The 2011/11/02 at 05:50
Valérie Demon in Madrid
The European Commissioner for Competition, Joaquin Almunia, has sought to play down the consequences for Spain of the agreement settled on Thursday morning in Brussels by European States. “I am more inclined to believe banks that say that they are going to respect the agreement than newspapers that state that Spain has lost the Battle of Trafalgar. We have lost nothing, we have all won with this agreement,” he declared on Friday in Bilbao, Spain, during the Spanish Conference of Directors.This has not stopped debate from flaring up on the Spanish side of the Pyrenees. “Banks are copping it,” announced the headlines of one of the Spanish economic daily papers, attesting to the cold shower dousing the country’s financial sector following the announcement by the European Banking Authority (EBA) on the necessity to recapitalise over 15 billion euros or so (taking into account share-convertible bonds) by 30 June 2012.
Spain is therefore just behind Greece, whose recapitalisation needs were estimated at almost 30 billion euros. The Santander, BBVA, CaixaBank, Bankia and Popular Banks are in the firing line. The pill is hard to swallow, chiefly for Santander, the leading bank in the euro zone for capitalisation, whereas French and German banks are much more exposed to Greece’s sovereign debt. The European Banking Authority in fact based its decision on the exposure of these banks due to the total credit granted to Spanish public administrations (86 billion euros) and demanded the cleaning up of the sector. “Brussels took as a reference date 30 September 2011, one of the most critical moments of the crisis, to assess the debt of banks at market prices. The consequence: as the bond market is very volatile, chiefly moving downwards, losses have increased and the banks will need more capital,” explains Manuel Romera, Financial Sector Director at IE Business-School.
These banks have declared that they will require no injection of public funds, but will use their (rather consequential) profits, namely from the sale of non-strategic assets, to reach fixed objectives. But nothing will remove the profound discontent of these banking giants that criticise the Spanish negotiations carried out in Brussels. “From an economic point of view, it is incomprehensible that generic clauses have not been included, for example on highest quality capital. Ultimately, the issue is political: Spain did not manage to negotiate well. The French and the Germans wanted to protect their banks and it makes for a very sorry image of the European Union,” says Manuel Romera. According to a banker who prefers to remain anonymous, this agreement does not seem so unfair: “Let’s not forget that Spanish banks have on their accounts real-estate loans to the value of 400 billion euros; Brussels may have thought that the risk was great.” The economic fallout is not insignificant in a country extremely affected by the crisis, where the fateful mark of 5 million unemployed persons is on the verge of being crossed. Credit, already restricted, will not be facilitated by the effort that banks will need to make to recapitalise.