Spanish banks outraged by funding-boost hint

Spanish banks have reacted with indignation to suggestions from a European Union commissioner that they need to recapitalize.

In an interview published Thursday in French daily Le Figaro, the European commissioner for the internal market, Michel Barnier, said the 16 European banks that barely passed the stress test under the auspices of the European Banking Authority (EBA) in July needed to seek more funding.

Seven of the 16 referred to by Barnier are Spanish, including Bankia, Banco Popular, Banco Sabadell, Novacaixagalicia, Banca Cívica, Bankinter and Caixa Ontinyent.

None of the banks in question wanted to go on record but the overriding feeling was that Barnier's remarks were "irresponsible." José Carlos Díez, the chief economist with Intermoney, went further. "Barnier should resign because he can't make such accusations without proof," he said. "The only thing that can save him is for him to explain with concrete figures what the capital needs of the banks are and why."

The Bank of Spain on Friday reiterated that none of Spain's lenders require recapitalization other than that identified in the stress tests in July. A source referred to the statement issued by the central bank after the results were released: "No Spanish bank is required to increase its capital as a result of the EBA stress test."

Five Spanish banks had capital ratios of under the minimum 5 percent, but the Bank of Spain at the time said none would require extra funding as the EBA definition of capital did not include generic, or anti-cyclical, provisions, which are unique to Spain, nor mandatory convertible bonds with conversion dates further down the road. The Bank of Spain said the five that failed are in the process of recapitalizing. Under EBA rules, they have until April of next year to do so.

Spain was the only country where all of the country's savings and commercial banks were tested. It was also the only country where a hypothetical scenario of recession in 2012 was imposed. "How many European banks would have failed if they had been subjected to the harsh conditions imposed on Spain?" a banking source said.

The general manager of one of the banks referred to by Barnier suggest the commissioner had ulterior motives for saying what he did. He pointed out that in the list of 16 there are no French banks and only two small German ones. "However, analysts and investors' doubts are centered on what is happening to the French and German banks because of their enormous portfolios of Greek debt," the source said. "That thing of Barnier's was a crude attempt to draw attention away from the problems of the French banks."

José Carlos Díez of Intermoney said to ask the banks to recapitalize when liquidity has dried up because of the current global tensions would require them to seek state funding. "That is what a few European leaders want," he said. "Barnier's plan is a Trojan horse."

The banks under scrutiny pointed to their current capital ratios. Bankia said it had all its capital needs covered after its recent listing on the stock market in which it raised three billion euros and now has a core capital ratio of 9.9 percent, well above the minimum for listed banks set by the Bank of Spain of 8 percent.

Banco Popular "vehemently" rejected the idea it needed more capital, with a source at the bank explaining its core capital ratio of 9.84 percent made it one of the most solvent lenders in Europe. Bankinter's ratio is 8.4 percent and Sabadell's also over 8 percent.

Shares of all of the major Spanish banks closed higher on Friday, with Santander up 4.6 percent and BBVA 5.3 percent to the good.

Government spokesman José Blanco on Friday also criticized Barnier's comments, which he said served only to "create uncertainty and a lack of confidence." Blanco said Spain had undertaken the necessary reforms to its banking system and had more exacting capital requirement rules than the rest of Europe.

Meanwhile, the European Commission on Friday rejected a report by the Financial Times that there were plans to speed up the recapitalization of banks identified by the EBA as needing to do so. "There has been no speeding up," EC spokesman Olivier Bailly said in Brussels. "The EBA timetable holds as it was then. You don't need to believe these rumors that all the European banking system requires recapitalization."