With all the europhoria over Greece, some may have forgotten Spain. It is time to remind them that the real "fulcrum country" of Europe has now shifted a few thousand kilometers to the West, where as also reported on Friday the pain will come primarily from more home price declines (up to another 25% lower from here), [7]and loan loss recognitions. How much? As Market News reports, the number may be as large as €150 billion. Of course, if that full number flows through the insolvent banking sector's bottom line, and forces a comparable FROB capital infusion via any of the bailout channels, this is €50 billion more in bond subordination (because good luck raising the capital via equity) than even the worst case Spanish bailout scenario had anticipated. It also explains why as of this morning, Spanish bonds traded at all time record lows. Because, sadly, nothing continues to be fixed in Greece, Spain, or anywhere else in Europe.
From Market News [8]:
An independent auditors' report to be published later this week on the financial needs of the Spanish banking system will show that as much as E150 billion in additional loan loss provisions may be required, Spanish business daily El Confidencial reported Monday.
The provisioning estimates contained in the anxiously awaited report, commissioned by the Spanish government and conducted by private consultants Oliver Wyman y Roland Berger, will be higher than previously estimated because their calculations now include large provision figures for the retail mortgage sector, the newspaper said, citing sources at various banks.
The E150 billion in required loan loss reserves is not to be compared directly with the E100 billion of recapitalization aid offered to Spain earlier this month by its Eurozone partners. However, the strong increase in required loss provisions will raise the capital need to be estimated by the consultants, El Confidencial said.
It said the capital requirement for Spanish banks -- after reserves and profits are consumed -- could be "amply superior to E60 billion," though it did not purport to be citing from the auditors' report.