Spain's big banks on Thursday ruled out having to tap the markets to meet the new European-wide solvency requirements being imposed.
The European Banking Authority (EBA) late Wednesday calculated Spanish banks would require an additional 26.161 billion euros to meet the new core capital ratio of nine percent of risk-weighted assets they will need to pass the stress test to be carried out by the EBA in June of next year.
The tests will include the premise of a writedown in the value of Spanish government bonds held by the banks in their books of under three percent. According to EBA calculations, marking the value of sovereign debt in the portfolios of Spanish banks will cost them 6.29 billion euros.
The amount required of Spanish lenders was surpassed only by Greek banks despite the fact that Santander and BBVA got some of the highest marks in the stress tests carried out in July. The EBA estimated European banks as a whole would require a total of 106.447 billion euros.
Of the total required of Spanish lenders, 82 percent correspond to Spain's two biggest banks, Santander and BBVA.
Local banks, which reckon the figure they require is only 13.5 billion euros once convertible bond issues and other adjustments are included, have informed the National Securities Commission (CNMV) that they rule out capital increases or state funding to meet the new requirements. They believe they can do so by generating additional capital internally from their earnings by June of next year.
The markets seemed to side with that argument. The blue-chip Ibex 35 was up over four percent by early afternoon, with Santander up over six percent and BBVA over eight percent.
Economy Minister Elena Salgado said the banks have the capacity to obtain funds for recapitalization on their own and do not need help from the state. "Of course, state funding is available, but the banks are going to do everything possible not to have to ask for it." Salgado was following the same line taken earlier Thursday by Prime Minister José Luis Rodríguez Zapatero.
The Bank of Spain also issued the same message. "Bearing in mind that the figures published by the EBA are provisional, with the final calculations only available around the middle of November when the definitive figures for capital and exposure to sovereign debt as of the end of September are available, from the information offered by the banks it can be seen that they intend to meet the indicated requirements though their own ability to generate capital, with the understanding it will not be necessary for the public sector to take stakes in them," the central bank said in a statement posted on its website.
Santander and other lenders also said they can meet the new requirements without changing their dividend policies.
In a parallel development, the haircut agreed late Wednesday by leaders of the euro zone to be applied to the value of outstanding Greek sovereign debt was 50 percent, with a view to reduce its debt burden to 120 percent of its GDP.
Euro-zone leaders also agreed to increase the size of the European Financial Stability facility (EFSF) to one trillion euros from 440 billion. The fund will also only guarantee a part of the debt of euro-zone countries in difficult.