There are disagreements regarding how much new capital Spanish banks will need in the coming months. The Bank of Spain estimates 15 bn euros, whereas Fitch estimates anywhere from 38 to 96 bn euros, and Moody’s thinks the number will be closer to 40 to 50 bn euros. One reason for the difference is that the Bank of Spain has more lax accounting rules than regulators in other European countries. For instance, convertible debt issued by Spanish banks is sometimes allowed to be included in calculating a bank’s equity.
Banco de Valencia’s share price (MCE:BVA) has declined over the past 3 years, from $8 to $3.50. Short sellers started building up short positions back in March 2010. The cost-to-borrow was just 200 bps at that point, but has risen to 800 bps today. The cost-to-borrow shares of BVA is up 300 points just in the past 6 weeks. 81% of shares held by institutional investors are already lent out, so increased demand to short will put further pressure on the cost-to-borrow.
Spain’s bank with the largest capital shortfall, Bankia, is not publicly listed as of now, but it is planning it issue public equity soon. Publicly listed banks are not required to have as much of a capital cushion.
Only three publicly listed banks were included in the Bank of Spain’s list of banks that require additional capital, Bankinter (MCE:BKT), and the Spanish outposts of Barclays and Deutsche. Short sellers have been ramping up activity in BKT on a similar timeframe to BVA, although the cost-to-borrow shares of BKT are not as high as BVA. Cost-to-borrow shares of BKT are 600 bps, up from 350 in mid-January 2011.
Cost-to-borrow shares of Banco Pastor (MCE:PAS) have been consistently high for a while now, at around 700 bps.
Of Spain’s largest banks, Banco Bilbao Vizcaya Argentaria’s (MCE:BBVA) cost-to-borrow is a low 45 bps right now. There has not been much shorting activity over the past year. It’s the same with Banco Popular (MCE:POP) and Banco Santander (MCE:SAN).
The chart below shows the shares borrowed and cost-to-borrow for MCE:BVA.