Analysts Say Spanish Stress-Tests Credible
06/22/2012| 05:26am US/Eastern
--Capital shortfall estimates in line with expectations
--Uncertainty over terms could still spook investors
--Spain's three largest banks may not need more capital
MADRID--Spanish banking shares rose Friday morning after two independent consulting groups put the banks' capital needs at up to EUR62 billion--in line with expectations and lower than the EUR100 billion European Union officials agreed to make available to help Spanish lenders.
Analysts, however, warned that uncertainty over how much each bank will need to raise and the terms of bailout will remain and could continue to spook investors over the next weeks.
"We maintain our view that almost all the domestic Spanish banks will ultimately need to strengthen capital," Nomura analyst Daragh Quinn said.
"In the meantime, with continued significant macro and political uncertainty, we remain negative on Spanish banks," he added.
Late Thursday, Spanish officials presented the results of stress tests by Oliver Wyman, a U.S.-based consulting group, which estimated that under an adverse economic scenario, Spanish banks would need between EUR51 billion and EUR62 billion through 2014, and by German consultancy Roland Berger, which estimated they would need EUR51.8 billion.
Morgan Stanley called the tests "about credible," saying loan-loss assumptions for the next three years seemed relatively harsh, although profit expectations were somewhat generous.
Although the evaluations didn't break down the capital needs of each bank, Spanish officials and analysts said Spain's three largest banks--Banco Santander SA (SAN, SAN.MC), Banco Bilbao Vizcaya Argentaria SA (BBVA, BBVA.MC) and CaixaBank SA (CAIXY, CABK.MC)--likely won't need to raise new funds.
Funding should instead be concentrated on the four smaller lenders Bankia SA (>> Bankia SA), CatalunyaCaixa SA, NovaCaixaGalicia SA and Banco de Valencia SA (>> Banco de Valencia SA).
At 0750 GMT, BBVA and Santander shares were up 0.8%. CaixaBank was up 2.5%, while Bankia, which the government has taken over last month, was up 6%. The stock is down more than 70% since the beginning of the year.
Doubts over the terms of the EUR100 billion funding international creditors will provide to Spain to bailout its banks, however, remain.
Euro-zone finance ministers gathering in Luxembourg Thursday and Friday were expected to discuss those terms, including the interest rate to be charged for the loan.
Another issue under discussion is whether to change the senior-creditor status claimed by EU bailout funds in order to ease the fears of private investors that they will be forced to bear a larger share of losses. Such fears have intensified the financial crises of countries receiving bailout funds.
Spanish Finance Minister Luis de Guindos said the government will present a formal aid request in the coming days. Euro-zone officials, who have asked Spain to speed up the request, said they expected it Monday.
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