Spanish banks may need to raise as much as €50 billion ($68.77 billion) boost their solvency and regain market confidence, more than twice the amount the government has said would be needed, Moody's Investors Service said Monday.
The estimate is up from the €17 billion that Moody's had calculated in December, and would be mostly concentrated in the savings banks sector, senior analyst Alberto Postigo said in the rating agency's Weekly Credit Outlook publication.
Moody's warning came as Qatar said it plans to invest €300 million in Spain's savings banks, or "cajas." It would be the first injection of sovereign capital into the savings banks since the start of the 2007-2008 crisis.
Qatar's Prime Minister Hamad bin Jassim bin Jaber bin Muhammad al-Thani made the statement in Doha, Qatar, in a press conference held jointly with the visiting Spanish Prime Minister José Luis Rodriguez Zapatero, Spain's government said in a press release.
Moody's revised estimate assumes that the savings banks will need to reach a core capital ratio of 10% in coming months, in line with new banking rules approved earlier this month by the Spanish government.
The new rules impose minimum capital ratios of 8% on all the country's banks. They also set a higher minimum ratio of 10% for lenders that don't have a significant share of private investors among their shareholders, and depend on wholesale markets for their financing, which is the case for most of the savings banks.
To meet the higher requirements, Spain's savings banks are scrambling to find private investors willing to buy parts of their businesses. Four out of 17 entities have said they plan to sell shares in initial public offerings.
The Spanish government said banks will need to raise about €20 billion to satisfy the new rules and said it will take stakes in lenders that fail to do so by September, through its Fund for Orderly Bank Restructuring.
In the report Monday, Mr. Postigo said that Moody's remains cautious on whether the government's plan for recapitalization will allow Spanish financial institutions "to regain markets' confidence, as this would very likely require a full clean-up of losses embedded in banks' balance sheets."
Doubts about the health of the savings banks, known as cajas, had emerged in the wake of Ireland's banking crisis. Like Ireland, Spain is grappling with the collapse of a huge housing boom.
In an attempt to remove these doubts from investors' minds, the Bank of Spain obliged the country's banks to disclose the full extent of their exposure to the ailing Spanish real estate sector.
The central bank said last week that the cajas hold some €100 billion in "potentially problematic" real estate assets, out of a total exposure to the building sector of €217 billion.
Mr. Postigo said that these "potentially problematic" assets are "credit negative" for Spain. However, he added that making public the data is a "significant and positive step" toward restoring market confidence in the banks.
"Confidence in Spain's savings banks will only be completely restored once the problematic exposures are translated into losses and the adequacy of bank capital is robustly tested," Mr. Postigo said.
Don't Bank on Big Banks:BAC,C
Banking giants Bank of America (BAC) and Citigroup (C) continue to lag, and with important technical levels nearby, current and prospective investors should use caution.
Since last fall, I have been concerned about the relatively poor performance of the financial sector, especially the big banks. Though many of the smaller, regional banks completed a significant bottom formation in early 2011, the recent actions of two widely held bank stocks suggest that shareholders should be monitoring their positions and definitely have protective stops in place.
Chart Analysis: Bank of America (BAC) formed a very nice short-term bottom the first week of December (point 1), dropping to a new correction low of $10.91 and then reversing to close the week higher. Positive volume action created an excellent buying opportunity the following week, but the rally now appears to be stalling.
* The 50% retracement resistance at $15.40 seems to have stopped the rally with the 61.8% resistance now at $16.42
* After the recent drop, there is now short-term resistance at $14.38-$14.67
* The sharp drop at the end of January took BAC back to $13.40, which is now important support
* Two weeks ago, BAC formed a strong candle chart reversal formation called a "doji" (point 2), which was a strong warning. The gap lower and the break of the weekly uptrend (line a) last week has further weakened the trend
* Key resistance is now at $14.95
* The weekly on-balance volume (OBV) is still above its weighted moving average (WMA) but has turned lower after testing its downtrend (line b). The daily OBV is negative
* One of the few positives from last week is that BAC was able to close well above the lows at $13.79
Citigroup Inc. (C) got the market's attention in the middle of December as it completed the weekly triangle formation, lines c and e. The triangle formation has upside targets at $6.30-$7.60, but was this a false breakout?
