Spain to decide on bank bailout after outcome of audit known

Spain has no immediate plans to seek a bailout to recapitalize its banks, and before taking any such decision will wait to know the outcome of independent audits being carried out on the financial sector, Economy Minister Luis de Guindos said Wednesday.

Finance Minister Cristóbal Montoro acknowledged on Tuesday that the spike in Spain’s risk premium had made it too expensive for the government to tap the debt markets to fund a clean-up of the banks.

“We didn’t discuss a bailout for Spain’s banks at all today [Wednesday],” De Guindos said after meeting with European Parliament lawmakers in a closed-door session.

De Guindos said the government also wants to wait for an IMF report on the sector, which is due to be released next Monday, before deciding how to proceed. The minister insisted that the problems of the Spanish banks are limited in scope.

Concerns about the sector snowballed after nationalized lender Bankia and its parent Banco Financiero y de Ahorro (BFA) asked the government for an additional 19 billion euros to clean up their balance sheets, which have been contaminated by the ailing real estate sector. Banco Santander Chairman Emilio Botín earlier this week estimated the recapitalization needs of Bankia/BFA, and three other banks that have been nationalized, at around 40 billion euros.

De Guindos said the government expects to receive the results of the audits being carried out by Roland Berger and Oliver Wyman within 10 to 15 days. “Most likely they will be similar to those of the IMF,” he said. “Thereafter, the Spanish government will take the decisions it needs to take with regard to the recapitalization of the banks.”

De Guindos said the government also wants to wait for an IMF report on the sector

Speaking at a news conference after the European Central bank decided to leave its key lending rate at 1 percent, ECB President Mario Draghi said it was up to Spain to decide whether it needed a bailout for its banks. However, he insisted that the decision the government takes should be based on a “realistic” valuation of the situation of the country’s lenders.

The main opposition Socialist Party’s spokesman in Congress, Valeriano Gómez, on Wednesday urged the government to seek assistance as soon as possible from Europe if it believes Spain cannot rescue the banks on its own.

The European Commission has shown itself receptive to Spain’s request for banks to be able to directly tap the European Stability Mechanism (ESM) and for Europe to move toward a banking union. However, that would require a change to the regulations governing the European Union’s permanent rescue fund, which is due to come into being at the start of next month.

The Commission on Wednesday presented a series of initiatives that amount to a move toward a banking union, including imposing a levy on banks to create a fund to stabilize lenders that are in difficulties, and forcing bank bond-holders to accept losses.

European Union sources said one possible way to overcome German objections in this area would be for the current European Financial Stability Fund to lend directly to Spain’s state Orderly Bank Restructuring Fund (FROB).

Financial daily Cinco Días reported Wednesday that in exchange for assistance to Spain’s banks, Europe will demand lenders make provisions for possible losses deriving from defaults on home mortgages, loans to companies and consumer finance.