Spain moves to shore up banks

@CNNMoneyInvest May 11, 2012: 1:01 PM ET
spain

Spanish Economy Minister Luis de Guindos outlined the nation's latest plan to clean up the banking sector.

NEW YORK (CNNMoney) -- Spain announced another round of financial sector reforms Friday as the government seeks to restore confidence in banks hurt by the housing bust.

Spanish banks will be required to boost provisions by €30 billion for real estate loans previously considered "non-problematic," Economy Minister Luis de Guindos told reporters.

The measures are in addition to rules issued last February, which required the banks to set aside about €50 billion for "problematic" real estate loans that were non-performing.

Madrid also announced plans to hire two independent auditors to assess the value of bank real estate assets.

Banks will be forced to "relocate" foreclosed real estate assets into an independently managed company before Dec. 31, according to documents posted on the Spanish government's website.

The documents did not elaborate on what would happen to the assets after they were moved off the banks' balance sheets.

"The effectiveness and success of the government's latest bid to cleanse the banking sector will hinge critically on this element of the plan," analysts at Daiwa Capital Markets wrote in a note to clients.

The reforms are designed to restore confidence in the Spanish banking sector as the nation's economy tumbled into recession. The government ultimately wants to ensure that bank balance sheets are healthy so they can resume lending to Spanish businesses and consumers, according to the documents.

The announcement comes days after Spain effectively nationalized Bankia, the nation's third-largest bank.

Spain has already undertaken several attempts to clean up the financial sector under previous administrations. But many analysts say it will take hundreds of billions of euros to fix the problem once and for all.

That will prove challenging because the Spanish government has already warned that its budget deficit will be larger than expected this year.

At the same time, the nation's borrowing costs have been rising as investors in the bond market fear Spain could become the next euro area nation to fall victim to the debt crisis.

-- CNN's Al Goodman contributed to this report. To top of page

Index Last Change % Change
Dow 16,614.81 215.14 1.31%
Nasdaq 4,419.48 103.41 2.40%
S&P 500 1,941.28 37.27 1.96%
Treasuries 2.21 0.03 1.24%
Data as of 9:42pm ET
Company Price Change % Change
Apple Inc 102.47 2.71 2.72%
Bank of America Corp... 16.60 0.34 2.09%
The Coca-Cola Co 40.68 -2.61 -6.03%
Regions Financial Co... 9.26 0.10 1.09%
Yahoo! Inc 40.18 0.90 2.29%
Data as of 4:02pm ET
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.94%4.13%
15 yr fixed3.04%3.08%
5/1 ARM3.55%3.40%
30 yr refi4.02%4.17%
15 yr refi3.10%3.14%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.