Wednesday, June 23, 2010

Spanish Bank Stress Tests May Help Open Markets, Campa Says

By Emma Ross-Thomas
June 23 (Bloomberg) -- Spain’s plan to publish bank stress tests may help lenders regain access to capital markets by improving sentiment toward the nation, Deputy Finance Minister Jose Manuel Campa said.

The government’s role is to “promote the transparency and the information that generates that confidence because sometimes to be solvent you don’t only have to be solvent but you also have to show and convince people that you are,” Campa said in an interview late yesterday in Madrid. “The stress tests are clearly part of that strategy.”

His remarks follow comments from Banco Bilbao Vizcaya Argentaria SA Chairman Francisco Gonzalez on June 14 that international capital markets are closed to “the greater part of Spanish companies and financial institutions.”

“I’m very confident that it will not last,” said Campa, a 45-year-old former professor at New York University’s Stern School of Business.

As the risk premium on Spanish debt surged to the highest in the euro’s lifetime last week, the Bank of Spain announced it would publish stress tests on banks, prompting the rest of Europe to follow suit. The country is trying to convince investors it can bolster savings banks hobbled by an increase in bad loans while cutting the third-largest budget deficit in the euro region and steering the economy back to growth.

Rescue Fund

Most of Spain’s 45 savings banks, which are foundation- based lenders linked to regional governments, are merging in deals that can be financed by the state’s bank-rescue fund. Bank of Spain Governor Miguel Angel Fernandez Ordonez said yesterday that lenders may receive around 10 billion euros ($12.3 billion) in loans from the fund.

The stress tests must be “credible,” Campa said. “It should include a scenario that’s sufficiently stressed so that the markets perceive that the likelihood of that scenario is sufficiently small,” he said.

“It’s probably not going to cover 100 percent of the banking sector because there are very, very small institutions, but it will be institution by institution and we want the coverage to be very, very thorough of the system,” he said.

The extra yield investors demand to hold Spanish 10-year bonds instead of German equivalents surged to 221 basis points on June 16, the highest since the start of the euro. The yield fell after the Bank of Spain said it would publish the stress tests and was at 191 basis points at 10:07 a.m. in Madrid today.

Campa said Spain would have no problem financing 24.7 billion euros of debt redemptions falling due in July, which include the last bond redemption of the year.

“The markets know perfectly well that we have been executing our funding strategy beyond our needs with no particular concern,” he said. “To give you an example, we had an unexpected funding need which was our contribution to the Greek loan; we made that contribution without announcing any additional funding needs.”

Spain’s contribution to the loan package for Greece last month, aimed at avoiding the first default in the euro region, was 9.79 billion euros.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at

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