Spain plans to pour billions more euros into its troubled savings banks and force them to be more open about their lending practices, people familiar with the matter said, an acknowledgment that previous efforts to fix the banks have fallen flat as the country seeks to ward off an international bailout.
In a first step, Spain is preparing to issue â‚¬3 billion ($4 billion) in debt in coming days, the people familiar with the matter said. Government officials are putting plans in place to eventually raise as much as â‚¬30 billion, according to these people, though some say the final tally will be less.
The hope is that a series of capital injections will quell investor jitters about the savings banks, known as cajas (literally, “boxes”), which have been a thorn in Spain’s side as it seeks to convince investors that the country’s finances are stable.
The fate of theÂ cajas is inextricably tied to the fate of Spain and potentially to the euro itself. Fear that the savings banks can’t raise funds on their own and will need a government bailout was one reason ratings agency Moody’s put Spain’s rating on review for a downgrade last month.
Another step the government is taking to boost investor confidence in the cajas is simplifying their complex structures, making them more like traditional banks. The cajas have long had confusing ownership and governance structures and disclosed far less financial information than other banks. Their boards consisted of local politicians, union members, clients and, in some cases, Catholic priests, many of whom were reluctant to relinquish their influence over lending decisions.
The Spanish government last year forced a wave of mergers among theÂ cajasâ€”reducing their number from 45 to 17â€”but confusing, unwieldy structures persisted, scaring off investors. Another part of last year’s rescue attempt was an injection of â‚¬11 billion via the newly formed Fund for Orderly Bank Restructuring. At the time, Spain said it could put up to â‚¬99 billion into the fund, but until recently had said further injections wouldn’t be necessary. Now, it’s reversing course.
Going forward, people close to the matter say, the idea is to force theÂ cajas to transform themselves into centralized, transparent entities that more closely resemble traditional banks by placing all of their assets into a central holding company and streamlining management. The changes would be made either through legislation or by making it a condition of accessing government funds.
“We think that the restructuring and recapitalization of the savings bank sector is probably the most important issue for the government at this juncture,” said Antonio Garcia Pascual, an economist at Barclays Capital.
Raising any new capital for theÂ cajas carries risks, as it comes on top of Spain’s existing financing needs. Economists estimate that the country needs to borrow â‚¬125 billion this year just to finance its deficit and roll over maturing debt.
Many of theÂ cajas, which account for â‚¬1.3 trillion in assetsâ€”or 42% of total bank assets in Spainâ€”used liberal lending practices to fuel a decade-long housing boom that went bust and left many of the institutions holding billions in bad loans and facing heavy losses.
The new moves reflect the fact that last year’s fixes didn’t stick. The shotgun weddings forced by the government proved difficult to execute in practice, with the governing boards of mergedÂ cajasbickering over issues like labor, salaries and operating hours. In most cases, the new banks only partially merged their assets.
Don’t let the MSM censor your news as America becomes Great Again. Over 500,000 Americans receive our daily dose of life, liberty and pursuit of happiness along with Breaking News direct to their inbox—and you can too. Sign up to receive news and views from The 1776Coalition!
We know how important your privacy is and your information is SAFE with us. We’ll never sell
your email address and you can unsubscribe at any time directly from your inbox.