Deputy Governor of the Bank of Spain Fernando Restoy Lozano
addresses the media during the presentation of a banking
audit by consultancy Oliver Wyman in Madrid. REUTERS/Susana
Spanish banks will need a total of 59.3 billion euros
($NZ91 billion) in extra capital to ride out a serious economic
downturn, an independent report says, removing a major obstacle
in the way of an international bailout for Madrid.
Spain said around 40 billion euros of the total will come as
European aid while the rest could be raised by the banks
The audit, carried out by consultant Oliver Wyman, is a
condition of getting European funds to patch up Spanish banks
damaged by a prolonged real estate crash, and identifies
which banks need more capital and precisely how much each
Spain has agreed a credit line that could provide up to 100
billion euros in European Union rescue funds for its banks.
"The preliminary estimate of the final amount we would need
to tap from the 100 billion euro lifeline would be one third
less than the capital shortfall identified by Oliver Wyman,"
Bank of Spain Deputy Governor Fernando Restoy said at a press
Both the strict 2013 budget presented by the government of
Prime Minister mariano Rajoy on Thursday and the audit of 90
percent of Spain's banking system are necessary steps for
Madrid to request sovereign aid and trigger a European
Central Bank bond-buying programme.
The "adverse economic scenario" the audit was based on is
fast becoming reality in Spain as spending cuts and tax hikes
throttle any recovery in the euro zone's fourth largest
economy, driving up unemployment and prompting growing
Spain has replaced Greece, Ireland and Portugal as the main
threat to the survival of the euro currency project.
The audit results were in line with market expectations and
were applauded by the European Commission, the European
Central Bank and the International Monetary Fund.
"That's another layer of uncertainty that's off the table,"
said David Schnautz, rate strategist at Commerzbank. "We got
the budget yesterday and today the stress tests and now we're
all keen to hear what the ratings agencies' view will be."
Credit rating agency Moody's is due to review Spain's debt
grade before Monday. It currently has Spain on one notch
above junk with a negative outlook.
The audit identified the bulk of capital needs at the four
banks which have already been rescued by the Spanish
The worst case is Bankia, the result of an ill-fated,
seven-way merger between unlisted savings banks which was
taken over by the government earlier this year.
The capital shortfall for these banks is 49 billion euros,
with Bankia accounting for half of that. The European
Commission said the exact aid needed for each bank would be
determined in the coming months.
More than 60 percent of the system, including heavyweights
Santander, BBVA and Caixabank, did not need extra capital
under the terms of the audit.
The total figure for the capital needs in the banking system
falls to 53.7 billion euros from 59.3 billion when taking
into account the effects of tax breaks and cost savings from
pending mergers, the Bank of Spain said.
"SHOULD DISPEL ALL DOUBTS"
"The exercise has been very strict, very conservative and
very transparent and therefore should dispel all doubts about
the strength of the system," Secretary of State for the
Economy Fernando Jimenez Latorre said.
Other banks that will need extra capital under the stressed
scenario are Banco Popular, Banco Mare Nostrum and a new
entity due to be formed by a merger between former savings
banks Ibercaja, Liberbank and Caja 3.
These banks will next month present plans to the Bank of
Spain outlining how they intend to raise capital by their own
means including share placements, asset sales and forced
losses on subordinated bondholders.
This could shave millions of euros off their final
requirements and reduce the amount Madrid finally taps from
the credit line agreed with Brussels in June.
The audit is also a precursor to the setting up of a "bad
bank", aimed at siphoning off the foreclosed property and
unrecoverable loans to developers that have weighed on
lenders' balance sheets since a 2008 property crash.
Spain is suffering its worst credit crunch in 50 years and
designers of the bank bailout hope these steps will lead to a
resurgence of lending to families and businesses.