BNP- Banca española

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BNP Paribas: ‘Avoid Spanish banks for now’
Posted by Stacy-Marie Ishmael on Jun 04 08:10.

Add the credit analysts at BNP Paribas to the growing list of those concerned about the robustness of the Spanish banks.

In a note published on Wednesday, analyst Olivia Frieser observed, in a comment on the findings of the June 2010 edition of the ECB’s Financial Stability Review, that Spanish banking sector assets total approximately €3,200bn.

Frieser also detailed the potentially troublesome exposures of Spanish banks. Any emphasis or links ours.

For instance, to construction and property:

The exposure of the Spanish banking sector to construction and property development is €445bn as of end December 2009. Of this, there are €165.5bn that the Bank of Spain considers as potentially troubled: €42.8bn of doubtful loans, €59bn of substandard loans, €59.7bn of asset foreclosures…and finally €4bn in write-offs. However, we’d argue this is not the only potentially troubled exposure of Spanish banks.

And on the caja and the need for a Spanish Nama:

The on-going restructuring of the cajas (with “mergers” or some cajas being seized by the Fund for the Orderly Restructuring of the Spanish banking sector or FROB) is in itself positive. However, just merging and recapitalising the banks up to 2% of RWAs may not be sufficient to bring confidence back to the sector. We would argue that a NAMA-style bad bank or asset manager, or bank-by-bank stress-testing, with subsequent recapitalisation, would be necessary. The Bank of Spain has given until 30 June to restructure the cajas. However, we are not convinced that the picture will be clearer then. Bank of Spain officials, who we met recently, do not seem in favour of a NAMA-style bad bank. While they do not oppose bank-by-bank stress testing, they think it should be an EU-wide effort. Yet, given significant refinancing needs of the sovereign in July, and stress-test results not available before fall at the earliest, the market could remain volatile until then.

And of course, the FROB:

We also note that the FROB is only funded up to €9bn (made up of €6.75bn by the State and €2.25bn by the deposit guarantee funds), or €12bn if including some issuance last November. However, the fund has already disbursed €2.2bn and recent announcements of caja consolidation will likely mean further disbursements. While the FROB can leverage up to 10 times to reach up to €99bn with approval from the Ministry of the Economy, it would have to fund itself in the capital markets, which is far from certain given the current state of the market.

A quick note on the borrowing requirements of the no-longer-triple-A Kingdom:

While it has the guarantee of the Kingdom of Spain, the Spanish sovereign itself needs to raise €38bn in July.

And back to real estate exposures:

Finally, while we focus here on cajas, some second tier Spanish banks also have high exposures and concentrations to real estate, which could lead to substantial losses. While BBVA and Santander are not immune to the sovereign crisis and local economy, they are more diversified into higher growth regions (such as Latin America). Therefore, while we are neutral on these, we remain cautious on second Tier Spanish banks such as Sabadell, Pastor and Popular, and on the cajas.

In conclusion:

We do not expect losses at the senior debt level, but this could nevertheless be a bumpy ride into the summer.

Related links:
Seized: CajaSur, or, 0.6 per cent of Spanish banking assets – FT Alphaville
The slow death of the cajas – FT Alphaville
The tipping point for Europe’s banks – FT Alphaville
Scrutiny of Spain’s potential banking pain increases – FT Alphaville

This entry was posted by Stacy-Marie Ishmael on Friday, June 4th, 2010 at 8:10 and is filed under Capital markets. Tagged with Banks, bbva, cajas, europe, eurozone, frob, santander, Spain, spanish banks. Edit this entry.

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