Spain’s banks are laden with bad real estate loans and sovereign paper from its own nations and other troubled countries in the region.
Spain believe that a partial solution to the problem is for banks to merge and eliminate redundant cost among other things. The idea makes sense on the face of it, but no amount of M&A will save financial firms from bailouts if their balance sheets are too weak
Spain’s new government gave banks an extra year to recognize losses if they agree to merge, as it tries to overhaul the financial industry crippled by the collapse of the nation’s property boom four years ago.
Economy Minister Luis de Guindos said late yesterday that banks have a year to make 50 billion euros ($66 billion) of provisions against real-estate assets. If they agree by the end of May to merge, they get a further 12 months to take the charges and can tap the state’s bank-bailout facility for funds.
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