Spain's banks may need up to €62bn


SPANISH BAILOUT:SPAIN WILL need up to €62 billion to recapitalise its struggling banking sector, according to the results of independent stress tests released yesterday. The results will form the basis of the government’s request for an EU bailout loan.

The figures published are well below the €100 billion the EU has made available to Spain to cover its banks’ recapitalisation needs.

The tests, carried out by auditing firms Roland Berger and Oliver Wyman, examined the ability of the financial sector as a whole to absorb losses and offered capital shortfall estimates under both anticipated and more pessimistic economic scenarios.

Fourteen banks were studied, constituting 90 per cent of Spain’s domestic financial system, using data provided by the Bank of Spain.

US auditor Oliver Wyman estimated that Spain’s banks would need €16-€25 billion under anticipated conditions, rising to €51-€62 billion in adverse circumstances.

German firm Roland Berger forecast a need for €25.6 billion in the first scenario, increasing to €51.8 billion in the worst case.

The full results of a more detailed audit of the sector, being carried out by Deloitte Touche Tohmatsu International, KPMG, PwC and Ernst Young, are expected to be published in September.

“These figures are much lower than the maximum agreed upon with the Eurogroup,” said Bank of Spain deputy governor Fernando Restoy. He added that they “give enough clues” to help Spain establish exactly how much it needed when it hammered out the terms of the deal with the EU.

The worst-case scenario used by the auditors includes a steep fall in real estate prices and Spain’s current recession extending into 2014, a situation “that no analyst, no matter how pessimistic, would subscribe to,” said Restoy.

“These figures sound reasonable within the framework of the bad state of Spain’s banking sector,” said economic analyst Juan Ignacio Crespo.

The audits did not offer information on individual banks but they did find that the four lenders under the control of the state Bank Restructuring Fund are most in need of extra capital. However, Spain’s top three banks – Santander, BBVA and Caixabank – would not require recapitalisation, even in the worst-case scenario, the audits say.

Estimates as to how much Spain’s banks need to cover shortfalls caused by the collapse of a decade-long property boom have varied substantially.

A report by the IMF released just ahead of the June 9th bailout announcement put the figure at €40 billion, although some forecasts have exceeded the €100 billion on offer.

Economy minister Luis de Guindos said yesterday that Madrid would formalise its EU loan request “in the next few days”, with the details of the deal being confirmed at the end of July.

Spanish prime minister Mariano Rajoy has said the deal will not carry conditions affecting government macroeconomic policy.

On Wednesday, finance minister Cristóbal Montoro upbraided opposition politicians for describing the loan as a “bailout”.