Friday, June 22, 2012

SPAIN'S BANK AUDITS that the government commissioned to assess their capital needs are out:
Spain’s banks would need as much as 62 billion euros ($78 billion) in capital to withstand a worst- case economic scenario, according to two consulting firms hired by the government to conduct stress tests on the lenders. 

Oliver Wyman Ltd. estimated banks would need between 51 billion euros and 62 billion euros should Spanish gross domestic product shrink by a combined 6.5 percent over three years and house prices drop 60 percent from the peak. Roland Berger Strategy Consultants said lenders would need 51.8 billion euros under those conditions. The study didn’t consider potential losses on government bonds.

Spain hired the two firms last month to estimate the capital shortfall at the nation’s banks as investors questioned the health of lenders pummeled by a five-year real estate slump. Economy Minister Luis de Guindos has said Spain will use the results of the studies to determine how much money it might need to draw from the 100 billion euros made available by Europe after it requested funding to clean up banks.

“The sad reality is the market has already decided what the conclusion should have been and they’ll say this answer is too low,” said Simon Maughan, a financial industry strategist at Olivetree Securities in London. “We would have been more comfortable if these numbers had come out closer to 80 billion.”
You can read the reports here and here, if you wish (both are pdf files)