On a wing and a prayer: Spain bank deal 'doomed'

Madrid failure to do enough is pushing the country closer to a bailout, say analysts

Suggested Topics

Spain's attempts to prop up its ailing banks are insufficient and Madrid will ultimately have to tap the European Union bailout funds in order to recapitalise its financial sector, analysts warned yesterday.

The Spanish Prime Minister, Mariano Rajoy, will announce plans today to require the country's banks to set aside an extra €35bn against bad loans made to its collapsing construction sector, on top of the €54bn they have already provisioned this year. The government is also set to establish a "bad bank" to remove some of the toxic assets from its lenders' balance sheets.

This follows its injection of €4.5bn in public equity into Spain's third largest lender, Bankia, this week. The Spanish stock market rallied yesterday in response, with the Ibex rising by 3.5 per cent. The hope among Spanish government officials is that these efforts will restore private sector confidence in the banking sector.

But analysts last night said that the latest package of measures are unlikely to calm investor nerves over Spanish banks since bad loans are likely to multiply as the wider economy continues to contract. "Private capital isn't going to touch Spanish banks with a ten-foot barge pole," said Nicholas Spiro of Spiro Sovereign Strategy. "The markets don't believe the provisioning requirements. The bigger the downturn, the less credible they seem. Spain almost certainly needs external help."

Marchel Alexandrovich of Jefferies investment bank also said that the bad loan provisioning move would not meet the concerns of investors. "All these things are predicated on an economy expanding and unemployment not rising and commercial property prices stabilising," he said. "People will look at it and question whether there will need to be a new rescue. Next week we'll be back to square one."

The Spanish central bank estimated earlier this year that the size of the hole in the balance sheet of Spanish banks arising from "problematic" property loans could be as high as €170bn, equivalent to 17 per cent of GDP.

Other private sector financial analysts have put the capital needs of Spain's banks at between €50bn and €100bn, still significantly more than the Madrid government is taking action to fill. One German official source yesterday indicated that Spain could, in extremis, tap the European Financial Stability Facility for funds to recapitalise its banks. "That's what it's there for. You can't set it up and then say it can't be used," said the source.

But Spain is believed to be resisting such a move for fear of losing control of its economy and financial sector to Brussels and Washington. "They don't want to be bounced into a bailout," said Mr Spiro. "They're terrified of the stigma and conditions."

Independent Comment
blog comments powered by Disqus
News in pictures
World news in pictures
       
 
iJobs Job Widget
iJobs Money & Business

FATCA Project Manager

£600 - £750 per day: Orgtel: FATCA Project Manager - Banking - London - £600-...

Fidessa Analyst / PM - Banking - London - £600pd

£550 - £600 per day: Orgtel: Fidessa Analyst / PM - Banking - London - Up to £...

Quant Analyst, Banking, London, £55-60k Per Annum

£55000 - £60000 per annum + Benefits + Pension: Orgtel: Quantitative Analyst, ...

KYC ANALYST

£150 - £250 per day: Orgtel: KYC Analyst - London - Banking - £150-250/day C...

Day In a Page

'To farm I have to rape the countryside. It’s got to be wrong': The true effect of the badger cull

The true effect of the badger cull

'To farm I have to rape the countryside. It’s got to be wrong'
Theatre review: Daniel Radcliffe gives an admirably honest performance in Michael Grandage's The Cripple of Inishmaan

First night: The Cripple of Inishmaan

Daniel Radcliffe gives an admirably honest performance in Michael Grandage's comedy
Girls Guides drop religious reference but pledge to self and the Queen

Guides drop religious reference but pledge to self and the Queen

After 103 years, organisation changes oath to welcome 'all girls, of all faiths, and none'
Steve Tongue: Joe Kinnear was one of the boys and a breath of fresh air... 21 years ago

Steve Tongue

Joe Kinnear was one of the boys and a breath of fresh air... 21 years ago
Chris Froome: Free from 'pain in neck' after Bradley Wiggins' exit

Chris Froome: Free from 'pain in neck' after Wiggins' exit

Sky's lead rider says he is in fantastic form for the Tour and happy pecking order debate is over
Hannah England: I've got the right times – now to focus on the chess

Hannah England: Keeping Track

I've got the right times – now to focus on the chess
Beards, brawn and body art

Beards, brawn and body art

Meet London’s new batch of male models
Scandi-geeks descend on Nordicana for fan-convention

Scandi-geeks descend on Nordicana for fan-convention

British love of shows such as The Bridge, Borgen and The Killing shows no sign of fading
Behind the rhetoric what is really being done to combat desertification?

The Great Green Wall of Africa,

Behind the rhetoric what is really being done to combat desertification?
Laughter Inc: the cheering growth of the chuckle industry

Laughter Inc

The cheering growth of the chuckle industry
The bad science scandal: how fact-fabrication is damaging UK's global name for research

The bad science scandal

How fact-fabrication is damaging UK's global name for research
To the manor born: The female aristocrats battling to inherit the title

Female aristocrats battle to inherit the title

A passionate protest is gathering pace among the women of Britain's aristocracy, who believe that men should no longer automatically inherit the family pile and title.
Love struck: Photographs of JFK's visit to Berlin 50 years ago reveal a nation instantly smitten

In pictures: JFK's visit to Berlin in 1963

Photographer Ulrich Mack accompanied Kennedy on the entire trip. The results are an astonishing record of a watershed moment.
Eat shoots and leaves: Mark Hix gets creative with fresh peas, mangetouts and sugar snaps

Mark Hix gets creative with English peas

English peas and their offsprings, such as mangetouts and sugar snaps, are great tossed into a salad, says our chef.
Ceviche with a smile: Chef Martin Morales has turned South America's elegant cuisine into one of London's hottest food trends

Chef Martin Morales: Ceviche with a smile

Morales has turned South America's elegant cuisine into one of London's hottest food trends