the European Stability Mechanism will finance the bailout of four intervened entities and will activate the Sareb bad bank to write off toxic assets from balance sheets.

Analysts in Madrid say that the rescue of the Spanish banks, added to the reforms and decisions made during the last years, can effectively complete the country’s banking puzzle and halt the worsening of a seemingly never ending crisis.

Moreover, the government has sold more 12 and 18-month debt paper than planned and it has done so at a lower cost since November–at least 25 basis points less. Long-term debt issues at 3, 5 and 30 years have received a sound demand, too. On the other hand, European Central Bank’s net lending to Spanish banks in November was €341 billion, 12 percent below August’s records.

Banco Popular, one of the entities that Oliver Wyman auditors singled out as the weakest links, has successfully covered its €2.5 billion capital expansion. Popular’s main shareholders–Allianz, Américo Amorim, Banque Fedérative du Crédit Mutuel and Unión Europea de Inversiones–have not hesitated to support the operation. The bank still needs €800 million more, but its directors aren’t worried. The market consensus is that its probable losses of €2.1 billion this year will turn into a €365 million profit in 2013.

Banc Sabadell has digested its integration of Banco Caja de Ahorros del Mediterráneo after a long year of technical arrangements. It is now the fourth banking group in Spain.

Bankia has publicly acknowledged the conditions of being rescued by Brussels: a 5,000-job cut of some 21,000 staff and salary reductions of 40 percent, together with haircuts on preferred shares.

About the four state-owned banks, restructuring plans have yet to be announced, but we know stockholders will see nominal price falls of at least 30 percent to 70 percent.

As for the savings banks still in the limelight, their situation will not be delayed any longer: BMN and Ceiss will likely be nationalised. Together with Liberbank and Caja 3, these institutions must uncover their future on December 20. The sector estimates they will need at most €3 billion from the public purse, in line with Oliver Wyman data.

No more holes or excuses, then.