The Numbers Behind That Massive Hole In The Spanish Banking System

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Today, Moody’s downgraded Spain over concerns the government’s plan to restructure the banks won’t even come close to fulfilling its goals, because the €20 billion it plans to spend is way below what it will actually cost.

Nobody bought this €20 billion number in January when it came out, as expectations had it closer to €80 billion.

Now Moody’s estimates the cost of bailing out Spain’s banks could be as much as €120 billion, depending on what happens with the country’s real estate sector.

Just yesterday, SocGen suggested that it would take at least €50 billion to backstop the country’s banks, if real estate loan impairments rose to 30%, rather than the government projected 18%. Bank analysts Patrick Lee and Carlo Tommaselli also wrote that it might take €75 billion if things really got worse and loan impairments rose to 45%.

And it’s not as if Spain is primed to grow itself out of this real estate problem, with unemployment above 20% and a rate hike to come from the ECB.

There has been some suggestion that the Spanish government is unwilling to step up and fund the banks itself and that it would prefer the banks to raise capital on the open market or the European Financial Stability Fund to provide assistance. It seems with Moody’s decision to downgrade Spain, that either of those two options is not a serious possibility.

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