Spain is preparing to capitalize four more banks: BMN, Caja3, España-Duero and Liberbank. All of them have negative cash balances and have shown themselves incapable of coming up with more money on their own. Each of them needs different types of capital.
Still, as a group they will have to transfer more than 15 billion euros in toxic real estate assets to the bad bank, a move that will reduce the capital requirements that the state will need to inject into these banks using EU bailout funding. In exchange, the European Commission, the IMF and the ECB will require Spain to buy a certain amount of shares of each bank that needs to meet capital requirements. Contingent convertible bonds (known as "cocos") will not be allowed. These instruments are reserved for banks that, despite having capital needs can provide them through their own resources without having to transfer toxic assets to Sareb. Cocos are high-interest loans that don't affect a lender's independence except in cases where the lender cannot pay them back. The four banks are not allowed to go this route, because they are partially nationalized and looking for ways to reduce their capital needs via divestments.
Some still hope that the merger process that is underway will succeed. This plan will likely fail, and the EU does not believe that it will go through at all judging from the negative impact of previous mergers that tried to heal struggling banks but ended up masking problems and exacerbating the situation. It is critical that Spain quickly pumps funds into these banks, cleans up the sector and gets credit flowing again.
