News Column

Spanish Bank Shares Up Following Audits

June 22, 2012

Spanish banks on Friday made gains on the Madrid stock exchange, following the release of auditors' reports showing that their recapitalization needs could be met by the eurozone, after weeks of uncertainty.

The audits commissioned by the government put banks' recapitalization needs at up to 62 billion euros (79 billion dollars) over three years. The eurozone has pledged up to 100 billion euros in aid.

Shares of the nationalized bank Bankia, which had suffered heavy losses recently, went up 7.8 per cent. The top banks Santander and BBVA rose by more than 1.7 per cent, Banco Popular by 3.8 per cent and Sabadell by 4.7 per cent by 11 am (0900 GMT).

Spain's borrowing costs remained stable, with the yield on 10-year bonds rising just slightly.

The government had expected borrowing costs to drop once the audits clarified Spain's needs.

Spain's eurozone aid request was to be presented "immediately," Economy Minister Luis de Guindos said at a European Union meeting in Luxembourg, indicating he would make the move as soon as he returned to Madrid.

The possibility of the loan being given straight to Spanish banks, instead of passing through the government in Madrid, remained on the table, according to the minister.

The International Monetary Fund (IMF) has slammed plans to rescue the Spanish banking sector via loans to the government, a method which would increase the country's debt. IMF chief Christine Lagarde called for aid to be given directly to banks.

Germany has refused that option in the past. On Friday, German Finance Minister Wolfgang Schaeuble said in Luxembourg that the IMF's recommendations were "very helpful" and an "important contribution."

The external assessment on the recapitalization needs of Spanish banks "helps rebuild credibility somewhat," though "it is clear that Spain will remain in a perilous situation for the moment," Barclays Bank's economic research unit said in a note.

The ratings agency Standard & Poor's said the eurozone support line to Spain would not immediately influence its ratings on Spanish banks.

"Our outlooks on Spanish banks remain primarily negative," the agency said. It expressed scepticism "about the bailout being able to reduce the financial system's funding challenges in the short term as well as on lending resuming any time soon."

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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