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11th May 2012

Estimate of additional Spanish bank capital needed
Opinion

The Bank of Spain estimates there is €323bn (£260bn $418bn ¥33.2tr Y2.64tr ) of doubtful property and construction lending in Spain. The central bank wants Spanish banks to increase their reserves on this lending from 38% to 60%. The 22% increment equates to €71bn (£57bn $92bn ¥7.3bn Y580bn). It should be noted that some banks have still to achieve the 38% level adding further to the sector's new capital need.


Whilst Spanish banks were successful last year in raising capital they face a very different situation currently. The IPOs, rights and other issues attracted investors almost entirely from the domestic market with very little international investment. The investors last year will in almost all cases have seen their investment diminish. Due to the recession and high unemployment many of those with money to invest last year do not have the money this year to do so. Santander and BBVA, may attract foreign investors if required to do so, however the likelihood of other banks successfully doing so must be low.


Most now see no other alternative than for Spain to seek a European bail-out in order to re-capitalise the banks. Experience of other bail-outs is that when detailed negotiations start the figure required always increases substantially on the before negotiation figure. A good example of this was the occurrences in Ireland. It would seem unlikely that any eventual bailout is likely to be under €100bn.