Spain optimistic on banks, despite Moody's downgrade
Spain's banks will need just 15 billion euros to clean up their balance sheets, the central bank said Thursday, rebuffing predictions by Moody's which sliced the country's' credit rating hours earlier.
The shortfall, which concerns a total of 12 banks, was less than the government's ceiling of 20 billion euros ($28 billion) -- and well below the forecast by Moody's ratings agency of 40-50 billion euros.
The Bank of Spain's report responded to tough government measures unveiled last month that require banks to raise their minimum levels of core capital in a bid to shore up confidence in financial institutions and the wider economy.
Under the new regulations, the banks must raise the proportion of core capital they hold to 8.0 percent of total assets from the current six percent, or 10.0 percent if they are unlisted.
Those that have fallen short had to reveal by March 10 how much they need to raise to meet the new requirements.
"Overall, 12 banks must increase their capital, for an amount totalling 15.15 billion," the Bank of Spain said in a statement.
"Of these 12 institutions, two are Spanish banks, two are subsidiaries of foreign banks and eight are savings banks."
Spain's 17 regional savings banks, which have already received some 12 billion euros in public funds last year, are considered the weak link in the financial system.
They are still struggling under the weight of loans that turned sour after the 2008 property bubble collapse and are at the heart of fears the country could need an Irish-style international rescue.
The ratings agency Fitch said earlier that the Spanish banking system as a whole would need at least 38 billion euros, and even as much as 96.7 billion euros based on the losses at Irish banks.
Moody's also expressed scepticism about Madrid's assumption it can clean up its banks' balance sheets at a cost of less than 20 billion euros.
But Prime Minister Jose Luis Rodriguez Zapatero said the central bank's figure was "reasonable, acceptable."
"I respect all (ratings) agencies but as my confidence, as prime minister, is on the side of the Bank of Spain," he told a news conference.
In a serious setback to Spain's efforts to quell fears it may need an international financial rescue, Moody's cut Spain's long-term debt rating by a notch to "Aa2" with a negative outlook early on Thursday.
The downgrade came on the eve of a eurozone summit in Brussels to discuss bolstering the euro's defences amid increasing speculation that weak economies such as Portugal may follow Ireland and Greece and need an international bailout.
Spain's government bristled at the decision, which sent markets tumbling in Europe.
Moody's could have resolved its doubts over the cost of recapitalising the banks "simply by waiting until this afternoon for the Bank of Spain to confirm the necessary amounts," Finance Minister Elena Salgado said.
The New York-based agency said it also had concerns over Spain's efforts to create sustainable public finances, given the limits of Madrid's control over the regional governments' spending.
Madrid has raised sales taxes, frozen old age pensions, cut public workers' wages by five percent, forced banks to strengthen their balance sheets, raised the retirement age and made it easier for firms to hire and fire in order to shore up public finances and get the economy growing again.
The government said last week it had trimmed the public deficit to 9.24 percent of total economic output in 2010 from 11.1 percent in 2009, narrowly beating its target of 9.3 percent.
It has vowed to drive its public deficit below the European Union limit of 3.0 percent of gross domestic product by 2013.
In addition to the eight savings banks, the Bank of Spain named Bankinter and Bankpyme as among the 12 institutions that needed to raise capital, along with the Spanish subsidiaries of Barclays and Deutsche Bank.
French bank Natixis' Spanish analyst Jesus Castillo said the costs of recapitalising the banks should be manageable, but warned that the big problem was weak economic growth.
"We are more concerned by the ability of the Spanish economy to recover a solid growth path able to reduce the large unemployment rate -- more than 20 percent at the end of 2010 -- and to allow a fiscal consolidation in the mid-term," Castillo said.
The Spanish economy suffered its worst recession in decades in late 2008, pushing the unemployment rate to 20.33 percent at the end of 2010, the highest in the industrialised world.
It emerged with meagre growth rates in the first half of last year and posted a contraction of 0.1 percent for all of 2010.
© 2011 AFP