Spain has suddenly changed its tune on the need for a bailout for its bankrupt banks. Last week, the country maintained that it could handle the problem itself. Today, the country’s Budget Minister says that debt markets are effectively closed to the country and that it needs outside help.June 5 (Bloomberg) — Spain called for outside funds for the first time to battle the financial crisis as Budget Minister Cristobal Montoro said European institutions should help shore up the nation’s lenders.
Spanish banks don’t need “excessive” amounts to recapitalize, and the question is “where that figure comes from,” Montoro said in an interview with Spanish broadcaster Onda Cero today, as he continued to rule out a full rescue for the euro region’s fourth-biggest economy.
“That’s why it’s so important that the European institutions open up and help us achieve, help facilitate, that figure because we’re not talking about astronomical figures,” he said in Madrid.
Montoro’s comments contrast with Prime Minister Mariano Rajoy’s position that Spain’s banks don’t need a rescue and underscore the squabble among European leaders over allowing the bailout fund to channel cash directly to lenders. As Spain’s narrowing access to markets undermines its ability to backstop its banks, finance ministers of the Group of Seven countries plan to hold a call today to discuss the debt crisis.
Spanish 10-year bond yields rose to 6.42 per cent, widening the spread over equivalent German securities to 524 basis points from 520 basis points yesterday. Shares of banks rose, with Banco Santander SA adding 0.5 per cent at 11 a.m. in Madrid.
Santander Chairman Emilio Botin said yesterday that about 40 billion euros ($50 billion) of European funds for four seized lenders including Bankia group would be enough to solve the industry’s problems. He joined a growing number of bank executives, including Bankinter SA Chief Executive Maria Dolores Dancausa, in saying that Spain is closer to needing some kind of external help since the government moved to nationalize Bankia group on May 9.
“Using the mechanisms for assistance from Europe or the IMF is the best option and more and more the banking industry is taking that view,” Juan Carlos Ureta, chairman of Renta 4 Banco SA, a Spanish bank and investment services company, said in a telephone interview. “There is the risk of a possible stigma and that is why it’s so important to stress that it’s only some institutions that are in difficulties while the industry as a whole is healthy.”
In 2010, banks helped push Portugal toward a bailout by urging the government to ask for aid as downgrades by credit- rating companies hurt their ability to borrow. Portuguese lenders also said they couldn’t take any more Portuguese debt onto their balance sheets.
The government in Lisbon yesterday said it would inject more than 6.6 billion euros into its banking system to help Banco Comercial Portugues SA, Banco BPI SA and Caixa Geral de Depositos SA meet capital requirements under the terms of 78 billion-euro EU-led bailout.
Spain’s economy, which is twice as big as Greece, Portugal and Ireland combined, moved to centre stage in Europe’s debt crisis after last month’s nationalization of Bankia group, and the spread over German yields has swelled about 90 basis points since then. The Madrid-based lender’s request for 19 billion euros to mend its balance sheet underlined banks’ mounting losses and the strains on the state’s ability to absorb them.
Steen Jakobsen, chief economist at Saxo Bank A/S, said it’s unrealistic for Spain to accept aid for the banks without also seeking a rescue to cover the financing needs of the government and its regions.
“Spain’s problems are multidimensional, from having to deal with real estate to fixing the budget deficit and all at the same time,” said Jakobsen. “The idea that you can solve the situation with 40 billion euros of European money for the banks makes no sense.”
An EU and International Monetary Fund bailout package for Spain that covered the government’s gross funding needs through the end of 2014 and included 75 billion euros to recapitalize banks would amount to about 350 billion euros, David Mackie, the chief economist at JPMorgan Chase & Co. in London, wrote in a May 30 report.
Rajoy, who speaks in the Senate at 4 p.m. today in Madrid, said on May 28 “there won’t be any rescue of Spanish banks.” In the same speech he called for the permanent European Stability Mechanism to be able to sidestep governments and recapitalize banks directly. Germany opposes empowering Europe’s bailout fund to provide money directly to banks and the rules require it to be funneled through governments.
German Chancellor Angela Merkel said late yesterday systemic banks may need supervision at the European level as the European Union weighs possible steps toward “political union.” She met European Commission head Jose Barroso to prepare for an EU summit on June 28-29, after the 27-nation EU’s executive arm backed Spain’s call for the ESM to be able to inject funds directly into struggling lenders.
Spain supports the creation of a “banking union,” including integrated deposit-guarantee funds and supervision, Economy Minister Luis de Guindos said on May 31. That should be approved at the June 28-29 summit, Montoro said today. He stuck to the government’s view that the nation won’t need an overall bailout, saying it’s not possible to rescue Spain.
“The men in black are not going to come to Spain because, among other things, it isn’t possible to rescue Spain in the technical sense of the word,” Montoro said. “Spain doesn’t need that.”
–Editors: James Hertling, Alan Crawford
To contact the reporters on this story: Emma Ross-Thomas in Madrid at [email protected]; Charles Penty in Madrid at [email protected]
To contact the editor responsible for this story: James Hertling at [email protected]