The Council of Ministers today approved a Royal Decree Law on the reform of the financial system, which aims to improve the confidence and credibility of the sector as a whole, promoting its consolidation and consolidation, so that it recovers its main function, which is to provide companies and families the credit needed to return to economic growth and job creation. These measures will also stimulate the exit to the market of real estate assets held by banks at more affordable prices.
With this objective, a process of cleaning up real estate assets (problematic and non-problematic) valued at around 50,000 million euros is launched. The effort is made at one time, affecting the one-year income statement.
In the case of problematic real estate assets, coverage stands at 80% for land (now 31%), 65% for ongoing developments (previously 27%) and 35% for finished development and housing (formerly the 25%). These coverages will be carried out in two ways. A specific provision charged to results, for an amount close to 25,000 million euros, plus a capital buffer charged to undistributed profits, capital increases or hybrid conversion (preferred, convertible bonds, subordinated debt …), for an estimated amount of around 15,000 million euros.
In the case of non-problematic assets linked to real estate development, a generic provision of 7% is established, in anticipation of possible future deterioration, given that they represent a higher risk than the rest of the credit portfolio. This provision will be made against results and its estimated amount will be around 10,000 million euros. The deadline to make the specific provision, the generic provision and the capital endowment will be December 31, 2012.
The merger regime established in the regulation establishes that the entities that choose this route must present a feasibility plan and corporate governance measures that make possible a quick and efficient integration. Likewise, the entities in the merger process must assume expansion commitments in the granting of credit. The plan must be submitted to the General Secretariat of the Treasury and Financial Policy, which will instruct the procedure, obtaining a report from the Bank of Spain and the CNMV.
To promote this process of mergers and consolidation of the sector, the required write-downs will be carried out over two years and may be carried out against the assets. In the event of resorting to financing from the Orderly Bank Restructuring Fund (FROB), they may do so through contingent convertible bonds. The patrimonial endowment of the FROB will increase up to 15,000 million euros, in such a way that the relation between own and external resources is improved.
The integration processes must meet the following conditions:
• Increase in the total balance of the largest of the entities by at least 20% (with certain exceptions, but in no case may it be less than 10%).
• The integration process must be carried out through structural corporate operations, and not rely exclusively on contractual agreements.
• Corporate governance plan, including compensation for administrators, managers and other professionals whose activities influence the entity's risk profile.
• Commitment to extend credit to families and SMEs.
• An Economic Viability Plan will be presented, which demonstrates the profitability of the entity's project resulting from the concentration, based on reasonable assumptions.
• Asset divestment plan.
• Requirement that the general boards or assemblies of the entities approve the integration operation before September 30, 2012, and completion of the procedure no later than January 1, 2013. This regime may be applied to integration procedures started as of from September 1, 2011.
• The authorization will be granted, where appropriate, by the Minister of Economy and Competitiveness within a period not exceeding three months.
The Royal Decree Law also contemplates a series of modifications in the legal regime of savings banks.
• The organizational structure and operational requirements of savings banks that carry out their activities indirectly (the merged companies that have transferred their financial business to a newly created bank) are simplified. The governing bodies will be the General Assembly and the Board of Directors and, optionally, the Control Commission.
• The number of members of the Board of Directors and the frequency of its sessions will be determined by the statutes of the savings bank.
• They may not allocate more than 10% of their freely available surpluses to expenses other than those corresponding to social work.
• The operation, periodicity and manner of convening the General Assemblies are simplified.