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The European bailout for Spain's banks will push them to sell an empire of stakes in the nation's top companies, ending a cozy culture of corporate-banking links and prompting a wider shake-up in ownership of the company landscape.
Spain formally requested euro zone rescue loans to recapitalize debt-laden former savings banks on Monday, but those who receive funds will be subject to European Union state-aid rules that include selling equity assets.
With the price of such assets languishing as the euro zone's financial crisis drags on, that will involve the likely fire sale of big chunks of Spain's corporate titans, including telecoms leader Telefonica, oil major Repsol and power firm Iberdrola.
UBS estimates 22 billion euros ($28 billion US) of Spanish stakes could be up for sale, most of which is in the hands of savings banks. This represents as much as 9 percent of the capitalization of the country's blue-chip index.
Over the years, Spain's savings banks have gained board seats on some of the country's biggest firms, exerting a powerful role in shaping corporate and industrial strategy in sectors ranging from tourism and real estate to energy and telecommunications.
Established centuries ago to help farmers in times of poor harvests, the savings banks developed strong regional and political identities in a closely intertwined corporate and banking culture of mutual backscratching.
Banks rolled over debt for cash-strapped companies to prevent loans from going bad, while bankers earned considerable salaries for sitting on company boards.
Not for much longer.
"They're going to have to sell. And with no light at the end of the tunnel as far as the macro, political dance, the chances of holding out for a better price increasingly look like wishful thinking," said Flemming Barton, analyst at CM Capital Markets.
NOT IF, BUT WHEN
Bankia, which last month asked for a lifeline of 19 billion euros ($24 billion), the largest state rescue in Spanish history, will be the first to give up once-prized corporate stakes.
It owns 20 percent of tech firm Indra, 12 percent of International Airlines Group and 5.3 percent of Iberdrola, as well as big stakes in insurer Mapfre, hotelier NH Hoteles and olive oil firm Deoleo.
"Bankia is going to have to liquidate all its stakes except for Mapfre, where it has cross stakes and strategic deals," a banking source said. "This is going to put pressure on other savings banks, including La Caixa's industrial empire."
Although Barcelona-based La Caixa is not itself in need of a bailout, the shift in Spanish banking and corporate relationships will set the tone for the Catalan bank, too.
Executives at the companies held by Bankia are already taking steps to line up buyers and keep the shares from falling into undesirable hands.
In the case of Iberdrola, Chairman Ignacio Sanchez Galan said on Friday the company did not rule out buying back Bankia's stake, worth 1 billion euros, itself.
Meanwhile, IAG Chief Executive Willie Walsh has said there are "interested investors" for Bankia's stake, valued at about 420 million euros.
Bankia and its parent BFA have already recognized a 1.6 billion euro write-down on its corporate stakes. Not so for other troubled banks that will also be under pressure to sell.
An independent audit to determine the health of Spanish banks also failed to put a number on potential losses related to banks' equity stakes, meaning the sector's ultimate funding needs could increase.
CLOCK TICKING FOR LA CAIXA
Like Spain's two largest banks Santander and BBVA, banking group La Caixa does not need external aid, but analysts and sources said it was just a matter of time before the Catalan powerhouse also unwinds stakes.
"Caixabank isn't stressed to the extent that the others are, but they obviously will have to find capital, either through business as usual or selling stakes," said one banking source. "But the days of industrial holdings is nearing its end."
Despite a strong balance sheet, La Caixa will need fresh funds to meet tough new provisioning requirements under a local and global drive for banks to raise capital.
For decades La Caixa has been kingmaker of a vast empire, stretching from 37 percent of utility Gas Natural to 28 percent of tollway firm Abertis, 12.8 percent of Repsol and 5.1 percent of Telefonica, and including stakes in banks such as Austria's Erste and Portugal's BPI.
Some of the stakes, long considered sacred, are held through its listed unit Caixabank.
"I definitely don't see Caixabank selling now or soon; they're going wait. But in the next cycle it's hard to see them increasing exposure to equity holdings in corporates other than as a result of bankruptcies," Barton of CM Capital Markets said.
A flock of "vulture" funds is already watching over the banking sector shakeout in the hope that it will finally deliver a bonanza of distressed company assets at rock bottom prices.