MADRID, Spain — Spain has made a formal request for a loan to help clean up its troubled banking sector, the Economy Ministry said Monday.
However, the country has yet to specify how much of the $125 billion loan package offered by the 17 countries that use the euro it will ask for.
Economy Minister Luis de Guindos said recently that the figure will be made known July 9 when Spain and its single currency partners reach agreement on the terms of the loan, such as the interest rate.
Last week, two international audits commissioned by the government said Spain’s banks could need up to $77.7 billion to survive if the economy were to suffer an extreme deterioration.
Spain earlier this month finally admitted that some of its banks were in severe trouble owing to the build-up of toxic assets after the collapse of the country’s bloated real-estate sector after 2008.
Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA were among 28 Spanish banks downgraded Monday by Moody’s Investors Service, which cited the country’s sovereign debt and rising losses on real-estate loans.
The lenders’ long-term debt and deposit ratings were cut by one to four levels, Moody’s said in a statement. The New York-based rating company also downgraded 16 Spanish banks May 17.
The letter to the euro area governments requesting the bailout loan said the amount sought “would be sufficient to cover capital necessities as well as an additional margin of security up to a maximum of” $125 billion.
It was sent to Jean-Claude Juncker, the Luxembourg prime minister who is also president of the eurogroup of finance ministers.
Amadeu Altafaj Tardio, spokesman for the European Commission, the European Union’s executive body, said experts from the troika - the commission, European Central Bank and International Monetary Fund - as well as the European Banking Authority would be “flying in [to Madrid] as soon as possible.”
In a statement, the commission’s top financial and monetary affairs officer, Olli Rehn, welcomed the request and pledged “to step up work to get a clean assessment of the sector and its needs.” He said the two audits were “a good starting point.”
Rehn said he was “confident an accord can be reached in a matter of weeks.”
Tardio told reporters there would be conditions for both the bailed-out banks and the whole Spanish banking industry.
The government ordered the audits, carried out by Oliver Wyman Inc. and Roland Berger Strategy Consultants GmbH, as an act of transparency in the hope their results would calm markets. Some analysts said the Spanish economy’s outlook is so bad that the assumptions may be conservative.
Four other international auditing firms will now carry out more exhaustive audits of each bank by July 31. Based on these, a round of stress tests will then be held on each entity in September. Banks then seen to be financially unsound will be given 15 days to come up with restructuring plans and, if approved, nine months to fulfill them.
Spain is pushing for the loans to go directly to the banks, rather than have the government be responsible for repayment. While organizations such as the IMF support this procedure, others such as fellow eurozone country Germany have ruled it out. Berlin insists on abiding by current regulations under which the money must be given to a government, adding to its debt pile. The commission also stands by this position.
But Spanish Foreign Minister Jose Manuel Garcia-Margallo said Monday that “the question of whether the money will go directly to the banks or to the state is still open,”
Investors worry the government may not get the money back from the banks and would have to repay the loans itself and that this could push it closer to joining Greece, Ireland and Portugal in seeking a rescue loan for the whole country.
Spain is the eurozone’s fourth-largest economy and such a sovereign bailout would seriously challenge the bloc’s finances. The country is struggling through a recession with a swollen deficit it must slash and a 24.4 percent jobless rate.
Those concerns took Spain’s benchmark 10-year borrowing rate up 0.12 of a percentage point to 6.48 percent Monday.
Information for this article was contributed by Toby Sterling of The Associated Press and Charles Penty of Bloomberg News.
Business, Pages 23 on 06/26/2012