Spain: Bankia Down, Who Is Next?

Bankia is done: at this point the only questions left are i) what will be the final bailout cost  ii) who will pay for these costs, and iii) whether the bank has enough beach towels to satisfy the onslaught of manic Spaniards desperate to hand over their €300 euros to the insolvent bank in exchange for some Spiderman-embossed linen. Oh, there is one more question: who is next.

Now, as we showed earlier today, in the aggregate the answer is simple: everyone. Because as JPM said "if a Spanish EU/IMF bailout package covered the government’s gross funding needs through the end of 2014, and included €75bn for bank recapitalisation, then it would amount to around €350bn." At roughly a third of its GDP, this is, needless to say, more money than Spain can procure. But, in a very Stalinesque sense, where everyone is merely a statistic, that is essentially the same as saying no one.  It is also certainly not helpful to any Spanish readers who may be worried about their deposits (and investments) which in a world of total disinformation, will first be lost before the government advises caution and safety. So instead we go to Goldman Sachs which has conveniently constructed the following analysis, which replicated the loss provision calculation of Bankia, and applies it to the other listed banks. The result: in addition to the €19 billion in bail out costs for Bankia, Spain will need to spend at least another €25 in bailout funding for six other listed banks which include CaixaBank SA, Banco Santander, Banco Popular Espanol, BBVA, Banco Espanol de Credito SA, Bankinter SA.

So now we are not dealing with mere "statistics."

The capital need breakdown is as follows: "Pro-forma capital gap assuming 9.5% CT1 hurdle rate, loss estimates comparable
to those outlined by BKIA and front-loaded in 1H12"

And in the grand scheme of things:

And some pretty Appendix slides as well as the math behing the analysis:

Calculation of residual losses and capital needs under BFA-Bankia scenario

We outline our analysis of residual losses and capital needs for eight listed banks in Spain, assuming a level of loan losses broadly
in line with the scenario presented by BFA-Bankia in their recapitalization plan. We show capital below and above the 9.5% CT
hurdle used by the entity assuming both full front loading of losses in 1H12 as well as taking into account 2-year credit buffers.

Residual losses: Similar to our estimates after RDL-2 is put in place

Retained earnings, loss absorption, and capital: Higher hurdle and elimination of PPP are key

We show the analysis on cumulative and expected losses for the top eight banks in Exhibit 10. These losses are calculated based on the assumptions laid out in our note Still very difficult but manageable for internationals, April 20, 2012. In our view, RDL-1 and RDL-2 adequately address loss on real-estate exposures. The market focus is now shifting to residual losses embedded in other portions of the book. We lay them out in the analysis below, but note that it is not our view that these losses should be capitalized for today. We expect them to be met largely through pre-provision profits and do not believe they should be used as a benchmark for potential capital shortfalls.