Provisional assessment of the Spanish bank bailout

Spanish bank bailout

Thirty Spanish financial institutions, mainly savings banks, have disappeared due to the crisis after being swallowed up by other banks. In some cases, their original brands – which have significant local, regional or national implantation – have been added to that of the absorbing institution.

Two traditional Spanish banks (BBVA and Sabadell), five savings banks transformed into banks (Caixa, Ibercaja, Unicaja, Asturias-Liberbank and Kutxa), a Venezuelan bank and two new nationalised lenders, Bankia and Mare Nostrum, have integrated the savings banks which were bailed out and restructured by the FROB. This state-owned entity was created at the beginning of the crisis to channel public financial support to financial institutions.

The state has committed through the FROB a total of around € 55 billion (€ 40 billion financed by European institutions). So far it has recovered € 4 billion and there is a further € 1 billion pending amortisation before 2017.

This leaves a provisional balance of € 50 billion, to which the cost of hedging assets granted to the buyers of the bailed out savings banks has to be added. This can vary between €1 and 10 billion for the FROB.

Then a deduction has to be made for the amount raised from the sale of 62% of Bankia (with a current stock market value of € 9 billion) and 65% of Mare Nostrum Bank (with an estimated value of perhaps about € 1-2 billion).

So taking into account all the above information, we can estimate the direct cost of the crisis for the state will be around 45 billion.

An additional cost of the crisis is that incurred by the Deposit Guarantee Fund, which guarantees the deposits held by Spain’s credit institutions. This could amount to a further € 10 billion.

During the five years the crisis lasted (2009-2014), the State provided financial institutions with guarantees worth nearly € 120 billion. These have all expired almost entirely without losses.

Another cost which is impossible to estimate at the moment is that related to Spain’s bad bank SAREB. This was set up in 2014 to clean up soured property sector-related assets held by the banks.

The state has provided € 2.2 billion to SAREB’s capital, as well as guarantees amounting to € 45 billion. The government estimates that there will not be in the long term.

So what are the main points of this provisional assessment of Spain’s bank bailout?

Well, we have a restructured financial sector embarking on a new phase in its development amid uncertainties. Furthermore, apart from the bailout funds it has received, the sector itself has also earmarked € 300 billion for restructuring over these last few years and raised € 50 billion of additional capital.

Those who insisted five years ago that Spain’s financial system was strong and solvent clearly suffered from impaired vision.

About the Author

Fernando Gonzalez Urbaneja
Over 30 years working in economic journalism. Fernando was founder and chief-editor at El País, general editor at the business daily Cinco Días, and now teaches at Universidad Carlos III. He's been president of the Madrid Press Association and the Spanish Federation of Press Associations. He's also member of the Spanish press complaints commission.

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