Spanish banks ordered to boost capital

11 March 2011

Regulators in Spain have informed the country's banks that they will need to boost their capital holdings in order to meet new requirements, in an effort to strengthen the industry against future crises.

The Financial Times reports that British financial firm Barclays was ordered by the Bank of Spain to inject around €500 million ($690 million) into its Spanish operation, one of the group's more prominent non-UK interests.

Barclays Spain is one of four privately-owned financial institutions with a capital shortfall and is currently burdened by a deficit of €552 million - the biggest in the country, with nearest contender Bankinter down by €333 million.

The company has so far refused to make any official comment on the matter, but the newspaper cited senior sources as stating that the capital transfer would be made by September and would have no impact on Barclays' UK obligations.

Combined, Spain's various banking businesses will need to find up to €15.2 billion euro if they are to satisfy the new regulations and Bloomberg claimed that investors are already being sought to help close the existing gap.

Banks which fail to meet the rules within one year risk being taken over by the Spanish government, but Abaco Financials fund manager Inigo Lecubarri warned that observers remain sceptical over whether the Bank of Spain figures tell the full story.

"At this stage, I don't think anyone will be really convinced by anything," he explained. "People will only be convinced when someone credible comes and puts some money on the table to invest."

Credit agency Moody's cut Spain's credit rating to AA2 in the wake of the announcement and expressed concerns that banks may be as much as €50 billion short of the required targets.

The central bank's move came amid growing fears over Portugal's sovereign debt levels and renewed efforts from leaders in Greece and Ireland to negotiate the terms of their emergency bailout packages.

By Tony Aynsley

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