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Spanish banks have 15bln euro shortfall: central bank

Spain’s troubled banks will need 15.15 billion euros ($20.9 billion) to clean up their balance sheets to comply with new rules aimed at shoring up confidence in the battered economy, the central bank said Thursday.

The shortfall, which concerns a total of 12 banks, was below the government’s ceiling of 20 billion euros ($28 billion), and far less than the figure forecast by ratings agencies.

The news came as ratings agency Moody’s sliced Spain’s credit rating and warned it may do so again, pounding financial markets as it raised the alarm over Spanish banking woes and spendthrift regions.

The Bank of Spain’s report responds to government measures unveiled last month that require banks to raise their minimum levels of core capital in a bid to shore up confidence in the battered 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 savings banks 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.

Fitch said earlier that the Spanish banking system 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, putting the price at 50 billion euros.

New York-based Moody’s cut the long-term debt rating by a notch to “Aa2” with a negative outlook, a serious setback to Spain’s efforts to quell fears it may need an international financial rescue.

“The objective of the reform approved today by Parliament is to reinforce the solvency of the financial system even further, in order to dispel any uncertainty and restore market confidence,” the central bank said.

“Those institutions that have to increase their core capital have fifteen business days to present to the Bank of Spain their strategy and timetable for compliance with the new capitalisation requirements.

“Such strategy must state the concrete measures the institutions plan to implement in order to comply with these requirements before 30 September 2011.”

Moody’s 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.

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 to 20.33 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.

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.

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.

The latest reports came on the eve of a eurozone summit in Brussels to discuss bolstering the euro’s defences amid growing speculation that weak member states such as Portugal may follow Ireland and Greece and need massive bailouts.