US consultant Oliver Wyman is expected to announce that six Spanish banks — Santander, BBVA, La Caixa, Bankinter, Sabadell and Kutxa — do not need more capital, even under the most adverse economic scenarios, according to market sources.
Oliver Wyman’s independent audit, which is due out on Friday, will also confirm that nationalized bank Banco Financiero y de Ahorros-Bankia will need a capital injection of 26 billion euros, more than the 19 billion estimated by Chairman José Ignacio Goirigolzarri after taking over the reins of the troubled lender in May.
The consultant rejected government requests for some 6 billion euros in tax credits for losses to be set against the banks’ capital needs due to uncertainty about the viability of certain lenders and their ability to return to profitability any time soon.
Oliver Wyman’s report is part of the process under which Spain successfully secured a loan of up to 100 billion euros from the Eurogroup to recapitalize banks whose balance sheets have been impaired by their overexposure to the ailing real estate sector.
The bailout process is being overseen by the IMF, the European central bank, the European Commission and the European Banking Authority. The supervisors believe the recapitalization figure should be around 60 billion euros, sufficiently high to dispel market doubts about the Spanish banking sector.
One of the surprising aspects of the consultant’s report is that Banco Popular will require 2.1 billion euros, equivalent to two percent of its risk-weighted assets. In order to fill the gap the bank will have to undertake a sale of assets in order to avoid the stigma of having to borrow from the state to meet the minimum capital adequacy ratio. It has until December to do so or will be required to accept bonds convertible into actions from the state.
Popular has indicated it could sell half of its internet banking and credit card business as well as part of its branch network in order to raise the funds required.
Santander and BBVA will comfortably pass the stress tests because, as geographically diversified lenders, their exposure to the Spanish market is relatively limited.
In the case of Sabadell it received 5.249 billion euros for taking over CAM, which had also been nationalized. The purchase involved negative goodwill as it was carried out at a price below CAM’s book value. The bank also previously raised 3.3 billion euros in capital.
The fact that six of the banks have more than enough capital while others will fail the stress tests carried out by Oliver Wyman could open the door for further consolidation in the sector.
In the case of Unicaja, the bank would not need more capital if it had not entered its tie-up with Caja España. The same may be true of Liberbank in its merger with Ibercaja.
The Bank of Spain has estimated that the country’s banks are sitting on some 184 billion euros in problematic loans to the real estate sector, which has been in a profound slump since the start of 2008, when a massive boom unraveled.
As part of the overhaul of the sector, the government is setting up a so-called bad bank, which will absorb the toxic assets of the sector.
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