The Government will again lend money to banks to support new entity mergers

The Government will again lend money to banks to support new entity mergers

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  • The FROB could be forced to make new debt issues.
  • The reactivation of this route also likes the financial sector.
  • In the FROB 1 operations that were carried out in 2010, the State loaned a total of 9,674 million euros to a total of seven groups of merged funds. Stock image of the headquarters of the Bank of Spain in Madrid. JORGE PARIS

The financial reform that the government will approve next Friday will contemplate the concession of public “loans” for the entities that participate in the new wave of mergers, according to sources from the financial sector. The Ministry of Economy, according to the same sources, has decided to reactivate a mechanism that already worked in the first steps of the restructuring of the financial sector , at the end of 2009 and 2010, and which is known as the FROB 1.

This mechanism, which was applied for example in the merger that gave rise to BFA-Bankia, BMN and Banca Cívica, among others, will be articulated through the Fund for Ordered Banking Restructuring (FROB), which will buy securities from the merged entity , in specific preferred shares. The entity resulting from the merger that receives these funds is obliged to pay interest for this investment, which will be around 8%.

This option seems to have convinced the team led by the Minister of Economy and Competitiveness, Luis de Guindos, because it is a way to support banking concentration without swelling the public deficit or costing the taxpayer money. Being a financial transaction carried out at market prices, Brussels allows not to be counted as a deficit, but as a debt.

The entity that received the most money was BFA-Bankia, with 4,465 million euros

The reactivation of this route also appeals to the financial sector, especially the entities that have proposed to participate actively in the new round of mergers , but that demanded some kind of public support to address these operations. These entities demanded a way of aid that did not imply the entry of the State into their capital, as it did with the so-called FROB 2, used last year for the rescue of NovaGalicia, Unnim, and CatalunyaCaixa.

In the FROB 1 operations that were carried out in 2010, the State loaned a total of 9,674 million euros to a total of seven groups of merged funds. The entity that received the most money was BFA-Bankia, with 4,465 million euros, followed by CatalunyaCaixa, which received 1,250 million euros, NovaGalicia, with 1,162 million, Banca Cívica with 977 million, Caja España-Duero with 525 million, and Unnim with 380 million.

To address this new round of “loans”, the FROB could be doomed to make new issues of debt , although it has about 5,500 million euros available after the last operations. The Government, with De Guindos at the helm, has defended in recent weeks that one of the objectives of the financial reform is to promote a new wave of bank mergers, in addition to imposing a greater consolidation of the sector with the tightening of provisions of real estate assets .

In this environment, entities with purchasing power have put their attention on the four that are controlled by the State that will be auctioned in the coming months, such as Unnim, Banco de Valencia, CatalunyaCaixa and NovaGalicia. The Bank of Spain “invited” a few weeks ago the rest of the funds that enjoyed the FROB 1, such as BFA-Bankia, Banca Cívica and BMN, to participate actively in this auction process.

This motivated, for example, that the entity chaired by Rodrigo Rato entered the race for Unnim, or that BMN, led by Caja Murcia, showed its interest in growing in the Mediterranean arch with the purchase of Banco de Valencia. If they succeed, these entities will once again be able to enjoy financial support from the State, as happened two years ago, while others, which have not yet participated in the mergers, such as Ibercaja, could now have incentives to do so.

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