Spain bank audit paves way for state bailout

Fri Sep 28, 2012 3:27pm EDT
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By Jesús Aguado and Sonya Dowsett

MADRID (Reuters) - Spanish banks will need a total of 59.3 billion euros ($76.3 billion) in extra capital to ride out a serious economic downturn, an independent report said on Friday, removing a major obstacle in the way of an international bailout for Madrid.

Spain said around 40 billion euros of the total will come as European aid while the rest could be raised by the banks themselves.

The audit, carried out by consultant Oliver Wyman, is a condition of getting European funds to patch up Spanish banks damaged by a prolonged real estate crash, and identifies which banks need more capital and precisely how much each requires.

Spain has agreed a credit line that could provide up to 100 billion euros in European Union rescue funds for its banks.

"The preliminary estimate of the final amount we would need to tap from the 100 billion euro lifeline would be one third less than the capital shortfall identified by Oliver Wyman," Bank of Spain Deputy Governor Fernando Restoy said at a press conference.

Both the strict 2013 budget presented by the government of Prime Minister mariano Rajoy on Thursday and the audit of 90 percent of Spain's banking system are necessary steps for Madrid to request sovereign aid and trigger a European Central Bank bond-buying program.

The "adverse economic scenario" the audit was based on is fast becoming reality in Spain as spending cuts and tax hikes throttle any recovery in the euro zone's fourth largest economy, driving up unemployment and prompting growing unrest.

Spain has replaced Greece, Ireland and Portugal as the main threat to the survival of the euro currency project.   Continued...

A lottery vendor talks with a customer outside a Spanish Banco Popular branch in Madrid September 28, 2012. The results of an independent banking audit, expected to show needs of around 60 billion euros ($77 billion), will put Spain in a position to seek an international bailout that its 2013 budget plan already appeared to prepare. REUTERS/Sergio Perez