SHARES IN Spain’s Popular bank plummeted yesterday after it announced plans to carry out a share issue worth €2.5 billion in an effort to cover a capital shortfall revealed by a stress test.
The bank was one of seven that failed to meet capital requirements in the case of a serious economic downturn, according to the study by US firm Oliver Wyman, released on Friday.
The stress test found Spain’s banks needed€59.3 billion in extra capital in an adverse scenario. Popular, Spain’s sixth-largest bank in assets, had a €3.2 billion shortfall.
On Sunday, the lender approved a plan to raise the €2.5 billion by the middle of November. Chief financial officer Jacobo González-Robatto said Popular would also speed up the sale of other assets.
The bank expects to register losses of €2.3 billion in 2012, compared with a previous forecast of a €400 million profit.
Spain has asked the EU for a rescue loan of up to €100 billion for its struggling financial sector, although it only expects to use about €40 billion of that amount. Popular hopes its own capitalisation plan will allow it to avoid tapping these funds.
Popular also announced it would create a so-called “bad bank” in which to put toxic assets that it, like many of Spain’s lenders, took on during the country’s decade-long property boom.
But the initiatives did not convince the market, with Popular losing 5.7 per cent at close on Spain’s stock exchange, recovering from being 12 per cent down.
Moody’s rating agency welcomed Spain’s stress test, but it also suggested that Oliver Wyman’s overall capital shortfall estimate was too low.
“If market participants are sceptical about the stress test, negative sentiment could undercut the government’s efforts to fully restore confidence in the solvency of Spanish banks,” Moody’s said in a Credit Outlook.
However, the stress test announcement relieved pressure on Spain’s borrowing costs yesterday, which have recently been pushing the country towards requesting a full sovereign bailout.
EU economic and monetary affairs commissioner Olli Rehn yesterday said that Brussels was “ready and prepared to act” should Spain want the bailout, reinforcing the feeling that Madrid will make the request for help in the coming weeks.
