Spain To Launch Comprehensive Review On Banks’ Finances

June 4, 2012Spainby EW News Desk Team


Spain’s banks must undergo a government-commissioned audit by all four of accounting’s “Big Four” firms, claimed a report by Reuters on Saturday, as the Spanish government attempts to figure out exactly how much would be needed in order to recapitalise the nation’s troubled banking sector.

According to Reuters’ sources, the review will be conducted by KPMG, Deloitte, PricewaterhouseCoopers and Ernst & Young over the next few months; and will complement an existing stress test already in place by the government by consultors Oliver Wyman and Roland Berger.

"I can confirm (the names)," the source said, though he declined to comment on the scale of the review. Nevertheless, the report confirmed that all of Spain’s banks would be subjected to the audit, with the “Big Four” firms expected to conduct individual reviews for each bank.

The Spanish government is already likely to go to the markets this month in order to finance the 19 billion euros ($23.5 billion) needed to bail out its fourth-largest bank Bankia.

On Saturday, Spanish Prime Minister Mariano Rajoy became the latest European leader to call for a central “European fiscal authority”, which would have the power to direct all fiscal strategy and regulations within the region; and cited Bankia’s plight as a case study for the proposal.

“The EU needs to reinforce its common institutional architecture so that investors regain confidence in the single currency. Spain will emerge from the storm through its own efforts and with the support of our European partners,” he said, as quoted by Bloomberg.

Several analysts and commentators though believe that Rajoy’s statement was a desperate political play to get EU financial aid for Spain’s banks.

Related: Spain’s Pain: Will The Spanish Banking System Collapse?

Related: Spain in Pain: Why Leaving the Euro Is The Lesser of Two Evils: Michael Pettis

Related: The Bane Of Spain: How The Property Market ‘Broke’ The Economy

“How does a politician get from [the assertion of sovereignty] to calling for giving up responsibility for your spending to a central authority unless the situation is so severe that he has no other choices left?” asked Gary Jenkins of Swordfish Research in an analyst’s note cited by the Financial Times.

“I think we are not far away from Spain receiving an official bailout,” he said.

Macroeconomic consultancy Capital Economics added: “A worsening domestic economy and limited scope for the state bank reconstruction fund to defuse Spain’s banking crisis make an EU-IMF bail-out package look unavoidable.”

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