Bloomberg News

Spain Bankers Backing EU Aid Highlight Doubts on Finances

June 05, 2012

Banco Santander SA Chairman Emilio Botin

Emilio Botin, chairman of Banco Santander SA. Photographer: Denis Doyle/Bloomberg

Spain should seek European money to rescue its failed lenders, said Banco Santander SA Chairman Emilio Botin, joining a growing number of bankers who question whether the government can manage the task on its own.

Botin, the 77-year-old head of Spain’s biggest bank, said 40 billion euros ($50 billion) in European Union funds for nationalized banks, including the Bankia group, would be enough to resolve the industry’s crisis. Budget Minister Cristobal Montoro said in an interview with Onda Cero radio today that Europe should provide funds to shore up Spain’s banks “because we’re not talking about astronomical figures.”

“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,” said Juan Carlos Ureta, chairman of Renta 4 Banco SA, a Spanish bank and investment services company. “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.”

Spain moved to center stage in Europe’s debt crisis after last month’s nationalization of the Bankia group. 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.

‘Multi-dimensional’

“Spain’s problems are multi-dimensional, 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.”

Banco Sabadell (SAB) SA Chairman Josep Oliu has said EU funds for weaker lenders “could be a solution,” while Bankinter SA (BKT) Chief Executive Officer Maria Dolores Dancausa said Spain may have no choice.

Prime Minister Mariano Rajoy has repeatedly said Spain won’t need a rescue for the nation or its banks, even as he argued the region’s permanent bailout fund should be able to recapitalize lenders directly, sidestepping governments. EU Economy Commissioner Olli Rehn and French Finance Minister Pierre Moscovici said yesterday that letting the fund inject cash into banks instead of channeling the money through national governments would help stem the debt crisis. The step would move the 17-nation euro area toward a “banking union,” they said.

Cost of Bailout

Chancellor Angela Merkel’s spokesman said yesterday it’s up to Spain to decide whether to seek aid and accept the conditions linked to it, giving no ground to Rajoy’s pleas to Germany to explore new alternatives for resolving the debt crisis.

Spain’s borrowing costs have surged since the Bankia nationalization, even as yields on German bunds tumbled. The extra yield investors demand to hold Spanish 10-year bonds compared with German bunds was 522 basis points today, compared with 430 basis points before the Bankia rescue. A basis point is a hundredth of a percentage point.

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.

Healthy Banks

More Spanish banks are in favor of seeking European funds for ailing lenders because neither the banking system nor the government can afford to absorb the losses, said Ureta.

Spain’s financial system may still need 45 billion euros in taxpayer money, including 30 billion euros to clean up three previously nationalized banks and 15 billion euros for other lenders, Santiago Lopez, an analyst at Exane BNP Paribas, said in a May 29 report.

“As far as the healthy banks go, there aren’t too many of us,” said Sabadell’s Oliu in comments provided by the lender. Bankinter’s Dancausa told Spain’s public broadcaster on June 1 that European bailout funds shouldn’t be stigmatized and that the situation facing Spanish banks was “critical.” Botin said “no more is needed” beyond his 40 billion-euro estimate to recapitalize the nationalized banks. His comments in Brasilia were reported by Efe and confirmed by a spokesman yesterday.

Spanish banks rose in Madrid trading. Santander advanced 1.1 percent to 4.58 euros by 9:41 a.m., while Sabadell climbed 0.4 percent and Bankinter jumped 3.4 percent to 2.56 euros.

Stigma Attached

Spain runs the risk that investors will attach a stigma to the country’s banks if it seeks funds to rescue ailing lenders such as Bankia, said Andrew Bosomworth, a money manager at Pacific Investment Management Co.

“There are coherent concerns from the stronger banks and the government about going down that route,” said Bosomworth in a phone interview. “The experience shows that once you lose market access it’s very difficult to find your way back again.”

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 Portuguese government 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 as part of its compliance with the terms of 78 billion-euro EU-led bailout agreed on a year ago.

Not About ‘Honor’

Spain can’t separate funding the clean-up of its weaker lenders from its wider funding needs, said Lorenzo Bernaldo de Quiros, a Madrid-based economist who advised the former People’s Party government of Jose Maria Aznar. JPMorgan’s estimate that Spain may need a bailout costing as much as 350 billion euros didn’t sound “crazy,” he said.

“This isn’t an issue of defending national honor but of being practical,” said de Quiros. “It’s about making sure Spain doesn’t end up suspending payments.”

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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