* The volume on the breakout was decent, but the setback after the breakout has lasted longer than I would normally expect
* A weekly close back above $5.00 would reassert the uptrend and project a move to the $5.50 area
* Last week's lows at $4.57 correspond to a retest of the breakout level (line c) as well as a test of the uptrend, line d, and the 38.2% support level
* The $4.57 level now becomes the first support with more important support at $4.40-$4.42 and the 50% support level. If these levels are broken, a decline to the weekly uptrend at $4.00-$4.10 (line e) is likely
* The weekly OBV is still positive as it is rising and above its weighted moving average, but it is not acting stronger than prices. A move of the OBV above resistance at line f would be positive
* The daily OBV is currently neutral, at best
What It Means: For a healthy stock market, the financial sector should be participating, and while some of the regional banks look good technically, these two big banks continue to lag the major averages. They appear to be reaching an important short-term juncture. For good portfolio performance, it is very important to avoid the big losers. I have looked at countless portfolios where the use of a well-chosen technical stop would have limited the losses on one or two stocks, and that would have significantly improved the overall performance.
How to Profit: There seems to be quite a bit of investor attraction to these two bank stocks, but the technical outlook suggests that both are vulnerable to further declines. This week's action should be important. If you are not long these two stocks, I would avoid new positions for the time being, and if you are already long, here are key levels to watch:
For BAC, the suggested stop depends on where your longs were established. If you have secured profits already, use a stop at $13.33, but if you bought BAC in 2011, I would suggest a stop at $13.61.
Citigroup does look better technically, but the $4.36 level should hold on further weakness. I would only consider buying C if it is able to prove itself on the upside and volume is heavy.
Since last fall, I have been concerned about the relatively poor performance of the financial sector, especially the big banks. Though many of the smaller, regional banks completed a significant bottom formation in early 2011, the recent actions of two widely held bank stocks suggest that shareholders should be monitoring their positions and definitely have protective stops in place.
Chart Analysis: Bank of America (BAC) formed a very nice short-term bottom the first week of December (point 1), dropping to a new correction low of $10.91 and then reversing to close the week higher. Positive volume action created an excellent buying opportunity the following week, but the rally now appears to be stalling.
* The 50% retracement resistance at $15.40 seems to have stopped the rally with the 61.8% resistance now at $16.42
* After the recent drop, there is now short-term resistance at $14.38-$14.67
* The sharp drop at the end of January took BAC back to $13.40, which is now important support
* Two weeks ago, BAC formed a strong candle chart reversal formation called a "doji" (point 2), which was a strong warning. The gap lower and the break of the weekly uptrend (line a) last week has further weakened the trend
* Key resistance is now at $14.95
* The weekly on-balance volume (OBV) is still above its weighted moving average (WMA) but has turned lower after testing its downtrend (line b). The daily OBV is negative
* One of the few positives from last week is that BAC was able to close well above the lows at $13.79
Citigroup Inc. (C) got the market's attention in the middle of December as it completed the weekly triangle formation, lines c and e. The triangle formation has upside targets at $6.30-$7.60, but was this a false breakout?
* The volume on the breakout was decent, but the setback after the breakout has lasted longer than I would normally expect
* A weekly close back above $5.00 would reassert the uptrend and project a move to the $5.50 area
* Last week's lows at $4.57 correspond to a retest of the breakout level (line c) as well as a test of the uptrend, line d, and the 38.2% support level
* The $4.57 level now becomes the first support with more important support at $4.40-$4.42 and the 50% support level. If these levels are broken, a decline to the weekly uptrend at $4.00-$4.10 (line e) is likely
* The weekly OBV is still positive as it is rising and above its weighted moving average, but it is not acting stronger than prices. A move of the OBV above resistance at line f would be positive
* The daily OBV is currently neutral, at best
What It Means: For a healthy stock market, the financial sector should be participating, and while some of the regional banks look good technically, these two big banks continue to lag the major averages. They appear to be reaching an important short-term juncture. For good portfolio performance, it is very important to avoid the big losers. I have looked at countless portfolios where the use of a well-chosen technical stop would have limited the losses on one or two stocks, and that would have significantly improved the overall performance.
How to Profit: There seems to be quite a bit of investor attraction to these two bank stocks, but the technical outlook suggests that both are vulnerable to further declines. This week's action should be important. If you are not long these two stocks, I would avoid new positions for the time being, and if you are already long, here are key levels to watch:
For BAC, the suggested stop depends on where your longs were established. If you have secured profits already, use a stop at $13.33, but if you bought BAC in 2011, I would suggest a stop at $13.61.
Citigroup does look better technically, but the $4.36 level should hold on further weakness. I would only consider buying C if it is able to prove itself on the upside and volume is heavy.
Subscribe to:
Posts (Atom)