MADRID—A new audit shows Spain would need less capital for its banks than initially estimated, clearing the way for the cleanup of the ailing sector at a time of uncertainty about the country's finances.
The €53.75 billion ($69.34 billion) figure offered Friday takes into account tax deductions linked to losses and is below the €62 billion estimate Spain gave in June.
It will form the basis for the calculation of how much Spain will need to draw from a €100 billion bailout obtained from the European Union.
Concerns over Spain's ability to deal with its banks, a growing budget gap and deep economic recession have sent borrowing costs steadily higher in recent months, fueling speculation the government would need another bailout to help meet its own financing needs.
The Spanish government hopes the results will help rebuild confidence in the country's banks. A new state-owned "bad bank" will reduce final capital needs, while some banks will be able to plug holes without recourse to state aid.
At a news conference, Deputy Finance Minister Fernando Jiménez Latorre estimated his country might need just around €40 billion of the EU credit line.
After a brief respite earlier this month, due to the European Central Bank's promise to buy bonds of governments that submit to an economic-reform program, Spanish markets came under pressure again this week amid evidence of a mounting domestic backlash to the overhauls of Prime Minister Mariano Rajoy.
The government unveiled a package of spending cuts and tax increases Thursday in an effort to stabilize the economy amid protests and political challenges from Catalonia, the country's most populous region.
The stress tests, done by U.S. consultancy Oliver Wyman under the supervision of a steering committee that included representatives of the ECB and the European Commission, aim to provide a definite estimate of Spanish bank capital needs four years after the collapse of a local housing boom that sunk the economy and saddled banks with billions of euros of bad debt.
The external assessment was required under the terms of the EU aid package after the failure of Spanish authorities to come to grips with the size of their banking problem in four previous cleanup efforts.
The results, which came after the close of European financial markets, prompted little reaction in the U.S. Michael Symonds, analyst at Daiwa Capital Markets Europe, said the results are unlikely to have a significant impact on market sentiment.
In a sign of deepening concerns over Spain's solvency, Moody's Investors Service has said it could downgrade Spain's credit rating, already just one notch above junk status. Mr. Rajoy has said he is considering a bailout request.
His government is exploring the possibility with its EU partners of using funds left over from the €100 billion credit line for banks to buy Spanish government debt, according to people close to the situation.
The ECB, the International Monetary Fund and the European Commission all welcomed the completion of the Spanish stress tests.
"This is a major step in implementing the financial-assistance program and toward strengthening the viability of confidence in the Spanish banking sector," the commission said in a statement.
The next step is for the banks with capital shortfalls to submit recapitalization plans that will be evaluated by the Spanish central bank and the commission.
In its statement, the commission said the first round of bank recapitalizations is expected to take place in November.
The stress tests analyzed the ability of the country's 14 largest banks to absorb losses in an extreme scenario of a 6.5% decline in gross domestic product through the year 2014.
They concluded that seven banks would have capital shortfall in such a situation. The four banks that were nationalized over the past year had the biggest capital shortfalls.
Bankia SA alone needs €24.7 billion, well above the €19 billion estimated in April, the Bank of Spain said in a statement.
Novagalicia Banco, Catalunya Bank and Banco de Valencia need a total of €21.46 billion. Among the listed banks, Banco Popular Español was found to need €3.2 billion, though the bank said it could cover the shortfall by itself.
Two other, smaller banks need a total of €4.32 billion, the central bank said. Spain's three largest banks—Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA—won't need to raise new funds. Four smaller lenders, Banco Sabadell SA, Bankinter SA, Kutxabank and Unicaja also are off the hook.
wsj.com
The €53.75 billion ($69.34 billion) figure offered Friday takes into account tax deductions linked to losses and is below the €62 billion estimate Spain gave in June.
It will form the basis for the calculation of how much Spain will need to draw from a €100 billion bailout obtained from the European Union.
Concerns over Spain's ability to deal with its banks, a growing budget gap and deep economic recession have sent borrowing costs steadily higher in recent months, fueling speculation the government would need another bailout to help meet its own financing needs.
The Spanish government hopes the results will help rebuild confidence in the country's banks. A new state-owned "bad bank" will reduce final capital needs, while some banks will be able to plug holes without recourse to state aid.
At a news conference, Deputy Finance Minister Fernando Jiménez Latorre estimated his country might need just around €40 billion of the EU credit line.
After a brief respite earlier this month, due to the European Central Bank's promise to buy bonds of governments that submit to an economic-reform program, Spanish markets came under pressure again this week amid evidence of a mounting domestic backlash to the overhauls of Prime Minister Mariano Rajoy.
The government unveiled a package of spending cuts and tax increases Thursday in an effort to stabilize the economy amid protests and political challenges from Catalonia, the country's most populous region.
The stress tests, done by U.S. consultancy Oliver Wyman under the supervision of a steering committee that included representatives of the ECB and the European Commission, aim to provide a definite estimate of Spanish bank capital needs four years after the collapse of a local housing boom that sunk the economy and saddled banks with billions of euros of bad debt.
The external assessment was required under the terms of the EU aid package after the failure of Spanish authorities to come to grips with the size of their banking problem in four previous cleanup efforts.
The results, which came after the close of European financial markets, prompted little reaction in the U.S. Michael Symonds, analyst at Daiwa Capital Markets Europe, said the results are unlikely to have a significant impact on market sentiment.
In a sign of deepening concerns over Spain's solvency, Moody's Investors Service has said it could downgrade Spain's credit rating, already just one notch above junk status. Mr. Rajoy has said he is considering a bailout request.
His government is exploring the possibility with its EU partners of using funds left over from the €100 billion credit line for banks to buy Spanish government debt, according to people close to the situation.
The ECB, the International Monetary Fund and the European Commission all welcomed the completion of the Spanish stress tests.
"This is a major step in implementing the financial-assistance program and toward strengthening the viability of confidence in the Spanish banking sector," the commission said in a statement.
The next step is for the banks with capital shortfalls to submit recapitalization plans that will be evaluated by the Spanish central bank and the commission.
In its statement, the commission said the first round of bank recapitalizations is expected to take place in November.
The stress tests analyzed the ability of the country's 14 largest banks to absorb losses in an extreme scenario of a 6.5% decline in gross domestic product through the year 2014.
They concluded that seven banks would have capital shortfall in such a situation. The four banks that were nationalized over the past year had the biggest capital shortfalls.
Bankia SA alone needs €24.7 billion, well above the €19 billion estimated in April, the Bank of Spain said in a statement.
Novagalicia Banco, Catalunya Bank and Banco de Valencia need a total of €21.46 billion. Among the listed banks, Banco Popular Español was found to need €3.2 billion, though the bank said it could cover the shortfall by itself.
Two other, smaller banks need a total of €4.32 billion, the central bank said. Spain's three largest banks—Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA—won't need to raise new funds. Four smaller lenders, Banco Sabadell SA, Bankinter SA, Kutxabank and Unicaja also are off the hook.
wsj.com
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