Madrid hopes the ECB will play along in its backdoor bailout
WE LEARNED on Friday that the bailout for Bankia and its parent BFA is to be about four times the size analysts were estimating just a few weeks ago, at €19bn.
In a sense, that is good news. It shows the bank and the government are facing up to the scale of the problem. Whether they can solve it is another matter.
What is now causing the most worry is what this means for the rest of Spain’s banking sector and the eventual burden on the sovereign.
So how far has the rot spread? Nomura analysts reckon that only three of Spain’s major banks can avoid a bailout: BBVA, Santander and Sabadell (which all happen to be among the country’s biggest diversified banks with significant international and “casino” operations).
As for the others, Nomura estimates the capital shortfall at €106bn-€140bn, versus profit generation last year of €19bn.
The government’s mooted solution appears to take the form of the kind of financial jiggery pokery we have now come to expect from Eurozone politicians.
That is, recapitalise the banks by swapping their equity for sovereign debt and then get the banks to dump the debt at the ECB in return for cash. This skips over the inconvenience of tapping private markets for cash.
But the ECB has already blurred the line between liquidity support and bailouts, both through government bond-buying and its €1 trillion auction of three-year loans for banks.
Whether it will be prepared to go a step further and give the Spanish government what could be seen as another kind of backdoor bailout is unclear.