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Spanish banks need 40 billion euro buffer – IMF

Published: June 9, 2012 | 7:17 am
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NEW YORK  –  Several banks in Spain would need to raise capital buffers by a total of €40 billion to withstand another financial shock, the International Monetary Fund said in a report issued late Friday.
The report, which had been expected to be released Monday, came amid widespread speculation that Spain will ask the European Union for help in recapitalizing the nation’s banks as soon as Saturday.

EU officials are eager to resolve the issue before a pivotal election in Greece on June 17, which could present another major turning point in the long-running European debt crisis.
But the Spanish government has said that it will not make a decision on its financial needs until after an external audit of the banking sector is completed later this month.
The IMF said it subjected Spanish banks to a stress test and found that most large banks are relatively healthy. But the group warned that “several” banks would need to raise buffers under the worst-case scenario.
The €40 billion figure is not a definitive estimate of the banks’ capital needs. The IMF said banks would need to raise more capital depending on restructuring costs and loan adjustments that have yet to take place.

Any way you slice it, Germany wins

“Going forward, it will be critical to communicate clearly the strategy for providing a credible backstop for capital shortfalls — a backstop that experience shows it is better to overestimate than underestimate,” said Ceyla Pazarbasioglu, deputy director of the IMF’s monetary and capital markets department.
Fitch ratings agency, which slashed Spain’s credit rating Thursday, estimated that recapitalizing the Spanish banking sector could cost up to €100 billion.
The report was released as IMF managing director Christine Lagarde called on global policy makers to come together for the sake of the global economy and “get the job done.”
“There is no mistaking that global risks are on the rise again,” she said in a Friday speech in New York. “The euro area crisis continues to be the most immediate and most pressing threat, and there is the risk that conditions could get worse.”

Key ingredient missing in Europe: A plan

While the euro crisis is the most immediate concern, she also warned that the U.S. economy could fall of a “fiscal cliff” if the nation’s debt is not put on a sustainable path.
“European banks are at the epicenter of our current worries and naturally should be the priority for repair,” she said. “But this does not mean we should overlook the broader implications of today’s interconnected world.”
Lagarde pointed to the recent disclosure by JPMorgan Chase (JPM, Fortune 500) that the largest U.S. bank by assets had lost at lest $2 billion on risky trades.
“There are still many questions surrounding JPMorgan’s trading loss. Yet, they should be seen as a warning shot over the bow,” she said. “It reveals that too much risk remains.”


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