Spain Bank Aid – Not The Same As A Spanish Bailout?

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MADRID, SPAIN - JUNE 09:  Spanish Economy Mini...

MADRID, SPAIN – JUNE 09: Spanish Economy Minister Luis de Guindos gestures during a news conference on June 9, 2012, in Madrid, Spain. Spain will request European financial support for its distressed banks, on June 9 after emergency talks with eurozone ministers. (Image credit: Getty Images via @daylife)

(ES) Spain Econ Min De Guindos: Confirms Spain will request EU aid for its bank recap plan; Formal aid request will be made June 21. Euro Zone leaders agreed to loan Spain up to €100B euros to support bank recapitalization at a rumored rate of 3.0%.

  • EU will support Spain’s reform programs to help re-establish confidence in the euro.
  • Spain is requesting support for its financial sector, not a government bailout.
  • Spain will ask for enough EU aid (€125B) to ensure its banks can be recapitalized and to provide an additional margin of security. EU will announce the size of the loan package.
  • EU aid will be provided to Spain’s FROB which will use the funds to support the banks. FROB debt is considered state debt.
  • Loans will be provided by the EFSF or ESM, will give more clarity on this in the days to come. The loans will be on “very favorable” terms (3~4%), better than current debt market conditions provide.
  • There are no economic or fiscal reform conditions placed on this aid package. Spanish sovereign risk to be separated from bank sector restructuring. Loan conditions will be imposed on the banks, not on Spanish society.
  • Expect bank loan package will lower the pressure on Spanish debt market, allowing FROB to finance itself at much more favorable rates than seen recently.
  • EU aid plan for banks will NOT impact Spanish government debt issuance.

(EU) Follow Up: Europe ministers comment on Spain’s agreement to request aid for banks:

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  • EU’s Juncker: Financial assistance to be provided by the EFSF/ESM; Spain will NOT be asked to implement austerity programs unlike Greece, Ireland and Portugal.
  • German Fin Min Schaeuble:  Spain has taken significant steps on financial reform and containing economic problems.  Welcomes Spain announcing its intention to accept aid package with appropriate conditions. EFSF is ready to provide aid, though would prefer to use the ESM.  It is proper for Spain to wait for the audit reports before setting size of final aid request.
  • Irish Fin Min Noonan:  Spain will get funds at the same interest rate as other program countries (Ireland, Portugal, Greece); Spanish deal does not mean there will be a better deal given to Ireland.
  • European Commissions Barroso and Rehn:  European Commission is ready to move ahead quickly with Spanish loan package. Will propose appropriate conditionality on Spanish banks getting loans.
  • IMF’s Lagarde:  the Fund stands ready to support the latest euro zone efforts. Backstopping Spanish banks is a welcome step. Calls for more ECB easing as global risks rise. Very existence of the European Project is at stake

How to interpret these headlines?

Market is obviously optimistic over Spanish Bailout request as I have said time and again that uncertainty is often times worse than bad news.  With Spain asking €125B in Bailout for its banking sectors, which is 3 times than the conservative IMF estimate (€40B), market is feeling a rare sense of confidence that it will be enough to recapitalize Spanish banking sectors with enough buffers… Although earlier reports out of JP Morgan puts the bailout estimate at €350B, while RBS estimated €450B, considering a Spanish bailout, not just banking sector aid.

I believe we’ll probably see consolidation of sorts from the risk appetite buying today, but the overall fundamental for the Euro has defintiely improved, at least for the time being, with no more uncertainty out of Spain… I believe we could see more EUR strength in the short-term, although the market focus will soon turn to the upcoming Greek election for direction… All in all, if we don’t get any more surprises from Spain and “Grexit“, EURUSD is likely to remain range-bound and perhaps slightly higher until the next FOMC Meeting…

And to answer the question, is Spanish Banking Aid same as a Spanish Bailout, the answer is “Yes”… News agencies are already calling Spain as the fourth EU member to request a bailout… so go figure 🙂

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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Comments

  1. Austino says:

    For Quit some time now I ve been following you news and you fx prediction, I enjoy reading it every time. But I don’t no how to apply this news to my trading. I keep loosing my equity every now and then. Please is there any special training I can enroll with you? What need to learn most is how to analys the market, how to no the direction and the distand it can posibly move for the day. Please email me if you have such training facilities, I’ll be happy to go in for the training. My email address is ****@ovi.com

  2. Kevin Jones says:

    I have been following Henry’s analysis’s for sometime now. Most of the time his predictions are correct. So is the news trading forecasts. Thanks Henry.

  3. Yes i quite agree with fundermental view because since last week thursday and friday Eur/Usd is showing high higher runs which will be extended onto to this new week.but all in all l follow price action alot,it dictate my trading bias most often.

  4. Ok, you are saying euro would gain some strength this week against the USD?

  5. I think you have uploaded this page before the downgrading of two Spanish banks from +AA to BBB. Coupled with the protest over the bailout I think eu is certain to go more deep into 1.2300. What do you say to this Henry?

    • It’s definitely possible, as the situation in Spain is fluid… but I still stand on my view that the uncertainty is over and market should have a chance to heal… like I said, consolidation is expected.

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