| EU bailout fund not enough to clean Spain mess: Fitch |
MADRID Fitch Ratings warned on Friday that it has doubts about whether Spain’s banking rescue of up to 100 billion euros ($123 billion) will be enough to clear up the mess for good.
Euro zone authorities agreed with Spain in June to lend the money to finance a reform of the banks, crushed by a mass of loans that turned sour after a 2008 property crash.
Strict conditions for the rescue loan were set out in a July 20 memorandum of understanding (MOU), laying the path for a “far-reaching reform of the Spanish banking sector,” the credit ratings agency Fitch said.
“While clearly intended to be the final reform, very tough economic and market conditions in Spain mean Fitch Ratings remains cautious as to whether this will be the case,” the agency said.
Many investors believe rising borrowing costs could force Spain to seek a full-scale bailout, a move that would dwarf the earlier rescues of Ireland, Portugal and Greece.
The annual return, or yield, on Spanish 10-year government bonds was 6.859 percent on Friday afternoon — a cost that Madrid has previously said it would not be able to withstand over the long term.
Under the deal, Fitch noted, not only bank shareholders but also holders of subordinated debt and hybrid instruments could be forced to accept losses, known as “haircuts”.
Fitch said the position was unclear for senior debt holders, who usually enjoy a high level of protection in defaults, for example escaping any losses in the Irish banking rescue. Spain’s agreement with the euro zone does not explicitly force senior debt holders to accept losses, it noted.
“However, in explicitly emphasising the aim of protecting depositors and minimising the burden on the taxpayer, the MOU could be interpreted (and has been by some commentators) as implicitly suggesting that senior debt holders could face potential losses in the case of ultimately non-viable banks.”
The bailout agreement says resolving non-viable banks should protect customer deposits, minimise the cost to taxpayers and enable healthy banks to snap up the assets in a competitive process, the agency noted.
“Customer protection therefore appears to be an explicit goal,” the credit assessor said.
Agencies
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