Prime Minister Mariano Rajoy’s government named a new governor of Spain’s central bank on Thursday, entrusting him with overseeing the continued restructuring of the nation’s troubled financial sector.
Economy Minister Luis de Guindos announced that veteran technocrat Luis Maria Linde was chosen to replace Miguel Angel Fernandez Ordoñez, who is leaving the Banca de España one month before his term was set to expire.
The minister hailed the political independence of the new governor and his “recognized competence.”
Linde takes the reins at a time when Spain’s bad-loan saddled financial sector is mired in crisis and the central bank, accused of mishandling the clean-up of large banks and regional lenders, known as “cajas,” has suffered a sharp dip in prestige.
Working in tandem with the Economy Ministry, the new governor must decide on the future of recently nationalized banks such as BFA-Bankia, CatalunyaCaixa, NovaGalicia and Banco de Valencia.
Linde will receive a report on Spain’s financial sector from the International Monetary Fund on Monday and two other reports on the banks’ loan portfolios a week later from two independent consulting firms.
Those documents will serve as a basis for calculating the sector’s capital needs.
Rajoy on Thursday refused to speculate on the total cost of the bank clean-up, saying that he will wait for the conclusions of the two consulting firms and the IMF data.
Referring to the wide range of figures being tossed around, anywhere from 40 billion euros ($50.4 billion) to 100 billion euros, Rajoy said he understood the “pressing need for news” and that there can be “speculation” but that as prime minister he must wait for the definitive figure.
In a report released Thursday, Standard & Poor’s estimated that Spanish banks will recognize loan losses of between 80 billion euros and 112 billion euros by the end of 2013.
Fitch Ratings, for its part, said Spanish banks may need up to 100 billion euros in additional capital to cover potential losses on its domestic loan portfolio.
That latter agency has contemplated two scenarios, one in which the capital requirements will come in at around 60 billion euros, and a more extreme, Ireland-style situation in which that amount would rise to as high as 100 billion euros.
Separately, Fitch on Thursday downgraded Spain’s sovereign credit rating by three notches to BBB with a negative outlook, citing the “high fiscal cost of restructuring and recapitalizing the Spanish banking sector and the likelihood that Spain will remain in recession through 2013.”
On Thursday, Spain’s borrowing costs rose in an auction of benchmark 10-year bonds to above 6 percent, but the sale was considered a success because it dispelled doubts about Spain’s ability to tap credit markets.
The yield on Spanish debt in the secondary market fell after the auction to around 6.1 percent, after having climbed to as high as 6.7 percent on May 30, or near the level at which Greece, Portugal and Ireland required an international bailout.
Spain’s banks have been hard hit by the collapse of the country’s 1995-2007 real estate boom, which has left them saddled with toxic property assets.
Recently nationalized BFA-Bankia - the country’s fourth-largest financial institution - is seeking what would be the largest bank bailout in Spanish history after saying on May 25 it needs another 19 billion euros ($23.5 billion) to boost loss provisions.
The 2008 global financial meltdown came as Spain was struggling with the bursting of the property bubble. The ensuing slump has led to numerous business failures and pushed the country’s jobless rate above 24 percent.
Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages.
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