Spain’s banks have a capital deficit of 59.3 billion euros ($76.3 billion), less than previously estimated, according to a test designed to lift doubts about a financial industry hit by real estate losses.
The Bankia group, a nationalized lender, had a 24.7 billion-euro capital deficit in the tests conducted by management consultants Oliver Wyman that also showed Banco Popular Espanol SA had a 3.22 billion-euro shortfall. The stress tests of 14 lenders showed no capital deficit for seven banks, including Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and Banco Sabadell SA, the Bank of Spain and Economy Ministry said in a joint statement today.
Spain commissioned the independent stress test as part of the conditions agreed in July for a European bailout of as much as 100 billion euros for its banking system, which has been saddled with more than 180 billion euros of losses linked to souring real estate assets. The attempt to show how its banks would bear an extreme scenario in which the economy would shrink for three years in a row is part of the government’s drive to show it is fixing Spain’s economy as it considers whether to seek a further rescue package from Europe.
“These are important stepping stones on the way for Spain,” said Holger Schmieding, chief economist at Berenberg Bank in London, referring to the test. Still “there will always be people in the market who question the numbers,” he said.
Shortfalls, Surpluses
The total capital deficit is less than the 62 billion euros Oliver Wyman estimated in June that banks would need. The 59.3 billion-euro shortfall number doesn’t take into account merger processes already underway and deferred tax assets, the joint statement said. When mergers and tax effects are accounted for, the amount is 53.7 billion euros, it said.
In its worst-case scenario, Oliver Wyman said it assumed a real decline in gross domestic product of 4.1 percent in 2012, 2.1 percent in 2013 and 0.3 percent in 2014, and estimated that unemployment would keep rising to 27.2 percent in two years’ time. The tests factored in Spanish 10-year debt yields of 7.4 percent this year and 7.7 percent in 2013 and 2014.
The seven banks with capital deficits in the adverse scenario also include the nationalized lenders Catalunyabank and NCG Banco, with a 10.8 billion-euro and 7.2 billion-euro shortfall respectively, the statement said.
Popular Plan
A group including Ibercaja, Caja3 and Liberbank had a 2.1 billion-euro deficit and the Unicaja and Caja Espana-Caja Duero group a 128 million-euro surplus, the results show. Santander had a 25.3 billion-euro surplus and BBVA’s was 11.2 billion euros. CaixaBank and Banca Civica had a combined 5.7 billion- euro surplus, while Bankinter SA’s totaled 399 million euros.
Popular repeated its position that it won’t seek state aid and will present a business plan and strategy to bolster capital shortly, the Madrid-based lender said in a filing to regulators.
The test results follow yesterday’s announcement of Spain’s 2013 budget, which outlined the government’s plans to freeze public wages, end tax rebates on mortgages, tax lottery winnings and cut ministry spending. Spain is committed to cutting its budget deficit to 4.5 percent of economic output next year compared with a 6.3 percent goal for 2012.
Loan Quality
The stress tests analyzed 36 million loans and 8 million guarantees using information from the databases of lenders and the Bank of Spain, the joint statement said. A team of more than 400 auditors verified the quality of loans by examining 115,000 loan operations, it said.
The Oliver Wyman stress test follows government orders to banks in February and May to recognize 84 billion euros of losses on real estate assets and a royal decree last month that lays out a legal framework for dealing with failing lenders and setting up a bad bank to isolate soured assets.
