Spain to kick off banking sector audit

 

Spain, under pressure from the EU to accelerate its bank clean-up, will name independent auditors on Friday to probe bad loans and property holdings in the financial sector and determine how big a state bailout is needed.

The Spanish government has also hired Goldman Sachs to carry out an independent valuation of Bankia, the ailing bank taken over by the state last week, Spanish newspaper Expansion said. A spokeswoman for the economy ministry had no immediate comment.

Troubled banks, along with overspending in indebted regions, are the two biggest risks for Spain's public finances. Investors believe Spain need to aggressively address these 2 issues to avoid an Irish-style bailout.

Credit rating agency Moody's carried out a sweeping downgrade of 16 Spanish banks on Thursday, citing a weak economy and the government's reduced ability to support troubled lenders.

All the banks' long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts.

Shares in Spanish banks fell at the market opening but were rising sharply by around 5:30 a.m. EDT, with Bankia shooting up 9% while Santander and BBVA gained more than 3%.

Goldman Sachs will review Bankia's and its parent company BFA's books, the paper said, and will determine within a month how much the state should inject to refloat the lender, which had to be rescued after its auditor, Deloitte, identified several gaps in last year's accounts.

Expansion said without citing sources that Bankia's financial hole may reach €8 billion on top of the €10 billion it needs to set aside to cover potential losses on real estate assets, as required by two financial reforms passed by the government in February and last week.

MORE MONEY ?

A restructuring plan for the bank will be presented next week by its new Chairman Jose Ignacio Goirigolzarri, a senior government source said on Thursday.

The source said Bankia's parent company BFA (Banco Financiero y de Ahorros) may need to provision additional capital to cover future losses on its real estate assets.

"For Bankia, the last estimate is enough, but BFA will need something on top of what it announced," the source said.

Bankia said this week it would need €4.7 billion in capital to comply with the last banking reform, while BFA would only need €91 million.

Bankia's share price slumped as much as 30% on Thursday, before the government denied a report that customers had withdrawn more than €1 billion from the partly nationalized lender.

According to banking sources, BlackRock and Oliver Wyman are likely to be chosen to audit the sector. They will first stress- test the sector as a whole, then look at each bank individually, the government source said.

The latter source said the exercise would enable the government to set a final figure for the money it will need to inject into the ailing banking sector.

The government estimated last week it would need less than €15 billion to recapitalize the banks.

"We'll have a better idea in a month. If more capital is needed, we'll look into it," the source said.