The stress test results published by the Bank of Spain on Friday underlined the performance gap between the commercial banks that account for half of the sector and many of the savings banks whose bankrolling of the Spanish property surge left them exposed as the construction boom collapsed.
Five Spanish banks are likely to require a total of about €2 billion, or $2.5 billion, in additional capital after failing the stress tests carried out by the Bank of Spain. Their failure did not come as a shock, however, because many of the savings banks, or cajas, had already needed to seek additional government funding.
“A lot of progress has been made since the start of the crisis – and this is part of the progress, Miguel Angel Fernandez Ord��ez, governor of the Bank of Spain, said in Madrid on Friday. The tests, he said, showed the enormous means available to Spanish banks to overcome any deepening of the crisis.
“When there are doubts, you have to be absolutely transparent, and this is what we have done,” he added. “People are not stupid and will realize that the Spanish banking sector as a whole is pretty clearly above average.” He added: “I have faith in the markets.”
Mr. Fernandez Ord��ez said the test results vindicated the recent push to force the cajas to consolidate, as well as a regulatory overhaul approved last week by the Spanish Parliament to allow the cajas to open up as much as 50 percent of their capital to outside investors.
The five banks were also among a recent wave of mergers that are due to cut the number of cajas to about 20 from 45. One of the test failures, CajaSur, was de facto removed from the list following its recent takeover. The Spanish central bank rescued CajaSur in May after it rejected a merger proposal from a larger rival. CajaSur was then auctioned, with the winning bidder, Banco Guipuzcoano, announced only last week.
In contrast, all of Spain’s commercial banks relatively easily passed the stress tests, led by Banca March, whose Tier 1 capital would remain at 19 percent even under a deepening hypothetical economic slump. The Tier 1 capital of the largest Spanish bank, Santander, would meanwhile remain at 10 percent, well above the 6 percent minimum level recommended by the committee that carried out the European tests. The commercial bank with the weakest Tier 1 capital structure, according to the tests, was Banco Pastor, which would just meet the 6 percent threshold.
I�igo Vega, banking analyst at Iberian Equities, a Madrid brokerage, said that the tests showed it would be “manageable” for the restructuring fund, whose funding capacity could be leveraged as high as €99 billion to cover any additional shortage of capital for the cajas.
“Over all, there were no surprises; if anything, there was lower capital shortage than expected,” Mr. Vega said.
Given Spain’s recent liquidity problems, analysts will be watching whether spreads in the fixed-income markets move significantly during the next two weeks. “That is the key prerequisite for a rerating of the sector across the board as funding remains the key risk factor,” Mr. Vega said.
Just hours before the publication of the stress test results, one of the revamped cajas announced the first deal with an overseas investor, a deal struck in the wake of the regulatory overhaul approved by the Spanish Parliament earlier this month.
J.C. Flowers, a U.S. buyout firm, agreed to buy €450 million of convertible bonds from Banca Cavica, as a likely prelude to a stock market listing by Cavica, itself the result of an alliance between three savings banks: Caja Navarra, Caja de Burgos and Caja Canarias. Banca Cavica was among the cajas that failed the tests in results announced Friday.
Earlier in the day, Emilio Bot�n, chairman of Santander, the largest Spanish bank, said that the sector had “clearly improved” during the past month and that the Spanish banking sector was in a situation on par with, if not better than, elsewhere in Europe. He also welcomed the Bank of Spain’s stress tests as a “colossal” exercise in transparency that surpassed what had been done earlier in the United States.
Jose Luis Rodriguez Zapatero, the prime minister, applauded the publication of Spanish results on Friday, arguing that the tests had gone further than those in other European countries, notably in terms of detailing the risks linked to lending to the collapsed property sector.
Story from The New York Times