Markets expect more pain to come in Spain

ANALYSTS do not think that the measures announced by Spain’s government today to shore up its banking system will be enough.

Madrid is expected to unveil a plan to improve the strength of its banks, which the Bank of Spain has estimated are saddled with €184bn (£148bn) of dodgy property loans made during the bubble.

The package is expected to include a measure to force banks to improve the provisions they set aside to cover bad loans by up to €35bn in total, on top of the €4.5bn bailout of Bankia announced on Wednesday.

But analysts don’t think lenders will be able to find the money from private investors and also think the amount will rise substantially as the property market worsens and the extent of losses becomes apparent.

UBS estimates that the capital hole is in fact be as big as €150bn. UBS analyst Matteo Ramenghi said: “We believe that falling short of market expectations... would imply risks for both banks, the economy and the sovereign’s perception.”

And Dan Greenhaus of US broker BTIG says: “Whatever the forthcoming announcement will be, it will almost assuredly be insufficient.”

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