The stress test results for the Spanish banking system conducted by consulting firm Oliver Wyman have been released.The shortfall came in at 60 billion euros, as expected, per Bloomberg.
The Spanish banking system’s capital shortfall amounts to approximately 53.7 billion euros after tax impacts.
The capital shortfalls by individual bank are as follows: Banco Popular (€3.22 billion); Catalunyabank (€10.8 billion); NCG Banco (€7.18 billion); Banco Mare Nostrum (€2.2 billion); Banco de Valencia (€3.5 billion); and for Ibercaja, Caja3, and Liberbank, a €2.1 billion shortfall each.
The EU Commission welcomed the results of the stress tests in a statement, saying that state aid will be determined in the coming months and that banks now need to file recapitalization plans.
The EU went on to say that the banks will be required to either restructure or recapitalize, and that it sees the recapitalization of the first Spanish banks by November.
The head of eurozone finance ministers, Jean-Claude Juncker, said in a statement that he is “comforted” by the results of the test and that final state aid to banks will be below 60 billion euros.
The ECB said it welcomed the announcement by Spanish authorities on the bottom-up stress test, saying it “strongly supports” Spain’s plans. IMF Managing Director Christine Lagarde agreed, saying the public funding needs of Spanish banks can be comfortably financed.
Deputy governor of the Banca de España Fernando Restoy said the capital shortfalls do not amount to the amount of aid needed, because some banks will raise capital on their own. He also said the bad bank will help some of the Spanish banks boost capital, and that the criteria for such a plan will be detailed next week.
Banco Popular said while the press conference was taking place that it continues to rule out asking for public aid. The bank said it will publish a business and capital plan shortly.
Banco Mare Nostrum released an announcement during the presser saying it will sell assets to boost capital. It also says it expects to reduce capital needs by as much as 1 billion euros.
Spanish officials asserted that the scenarios employed in the stress tests are very unlikely to play out – deputy finance minister Fernando Jimenez Latorre said Spain may only need 40 billion euros from the EU to shore up its banks.
From the Oliver Wyman report, here are the macroeconomic assumptions that went into conducting the stress tests:
Photo: Oliver Wyman
As we’ve been writing all week, it’s hard to imagine how Spain gets to some of those numbers.
Oliver Wyman says its assumptions are conservative based on historical averages:
Photo: Oliver Wyman
However, Spain is in an unprecedented historical situation.
And the kicker: deputy finance minister Latorre said the stress test results should clear all doubts about the Spanish banking system.
ORIGINAL: The report is expected to reveal a system-wide capital shortfall of around 60 billion euros.
That’s right around the number that Oliver Wyman presented in a preliminary report in June, and analysts say its important that today’s results don’t deviate much from those estimates.
SocGen economist Michala Marcussen explains why in a client note, writing, “Consensus for bank recapitalisation needs hover around the €60bn mark – a number also flagged by Finance and Economics Minister de Guindos. Too low a number will raise concerns that there are more hidden losses to come – all the more given the very frail economic backdrop.”
Citi credit strategist Hans Lorenzen is part of that Wall Street consensus that expects a €60 billion capital shortfall to be announced today. Given that expectation, Lorenzen thinks “much of the market reaction will hinge on the level of detail disclosed – that is, the extent to which the market will be able to test the shortfalls independently.”
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