Spain’s government has planned for a weaker bailout of the country’s local banks than first thought, only offering up €20 billion, much of it from the private market, according to The Telegraph.
The move also includes new rules on capital ratios for the country’s banks, which will now be required to hold 8% of capital as tier one, which is tougher than Basel III.
This move isn’t going to be a problem for the country’s major banks, BBVA, Santander, and Banco Popular, all of which have tier one capital ratios higher than 8%, according to Societe Generale.
Nevertheless, bank analyst Patrick Lee is not impressed by the government’s low ball offer on recapitalization.
We find that analysis done by a number of market commentators indicates a ‘consensus’ €20-80bn recap range, thus the minister’s €20bn is firmly at the low end. While acknowledging that we are all making ‘ballpark’ estimates, we would appreciate more detailed analysis from the ministry/Bank of Spain on how Ms Salgado arrived at her €20bn estimate.
Last week, it was reported that Spain would be spending €80 billion on its bailout of the local banks or cajas. Those regional banks still are riddled with bad loans associated with the country’s real estate bubble.
Finance Minister Elena Salgado may have been restrained from enacting a more aggressive bailout by concerns it could lead to political conflict between the country’s regions and the central government.
Spain’s overnight bailout of its cajas has been seen as meek by markets this morning, with the IBEX falling over 1.2%.