Auditors: Spain's banks may need up to $78 billion
MADRID (MarketWatch) -- Stress tests conducted on Spanish banks by independent auditors revealed that their recapitalization needs could reach €62 billion ($78 billion) in a worst-case scenario, officials said Thursday.
Earlier estimates had varied for the audit reports, but, generally, markets were looking for a figure of €60 billion to €80 billion.
The results of the audits by U.S.-based consultancy Oliver Wyman and Germany's Roland Berger were announced by the Economy Ministry and the Bank of Spain. They revealed that, by Wyman's calculations, Spanish banks need between €16 billion and €25 billion -- €25.6 billion, in Berger's view -- in a baseline scenario, which the government depicted as the most likely outcome.
The baseline implies a 1.7% drop in real gross domestic product this year and a 0.3% fall in 2013 alongside a 5.6% decline in housing prices this year and 2.8% the following year, according to the International Monetary Fund and forecasts by consultants.
Under a higher-stress scenario, Oliver Wyman said Spanish banks would need between €51 billion and €62 billion, while Roland Berger put the figure at €51.8 billion. In that event, GDP would fall 4.1% this year and 1.6% next, while housing prices would drop 20% and 3.6%, respectively.
Officials have been quoted as saying Spain would make a request for funding of its banks within days. The Bank of Spain said in a written statement that the core of the Spanish banking sector is "resilient to highly adverse macroeconomic developments, while the problems are limited to a group of institutions for most of which actions from public authorities have already been taken."
The Bank of Spain said plans to restructure the weakest institutions would be decided on a "case-by-case basis in conformity with requirements established by European authorities."
Finance Minister Luis de Guindos was expected to have reported the findings earlier in the day to fellow euro-zone colleagues meeting in Luxembourg. A media report quoted German Finance Minister Wolfgang Schäuble as saying he expected Spain to formally request the aid for its banks later Thursday.
A second audit by a group of independent auditors is set to look more in depth at individual banks and determine capital shortfalls among Spain's biggest institutions.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, said the audit underscores the scale of the nation's financial crisis.
"It is noteworthy that in the space of a fortnight we have already gone from a €37 billion forecast for Spanish banks' capital needs in a stressed scenario to a €52 billion-€62 billion one," Spiro said in comments via email. "This begs the question: What will the more detailed audit in September reveal?"
Fitch Ratings has estimated that Spanish banks would likely need between €50 billion and €60 billion to shore up their domestic loan portfolios. Under a revised Irish stress scenario -- based on what happened in that country -- the needs would rise as high as €100 billion.
The results of the audit came after the close of local markets. Spain's IBEX 35 index (IBEX) ended 0.3% lower at 6,773.50. Among major banks,
Borrowing costs fell in Spain for the third day running after an auction of various-maturity bonds raised more money than expected. After rising well above 7% earlier this week, the yield on the 10-year government bond (10YR_ESP) dropped 17 basis points to 6.58%.
Pressure on bond yields for Spain and Italy surged this week amid talk that Germany might be warming to the idea of using the euro-area bailout fund to purchase sovereign bonds on the secondary market.
Investors are likely to be on edge Friday morning as European bond and stock markets react to the audit.
The Spanish government has had a poor track record with regard to high-profile announcements related to the economy, and little it has said has calmed investor sentiments.
The bank-bailout plan unveiled June 9 set off fresh worries, specifically that the loans from the European Union of up to 100 billion euros might not be enough to shore up banks. Further, markets are worried that at some point, as soon as this year, a full bailout of Spain may still be needed.
The economy is in dire shape. Mired in a recession tied to a collapse of the housing sector, with the highest unemployment in the European Union, at around 25%, the country's weak economic growth could hamper efforts to lower the budget deficit. Economists at Capital Economics said in a note recently that the banking plan would raise the country's public-debt-to-GDP level another 10% from the current 70%.
, 
, 
, Copyright ©2013. All rights reserved.