Spain Banks Stocks Fall As Government Says More Provisions Needed

Spanish banking stocks fell in early trade Thursday after the government said the sector will need to raise about EUR50 billion in additional provisions to deal with bad property assets.

Finance Minister Luis de Guindos said in an interview with the Financial Times that it is essential for banks to straighten up their balance sheets without burdening the nation's treasury, an indication that the idea of creating a government funded bad bank structure is no longer on the table.

The ministry confirmed the comments from the interview.

After 45 minutes of trade, the banks were the biggest decliners on the Spanish exchange, with Caixabank SA (CABK.MC) down 2.8%, Banco Santander SA (STD) down 2.9%, and Banco Bilbao Vizcaya Argentaria SA (BBVA) down 2.5%. The smaller banks also fell, and Spain's benchmark index, the IBEX-35, was down 1.3%, underperforming markets in the rest of Europe.

"The new provisions are higher than the amount that had been rumored in the press," said Javier Sanchez del Val, a trader at Banco Sabadell in Madrid.

In the FT interview, De Guindos said: "In the great majority of cases, [the Spanish banks] can provide [provisions] themselves from their profits... and it could be done not in one year but over several years."

Banks are sitting on huge losses on their exposure to a real-estate sector that is reeling in the wake of the bust of a massive property bubble. Roughly half of the EUR338 billion in total exposure to real-estate developers, some EUR176 billion, is considered "problematic" by the Bank of Spain.

"We have a property problem in Spain, but it's manageable... This EUR50 billion is about 4% of Spanish gross domestic product. This is not Ireland, it's a completely different order of magnitude," the FT cited De Guindos as saying.

De Guindos also said there should be another round of consolidation in the savings bank sector, with stronger banks taking over weaker ones.

BPI bank analysts said the possibility of booking additional provisions over several years was positive for individual banks as it would spread the impact on earnings. "Although it will dent banks medium-term profitability, this would likely avoid a negative impact on core Tier 1 capital on the short-term in most banks," they said.

-By Christopher Bjork, Dow Jones Newswires; +34913958123; christopher.bjork@dowjones.com

BBVA Bilbao Vizcaya Arge... (NYSE:BBVA)
Historical Stock Chart
From Dec 2024 to Jan 2025