Bank recapitalization complete after three lenders nationalized

Spain on Friday completed the recapitalization plan for its banking system as the Bank of Spain nationalized three more lenders that were unable to raise funds privately to meet the new solvency requirements being imposed.

The whole restructuring process included an injection of 7.55 billion euros from the state Orderly Bank Restructuring Fund (FROB), while lenders raised a further 5.84 billion euros privately.

The combined total of 13.39 billion euros was below the Bank of Spain's initial estimate of 15.15 billion euros to meet the new minimum core capital ratio of eight percent for listed banks and 10 percent for lenders that failed to place at least 20 percent of their capital privately.

However, Bank of Spain governor Miguel Ángel Fernández Ordóñez warned that savings bank CAM, which was taken over by the central bank after it sunk under the weight of its heavy exposure to the ailing real estate sector, could end up costing the state.

"CAM is the worst of the worst, and I wouldn't rule out that in the case of CAM it will cost the taxpayer money," the central bank chief told a news conference. The FROB has already injected 2.8 billion euros into CAM to restructure it with a view to later putting it on the block.

Fernández Ordóñez said the bank's troubles were the "product of bad management," adding that he found exorbitant pay-offs and pensions awarded to some of CAM's top management before it was taken over as "scandalous."

The governor also left the door open for further recapitalization depending on developments in the euro-zone sovereign-debt crisis, which he said is at its most difficult moment. "The focus is on Greece and the possibility that it won't pay part of its debt."

The three lenders taken over on Friday were Novacaixagalicia (NCG), CaixaCatalunya and Unnim, which received a total of 4.75 billion from the FROB. As a result, the state owns 93 percent of Novacaixagalicia and about 90 percent of CaixaCatalunya. The state fully owns Unnim, the smallest of the three.

The European Commission on Friday approved the injection of state funds into the three as a move essential to allowing them to carry on lending and to implement restructuring.

Out of the 114 banks in the system, the Bank of Spain deemed 13 needed more capital. Four were recapitalized by their parents, while Bankia and Banca Cívica met the new requirements through initial public offerings. The central bank said that two smaller lenders, BMN and Liberbank, have been given a further 25 days to find private investors.

As part of the extensive overhaul of the system, the number of savings banks in the sector has shrunk to 15 from 45. Restructuring also saw writedowns of 105 billion euros in the balance sheets of lenders. Branch networks and staffing have also been cut on average by 17 percent.

"The capitalization process presented today is part of the comprehensive restructuring of the financial system undertaken in 2009," the Bank of Spain said in a statement. "The merit of this recapitalization process is all the greater for having been undertaken in the most difficult of international settings, owing to the tensions experienced in recent months on financial markets."