Spanish banks are facing a “tragic” situation, and there should be no complacency about their problems, according to Bill Blain, a senior director for the Special Situations Group at UK brokerage Newedge.
Ahead of the second ratings downgradefor Spain this year by S&P, Blain was “quite concerned" about the banks’ first-quarter earnings and said stocks should have fallen further on the back of the disappointing numbers from the likes of Santander.
He was skeptical about the health of Spanish banks' balance sheets, but said that it is not a problem of capitalization at the moment.
“Banks have enough liquidity that has come through the long-term repos. But the bottom line is that all that new liquidity is disguising the lack of new capital coming in,” he told European Closing Bell.
With a lack of inflows from investorsand with governments running out of cash, where does Blain see the money coming from?
“TARPs in Europe, maybe that’s the right way to go,” he said.
Blain also highlighted the importance of recognizing the link between the flailing economy and the banks.
“The whole of Europe is a story of chronic co-dependency, between the banks and the sovereigns. The sovereign crisis is not getting any better. If anything, it’s going to get worse again as we see the political risks rise,” he said.
Unemployment in Spain is currently above 24 percent — the worst of any country in the euro zone. Blain was adamant that unless this number comes down, Spain and its banks will fail to come out of the doldrums.