Spain Teetering – FSG Analyst Insights

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Interview with Matt Lasov, Head of EMEA Research for Frontier Strategy Group

“The crisis in Spain is accelerating faster than expected. Again, it’s all down to the banks. While everyone’s attention is on Greece, Spain is quietly struggling to pull off the Bankia bailout. Spain planned to provide Bankia with $24bn government debt that Bankia could post at the ECB in return for loans. The ECB said they would not accept that as collateral. Now Spain is back to the drawing board because it’s unclear where $24bn cash will come from. They only have $12bn cash left in their bailout fund. They can issue debt to fund the gap, but who is going to lend to them at this point? The solution is probably to force a merger with a healthier bank. This will buy a bit of time, but will compound the problem. Can a bank like Santander really handle a large, toxic portfolio?”

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