Spain called for outside support 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 ruled 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. “What we need is for the European institutions to get going and seek that bank recapitalization through those procedures that mean more Europe.”
Prime Minister Mariano Rajoy has repeatedly said Spain’s banks don’t need a rescue while European leaders squabble 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 from Group of Seven countries held a call today to coordinate their response to Europe’s financial crisis.
A spokesman for Montoro, who declined to be named in line with government policy, said the minister wasn’t asking for aid and was urging European policy makers to speak clearly about a so-called banking union.
Spanish 10-year bonds rose following the G-7 call, with yields falling 11 basis points to 6.30 percent, narrowing the spread over equivalent German securities to 509 basis points from 520 basis points yesterday. The risk premium reached a euro-era record of 539 basis points last week.
“What the risk premium tells us is that as a state and as Spain overall we have a problem when it comes to going to the markets,” Montoro said. “What that risk premium shows is that the door of the markets isn’t open to Spain.”
Germany opposes Spain’s demands for Europe’s bailout fund to be able to provide money directly to banks, and the rules require aid to be funneled through governments. Still, Germany is open to closer European coordination to resolve the euro area’s banking troubles, Finance Minister Wolfgang Schaeuble said in an interview with today’s Handelsblatt newspaper.
German Chancellor Angela Merkel has also indicated a willingness to consider a fund that would pool euro countries’ excessive debts, agreeing on May 24 to study a blueprint of a plan that she previously rejected.
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 Rajoy’s calls for the ESM to be empowered to recapitalize banks directly.
European Banking Federation President Christian Clausen said it’s logical to tap the fund for struggling Spanish banks.
“It’s burning somewhere and if you don’t use a firewall when it’s burning then I don’t know when to use it,” Clausen, who’s also chief executive officer of Nordea Bank AB, said in an interview in Stockholm. “There are other roads as well, so what technical solution isn’t what is important. It’s that some banks need to get capitalized and the sooner the better.”
Banco Santander SA (SAN) 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 (BKT) 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 (R4), 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.”
Spain’s economy, which is twice as big as Greece, Portugal and Ireland combined, moved to center 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. (JPM:US) in London, wrote in a May 30 report.
Rajoy, who was speaking in the Senate from 4 p.m. today in Madrid, said on May 28 that “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.
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 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.”
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