Spain's banks in focus ahead of Bankia rescue plan

Wed May 23, 2012 7:29am EDT
 
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By Jesús Aguado and Sarah White

MADRID (Reuters) - Spain may say on Wednesday how it will plug a hole of at least 8 billion euros ($10.21 billion) at Bankia, part of an effort to clean up a banking sector laden with bad debts and stop the country sinking further into the euro zone debt crisis.

Economists say Spain has little hope of emerging from recession unless there is a wide-ranging bank recapitalization and many predict it will need an international aid package similar to the ones handed out to Greece and Ireland.

Spain says it does not need outside money and government sources told Reuters on Tuesday it would outline a rescue for the country's fourth largest lender, formed from the merger of seven banks during an earlier unsuccessful restructuring.

The government has just picked Goldman Sachs to value Bankia and consultancies Oliver Wyman and Roland Berger were hired to audit other banks' loan books, damaged by a property crash that helped push bad loans to their highest in 18 years.

Economy Minister de Guindos is expected to give details on the government's plans for Bankia in parliament at 1600 GMT but economists said the focus was on the banking sector as a whole.

"The market has moved beyond Bankia. How much Bankia will get in aid is not going to make a big difference," said Martin van Vliet, senior economist at ING.

"The question is now about the long-term solvency of parts of Spain's banking system, especially what is going to happen with mortgage loan default. This concern is not being addressed."

A leading banking industry group, the Institute of International Finance (IIF), has said Spain's banks could need another 76 billion euros to cover losses as bad debts might rise as high as 260 billion euros.   Continued...

 
Spain's Bankia bank headquarters building is seen in Madrid May 18, 2012. REUTERS/Paul Hanna