"We have to believe we can save Spain's banks"

In this special banking report video Yvette Roper of TradingFloor.com interviews Tomas Berggren, Equity Analyst, Saxo Bank on the fate of Spanish banks after the news of a Euro 100 billion bailout. He discusses whether this will be enough to save the necks and reputations of the most troubled banks and if not what the next most likely scenario is.

For a long time the Spanish government insisted that it did not need external help to recapitalise Spain’s banks. That all changed quickly with news of the bailout. There’s no doubt the EUR100 bn is a step in the right direction but now the hard work begins in terms of setting a Spanish model to recapitalise the banks, says Tomas. And now it’s all about a bail-in rather than a bail-out model which if it works will in the long-term benefit taxpayers, he adds. He estimates however that unless there’s a turnaround soon in the housing market in Spain then much more than 100 billion will be needed.

The focus is on the regional banks or so-called Cajas which have gone all-in on the Spanish real estate and housing market and will be the first ones helped. Tomas estimates that a few Cajas will be nationalised pretty soon. There are some concerns about the two great multinational banks BBVA and Banco Santander, though they are more insulated because they have other sources of income and funding which also come from outside Spain. 

In terms of how the Spanish bailout differs from the likes of Ireland it all comes down to the economy’s and thereby banks’ over exposure to the property market. The banking system has bet almost everything on this property wave and therefore there are not that many alternatives for the Spanish economy, says Tomas, adding that a further 20 percent drop in Spanish housing prices might be ahead. The Spanish situation is also particularly exacerbated by the troublesome micro and unemployment situation. 

He sees how Spain comes through this as a definite make or break event for the Euro. The Spanish economy is the fourth-largest in Europe and in magnitude of severity this ‘crisis’ matches more than the other four PIIGS members combined. Nevertheless, he is optimistic and states: “We have to believe we can save the Spanish banks” with the main issue no longer being “if” but “how”. He stressed the need for proper risk takers to take the losses so taxpayers don’t have to step in to foot the bill.