The European Banking Authority (EBA), who in its short life is increasingly less of a European authority than a German one, has once again denounced the Spanish bank for proclaiming that its five biggest lenders have a capital deficit of some 26 billion euros, which is better than nobody but the hopeless Greek banks who need 30 billion in capital reserves.
The figure mostly reflects the talents of Spanish negotiators than the lenders' real capital requirements. Soon, one fell sweep of convertible shares could pay down 11 billion, which would cut the requirement to 15 billion euros.
Further, profit generation through June 2012 must be counted on. This is the deadline for reaching at least the 9% capital figure, free generic provisions (another 8.9 billion), sell shares, reduce the balance and reduce shares weighed down by risk.
These comprise a string of resources that makes the five main Spanish lenders convinced that they will meet the strict requirements given to them by the EBA without having to resort to public aid. As a prevention against the markets, another tyrant of this story, the firms have stated each of their needs and plans for coming out of the situation with flying colors. Some plans are more detailed than others.
Santander, who just came out with their quarterly results, made the most of the occasion by explaining in detail that not only will they meet the 9% capital requirement by June 2012, but that their objective is to reach 10% with a 1.5 billion buffer all without modifying shareholder distribution policies or similar adjustments. Santander also complained that even though they passed stress tests this past July, the criteria that the EBA looked for affected Spanish lenders much more than German and French banks. Despite the fact that the latter have greater exposure to Greek debt, combined they only lack 14 billion in capital.
One of these criteria, which penalizes the two biggest Spanish lenders in particular, dictates that the adjustment in the value of sovereign debt is only applied to Europe. So the development of market value in German debt, which show an added value, could be compensated with the 50% forgiveness of Greek debt that German lenders will mine their capital reserves for, which is what French banks have done with their debt, too. On the contrary, the Spaniards have latent value increases in debt from other countries, mainly in America, that cannot make up for the fact that the bill for Spanish debt is coming out cheaper.
This has already turned out more bulky than what was predicted (in the last stretch of negotiations in Europe) by the inclusion of other adjustments for known credits to public administrations, which practically doubled the initial estimations. These were around 3.5 billion euros, but according to data collected by the EBA, they finally reached 6.29 billion euros. Another aspect that makes the Spanish bank come out poorly is the exclusion of intangible forms of capital. These kinds of immaterial shares include technology platforms, which in other countries are frequently subcontracted and therefore accounted for differently.
