Consultancies will help to decide size of bailout

Marion Dakers
SPAIN has refused to say how much cash its ailing banks need until audits from two consultancies, Oliver Wyman and Roland Berger, have been completed.

While the IMF has already estimated that Spanish banks need a capital injection of between €40bn and €80bn (£32.4bn and £64.7bn) under its own stress tests, Madrid has decided to wait for the results of two independent audits before putting a figure on its required bailout, according to economy minister Luis de Guindos.

Oliver Wyman and Roland Berger have spent months scrutinising the banks and were due to report their findings on 21 June, but sources said over the weekend that the government expects the results “in a few days’ time”.

The two reports are being conducted completely separately from each other, with each firm running the data independently to add credibility to the final figures.

Each consultancy is using Bank of Spain data to run the same stress test using the methodology of similar tests carried out last July by the European Banking Authority, said one banking source.

Spain came off worst in last year’s tests, with nine of its banks expected to fall below a five per cent capital threshold this year under the EBA’s stress tests, if no capital raising efforts were undertaken.

Several banks have since raised money, including struggling Bankia.

But the two audits due in the coming days will not be the last word on the health of Spain’s banks. Another audit, to be completed by the end of the month, will be conducted by the so-called Big Four accountants – KPMG, Deloitte, Ernst & Young and Price Waterhouse Coopers.

This will involve an inspection of each bank, sources have said, valuing assets and how the lenders are complying with new rules on recognising heavy losses on real estate assets.

THE BANK of Spain is relying on two private consultancies to tell it how much cash the country’s floundering banks need.

It hired Oliver Wyman, a New York-based consultancy, and Roland Berger, a strategy specialist based in Germany, back in March to conduct stress tests on its battered banking sector and is now refusing to put a price tag on its bailout until the firms report back.

Oliver Wyman has plenty of experience with stress tests, boasting “decades of work with the world’s top 100 companies”.

At last year’s World Economic Forum in Davos it published an apocalyptic paper predicting the “financial crisis of 2015”, imagining a worldwide recession through the eyes of John Banks, the fictional chief executive of a multinational bank.

The firm, originally called Oliver, Wyman & Company, was founded in 1984 and now operates in 25 countries as part of the Marsh & McLennan group.

Roland Berger Strategy Consultants, meanwhile, started life in Munich in 1967.

It has hundreds of banking experts, and lists the turnaround of an unnamed European real estate bank among its success stories.

Spain is not the first struggling Eurozone nation to ask the private sector to survey the damage done to its banks during the recession. Ireland hired BlackRock, Barclays Capital and Boston Consulting Group in January 2011 to test the health of its banks. Greece followed in its footsteps, taking on BlackRock to audit its lenders’ portfolios later that year.

Bankia, which a few weeks ago asked for a €19bn bailout, is facing a slew of legal claims from embittered investors. Ratings agency Fitch said : “On 25 May, it was announced that Bankia/BFA faces a €19bn capital shortfall. Fitch now expects the fiscal cost of bank restructuring and recapitalisation to be in the range of €50bn to €60bn and in a negative stress scenario, the cost could rise to €90bn- €100bn.”

Spanish savings bank Liberbank is set to merge with rivals Ibercaja and Caja 3, as they struggle with around €11.8bn of bad property debt.
The merger, yet to be cleared by competition authorities, would give Ibercaja 46.5 per cent of the group, Liberbank 45.5 per cent, and Caja 3 eight per cent, with over €115bn assets.

Not all Spanish banks are flailing, with the so-called big three – Santander, BBVA and La Caixa – in no need of help. Ratings agency Fitch said: “The core of the system – Santander, BBVA and La Caixa – will not require assistance in meeting more stringent provisioning and capital requirements and underpin Fitch’s confidence that the fiscal costs of restructuring the banking sector remain manageable from a sovereign credit and rating perspective.” La Caixa is soon to become Spain’s largest domestic bank following its merger with Banca Cívica, which is set to take place in the third quarter of this year. Meanwhile, first-quarter net profits at Santander and BBVA were €1.6bn and €1bn respectively.