Fitch said Friday that the ratings firm believes Spain's
Memorandum of Understanding (
) on the bank recapitalization plan represents a far reaching
reform of the Spanish banking sector. However, the ratings agency
warned that this may not be the last such bailout for the troubled
"While the MOU is clearly intended to be the final reform of the
Spanish banking sector, Fitch is cautious about whether this will
actually be the case, given the very tough economic and market
conditions in Spain," said Maria Jose Lockerbie, Managing Director
in Fitch's Financial Institutions group, in a statement.
Spain has been granted financial assistance from European
leaders in amounts up to $125 billion. The loan will come from the
European Financial Stability Facility (EFSF), the temporary bailout
fund, and will add debt to Spain's troubled finances. Spain's 14
largest banks, representing 90 percent of banking assets, are being
stress-tested to see how much capital each one needs. Banks will be
divided into different groups at that stage and will receive
capital based on certain variables.
Owners of Spanish bonds will be the losers in these bailouts,
according to Fitch. Burden-sharing will be implemented on
subordinated debt and preferred shareholders through principle
write-downs. Burden-sharings were part of other bailouts, but they
only amounted to freezes of dividends or interest payments.
Fitch also stated that further conditions of the bailout
recapitalizations for banks include higher capital requirements,
re-assessment of loan-loss provisions, changes in corporate
governance, strengthening of supervisory framework, consumer
protection (for savings) and oversight of the financial safety net
Spanish government bond yields rose in Madrid trading on the
report. Spanish 10-year bond yields rose 6 basis points to 6.906
percent after a reaching a day's high of 6.924 percent, but
remained below the dreaded 7 percent level. Also, Spanish 2-year
bond yields rose 14.4 basis points to 4.18 percent and remained
above the dreaded 4 percent level for the second consecutive day.
Spain's Ibex 35 Index, its benchmark stock index, fell 0.74 percent
on the report.
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