By ALAN CLENDENNING and DANIEL WOOLLS
By ALAN CLENDENNING and DANIEL WOOLLS
Associated Press
MADRID — Spain’s troubled banks could need as much as $78.6 billion in new capital to protect themselves from economic shocks, according to independent auditors hired by the government to assess the country’s struggling financial sector, officials said Thursday.
The Spanish government will use the auditors’ report as the basis for their application for a bank bailout loan from the 17 countries that use the euro. With tensions rising over the future of the eurozone, Spain is expected to submit its specific request for outside assistance no later than Monday, said Jean-Claude Juncker, who chairs meetings of zone’s finance ministers.
“We invited Spain to pursue this clear and ambitious strategy, which needs to be implemented swiftly and communicated early,” Juncker said after Spanish Economy Minister Luis de Guindos presented the audit results to the ministers who are members of the so-called Eurogroup.
Deputy Bank of Spain Governor Fernando Restoy noted that this worst-case scenario cited by the auditors was far below the $126.7 billion loan offered by the eurozone’s finance ministers two weeks ago.
Spain’s banking sector is struggling under toxic loans and assets from the collapse of the country’s property market in 2008. Concerns that Spain’s economy is so weak that it could not afford the cost of propping up its banks has sent its borrowing costs soaring to levels not seen since it joined the European single currency in 1999.
The worry is that Spain could soon find itself unable to finance its debts by itself and join Greece, Ireland and Portugal in seeking a rescue loan for not just the banks but the whole country.
The stakes are huge: Spain is the eurozone’s fourth-largest economy and would seriously hit the bloc’s finances should it need bailing out. The country is struggling through a recession with a 24.4 percent jobless rate. On top of this, government’s main customers at its debt auctions are Spanish banks — the sector now being bailed out. In a sign of how reluctant the markets are to invest in Spain, the country had to pay sharply higher interest rates to raise $2.8 billion in a bond auction Thursday.
The audits of Spain’s lenders, carried out by consultancies Roland Berger and Oliver Wyman, covered 14 banking groups that account for 90 percent of the country’s financial sector. The country will use the reports’ findings to decide how big a bailout loan to ask for.
Restoy and Deputy Economy Minister Fernando Jimenez Latorre declined to outline individual banks’ needs.