Spanish Banks Beat Expectations

Date: 29-09-2012
Source: The Wall Street Journal

Bailout Costs Seen Less Than Feared As Audit Sets Stage for Europe Funds.

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.
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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.