Spain needs up to €62bn to save struggling banks

INDEPENDENT auditors said yesterday debt-laden Spanish banks would need up to €62bn in extra capital to enable them survive the economic crisis.

The result of the independent audit of Spain’s banks put the gap in their finances at between €16bn and €62bn – similar to the €50bn calculated by the International Monetary Fund (IMF) two weeks ago, but well below the maximum of €100bn that Eurozone governments have already offered Spain to bail out its banks.

Yesterday’s independent assessment of Spain’s banks, by Roland Berger and Oliver Wyman, will be used by the government in Madrid to calculate the final sum when it makes its formal petition for bailout money from Europe’s rescue funds.

Madrid's economy minister said a formal request would be made in days for the bailout, which was agreed two weeks ago.

The Bank of Spain said the €100 billion euros offered to Madrid two weeks ago would give a wide margin of error. Spain’s three biggest banks would not need extra capital even in a stressed scenario, it said. The government said it did not expect to shut any banks and would restructure those in trouble.

In Luxembourg, finance ministers decided Spain should initially apply to the Eurozone’s temporary rescue fund, the European Financial Stability Facility, with the loan taken over by the permanent bailout fund the European Stability Mechanism (ESM) once it is up and running after 9 July.

“The financial assistance will be provided by the EFSF until the ESM becomes available, and then it will be transferred to the ESM,” Jean-Claude Juncker, who chairs the Eurogroup of finance ministers,s aid.

This solution should avert a problem which had concerned investors: debt issued by the ESM must be paid back first in case of a Spanish default, relegating private creditors lower in the pecking order. Because the new bailout debt will originate from the EFSF it will be issued without that requirement, assuaging investors’ concerns.