Spain to ask Europe for about 40 billion euros to clean up the banking sector, minister confirms

Economy Minister Luis de Guindos on Monday confirmed that Spain will ask for about 40 billion euros, equivalent to about four percent of its GDP, from its European partners to recapitalize the banking sector.

Quoting government sources, EL PAÍS on Monday reported the figure would be between 40 and 42.5 billion euros. The figures will include 37 billion euros for the four banks that have been nationalized after running into problems because of their exposure to the ailing real estate sector. The banks in question are Bankia, Novagalicia, CatalunyaCaixa and Banco de Valencia. According to an independent audit by Oliver Wyman, Bankia alone requires 24.7 billion euros.

A further two to three billion will be required by banks which, although they have not been taken over by the state, could face problems in raising capital independently at a reasonable cost. These could include lenders such as Caja España and Caja3, which are currently immersed in merger processes that have not turned out quite according to plan. Other banks that may require state aid are BMN and Liberbank.

Banco Popular, which Oliver Wyman also identified as one of the lenders that would require more funds under a negative scenario for the economy, has practically covered its funding needs through a capital increase of 2.5 billion euros.

Speaking in Brussels ahead of a Eurogroup, De Guindos declined to say how many job cuts Brussels might ask for in exchange for assistance to the sector. “Whenever there is public aid, there is a restructuring plan,” De Guindos said, adding that this was the responsibility of the European Commission’s Competition department, which is due to release the figures on Wednesday.

EL PAÍS on Sunday reported that Bankia will be required to shed 6,000 jobs in exchange for assistance and Novagalicia 2,000.

The government is also setting up a so-called bad bank to absorb the toxic assets of the sector. The asset management corporation is due to be up and running at the start of next month.

De Guindos said he was confident the Eurogroup meeting would reach an agreement on freeing up further assistance for Greece. “We are very close,” he said, adding that it was important to convey a “clear political message” about the Hellenic country’s willingness to continue to form part of the euro zone.