Published June 09, 2012
Spain's government on Saturday said it was awaiting the recommendations of eurozone economy and finance ministers as it considers the best strategy for recapitalizing its ailing banks, which the International Monetary Fund says need between 40-60 billion euros ($50-75 billion) in fresh funds.
Sources with Prime Minister Mariano Rajoy's government told Efe Spain did not request the Eurogroup teleconference call convened for Saturday afternoon, but said the Spanish government wants to hear its partners' analysis before making any decision.
The IMF presented the results of its audit of Spanish banks on Friday, three days ahead of schedule, concluding that the country's most vulnerable financial institutions would need at least 40 billion euros, although their recapitalization needs could rise to 60 billion euros if the financial situation worsens.
But the government sources said the IMF found that the country's financial sector is fundamentally solid, that only 30 percent of the banks are ailing and that the government and Spain's central bank are already taking steps to shore up their weaknesses.
The same sources also noted that the IMF praised Spain's transparency in allowing independent consulting firms to evaluate the health of its banks.
The IMF said a clear strategy for correcting the capital deficiencies is needed and the Spanish government is currently working on mapping out such a plan, they said.
Spain has denied already putting in a request for outside aid for its banks and on Friday Soraya Saenz de Santamaria, the deputy prime minister, said no decision had been made on recapitalizing bad loan-saddled institutions, adding that the government was awaiting reports from the independent consulting firms due on June 21.
Fitch Ratings said this week Spanish banks may need up to 100 billion euros in additional capital to cover potential losses on its domestic loan portfolio.
That agency contemplated two scenarios, one in which the capital requirements will come in at around 60 billion euros, and a more extreme, Ireland-style situation in which that amount would rise to as high as 100 billion euros.
Separately, Fitch on Thursday downgraded Spain's sovereign credit rating by three notches to BBB (two notches from junk) with a negative outlook, citing the "high fiscal cost of restructuring and recapitalizing the Spanish banking sector and the likelihood that Spain will remain in recession through 2013."
On Thursday, Spain's borrowing costs rose in an auction of benchmark 10-year bonds to above 6 percent, but the sale was considered a success because it dispelled doubts about Spain's ability to tap credit markets.
The yield on Spanish debt in the secondary market fell after the auction to around 6.1 percent, after having climbed to as high as 6.7 percent on May 30, or near the level at which Greece, Portugal and Ireland required an international bailout.
Spain's banks have been hard hit by the collapse of the country's 1995-2007 real estate boom, which has left them saddled with toxic property assets.
Recently nationalized BFA-Bankia - the country's fourth-largest financial institution - is seeking what would be the largest bank bailout in Spanish history after saying on May 25 it needs another 19 billion euros ($23.5 billion) to boost loss provisions.
The 2008 global financial meltdown came as Spain was struggling with the bursting of the property bubble. The ensuing slump has led to numerous business failures and pushed the country's jobless rate above 24 percent.
Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages. EFE