Spanish bank input below expectations

SHARES in Spain’s banks slipped yesterday after the Spanish government refused to inject the anticipated level of capital into the country’s ailing institutions.

Finance minister Elena Salgado accelerated the recapitalisation of Spain’s savings banks with a further €20bn capital injection.

She said the government contribution would “in no way exceed €20bn (£17bn)”, leaving the private sector to generate the remainder of the funds.

She added that the banks would be required to boost core Tier 1 capital ratio to eight per cent, one per cent higher than strict new Basel III levels.

The fresh injection comes on top of €15bn already spent by the government on recapitalising banks, from both its Fund for Orderly Bank Restructuring (FROB) and a deposit guarantee fund.

Analysts at Barclays Capital welcomed the recapitalisation as a “step in the right direction,” yet raised concerns over the adequacy of the government investment.

Analyst Antonio Garcia Pascual said: “While the attempt to seek a private sector solution is welcome, in our view under current market conditions it is unlikely that many of the weak saving banks will manage to raise the needed funds in the market.”

Analysts at RBS had estimated the Spanish government needed to inject €64bn in total in order to insulate the banks from risk, some €35bn short of the combined amount now pledged by the state.

Share prices fell yesterday at Bankinter by around 4.8 per cent, Banco Popular by 1.8 per cent and Banco Sabadell by 2.7 per cent.