Spanish banks need up to €62bn

Thu, Jun 21, 2012, 01:00

An independent audit of Spain's banks has found that they will need up to €62 billion in capital to withstand a worst-case economic scenario, according to consulting firms hired to stress tests on the lenders.

Oliver Wyman Ltd. estimated the financial system would need between €51 billion and €62 billion should Spanish gross domestic product shrink by 6.5 per cent and house prices fall as much as 60 per cent from their peak.

Roland Berger Strategy Consultants said banks would require €51.8 billion under those conditions.

Spain hired the two firms last month to estimate the capital shortfall at the nation's banks as investors questioned the health of lenders pummelled by a five-year property slump. 

Economy minister Luis de Guindos has said Spain will use the results of the studies to determine how much money it might need to draw from the €100 billion made available by Europe after it requested funding to clean up banks.

Today's results follow previous attempts by the government this year to bolster confidence in banks by forcing them to increase provisions for soured property and boost reserves to cover property loans that are still being repaid.

This evening euro zone finance ministers are discussing ways to help Spain and Greece in the short term and possible measures to secure the currency long-term.

Some analysts see a banking package as a prelude to a full bailout for the Spanish state. Earlier today Spain's borrowing costs hit a new euro era high at a debt auction.

While the auction of €2.2 billion proved the Spanish treasury can still borrow on international markets, the price it was forced to pay was a 16-year high. It paid a yield of 6.07 per cent on five-year bonds, up from 4.96 per cent in May.

"We want to emphasise the strong demand despite the current situation on the markets," an economy ministry source told Reuters.

However, the rocketing yields contrasted with France's sale today of bonds maturing in 2014 for just 0.54 per cent, as concerns that Spain might have to take a full sovereign bailout meant that international investors are opting for less risky debt.

Madrid had to pay 4.70 per cent for the same maturity.

France sold €8.43 billion in debt, with yields falling in the first bond sale after president Francois Hollande consolidated his position by winning a majority for his party in the country's parliament.

Reporting: Bloomberg/Reuters

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