The Banking and Strategy Initiative

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Global Moves: Spanish banks advised EUR 62 B for 9% Core Capital

The two independent Spanish stress tests conducted by Oliver Wyman and Roland Berger came out with cheerful nes for those tracking the EUR100B “credit line” for Spanish banks with fiscal conditions as per German diktat and the Eurozone fiscal compact.

The UK however is caught in a crossfire with the rating agencies with as many as ten UK banks up for a downgrade. The Euro in the meantime has hit 1.2570 again. None of the moves tally up with the move on the Spanish banks showing probably UK’s moving away from the Euro and the bated breath on the Euro summit meeting tomorrow. The announcement came barely a half an hour back in Spanish( I continue to follow the live blog by Guardian)

In the case of Oliver Wyman’s audit, the expected stress scenario was a 60% deterioration in house prices and a shrinking of the GDP by 6.5%. The Banks hold 9% Core Tier I in the baseline scenario and 6% in the stressed conditions. In the test the big three banks did not need additional capital

July 31 test results will independently point to accounting practices for bad/doubtful housing assets at the Spanish Banks.

Spain had been asked to draw EUR 60 B – 80 B by the IMF after the first tests that resulted in a shortfall of EUR 37 B. Oliver wyman  results point to a gap of EUR 51 B to EUR 62 B. Roland Berger audit throws up an EUR 52 B gap in the same stress conditions

Spain will directly borrow the required amount on behalf of the banks. The required amount is as low as EUR 16-25 B in the baseline scenario and that may be the immediate requirement.

A detailed corrective audit due in September will outline the reforms and individual changes at affected Spanish banks who according to the FM  de Guindos are responsible for the big hole

Here’s the Guardian blog link

The consultancies are using data as of Dec. 31, 2011 for 14 Spanish banks that account for 85% of the local banking business. The data has been provided by the Bank of Spain.

News references thanks to WSJ and Bloomberg


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