MADRID (MNI) – The Bank of Spain said Thursday that 12 banks in
Spain would have to increase their capital for a total amount of E15.15
billion in order to comply with new legal requirements.

“The objective of the reform approved today by Parliament is to
reinforce the solvency of the financial system even further, in order to
dispel any uncertainty and restore market confidence,” the central bank
explained.

The total sum is less than the maximum of E20 billion previously
estimated by the central bank and the government to recapitalize weak
banks.

However, the rating agency Moody’s argued earlier today that the
total recapitalization cost was likely to be closer to E40-50 billion
and could even rise to E110-120 billion in a more stressed scenario.
This was a primary reason the agency gave for downgrading Spain’s
sovereign debt rating to Aa2 from Aa1.

Two of the institutions needing to increase capital are Spanish
banks, two are subsidiaries of foreign banks and eight are savings
banks, the central bank said. These institutions must comply with the
capital requirements by the end of September and must present their
strategy to the central bank within 15 working days.

The capital requirements establish a general minimum ratio for core
capital of 8% for consolidatable groups of credit institutions and
individual credit institutions that do not belong to a consolidatable
group that are able to raise repayable funds from the public.

The ratio rises to 10% for groups or institutions that have not
placed securities representing at least 20% of their share capital or
voting rights with third parties and that have wholesale funding of more
than 20%.

“The overall amount of E15.15 billion is subject to possible
changes,” the central bank noted. Some banks plan to raise funds from
investors amounting to at least 20% of their capital. If they do this,
the 8% core capital ratio would apply to them.

“In addition, banks may also adjust their capital ratios by means
of extraordinary operations,” it said. This would reduce the need to
obtain new capital.

Other institutions that already comply with the requirements have
announced plans to tap markets with new issues, the central bank noted.
Thus, “the volume of capital finally injected into the Spanish financial
system may be increased by the amount of such issues.”

The central bank noted that the Fund for the Orderly Restructuring
of the Banking Sector (FROB) has committed to subscribing for the
necessary capital institutions may request. The FROB has so far provided
banks with funds totalling E11.56 billion.

The institutions needing additional capital are Bankinter,
Barclays, Deutsche Bank, Bankpyme, Bankia, Base, Civica, Mare Nostrum,
Catalunyacaixa, Novacaixagalicia, Caja Espaa de Inversiones, and Unnim.

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