Spain fund won't avoid bank consolidation-analysts
MADRID, Oct 8 (Reuters) - Spain's 30 billion euro ($40.9 billion) aid package will ease banks' cash problems but will not end the liquidity drought or save them from consolidation, senior financial sources and analysts said on Wednesday.
Mid-sized banks and the country's 46 savings banks, which are highly exposed to the sharp downturn in the domestic property sector, are seen as particularly vulnerable, they said, despite the package of measures announced on Tuesday. [ID:nL7363787]
An estimated 70 percent of the savings banks' combined 900 billion euros loans portfolio is in real estate.
Some of these assets might be bought by the state, after Prime Minister Jose Luis Rodriguez Zapatero said the government would set up a 30 billion euro fund to buy up good quality assets from the banks.
But analysts said the industry's problems might not be solved by the fund, which can be extended to 50 billion euros, and whose creation was accompanied by a guarantee on deposits up to 100,000 euros.
"The main problem for the Spanish banks is not solvency but liquidity," a top banking source who requested anonymity said.
"The starting point from which the Spanish banks are facing this crisis is excellent, but the question is how long they can last if the access to the wholesale funding markets remains closed," the source said.
Another leading financial sector source who also requested anonymity said Spain's main problem is that it has never shared the savings culture of other European countries.
So as domestic savings were insufficient to fund the spectacular economic growth over the last 10 years, banks relied heavily on international funding, which has now dried up.
Deutsche Bank said the government liquidity injection could be a good complement to funding facilities provided by the European Central Bank (ECB).
"Faced with the increasing competition seen in the latest liquidity auction, the virtual disappearance of the interbank market and the expected tightening of ECB's repo rules, this should at least put Spanish banks in a more comfortable position for the rest of 2008," it said in a note.
LIQUID ASSETS
Still, ECB council member and Bank of Spain Governor Miguel Angel Fernandez Ordonez saidon Tuesday mergers were likely.
Spain's top two banks Santander (SAN.MC) and BBVA (BBVA.MC) and top savings bank La Caixa are seen as winners in any restructuring, due to their capital base and liquidity position. Continued...
