If Spain cries out for a financial rescue, analysts say the price could be between 150 billion and 450 billion euros (US$186 billion to US$560 billion) or, in the most worrying scenario, simply “unknown territory.”
Spanish Prime Minister Mariano Rajoy’s conservative government refuses even to countenance a bailout.
However, markets are remorseless. Ten-year government bond yields, or interest, pierced 6.7 percent last week. When compared with German debt, the extra rate charged on Spanish bonds hit 5.48 percentage points on Friday, a euro-era record.
Latest figures showed a net 97 billion euros of investors’ money fled Spain in the first three months of the year — the highest on record.
In such an environment, how can Madrid finance a banking rescue — stricken lender Bankia alone is seeking a total of 23.5 billion euros — and pay for the state’s new expenses and existing debts?
“Against this background, it now appears all but inevitable that Spain will require a considerable bailout package to support its banks, if not the wider economy,” London-based Capital Economics wrote in a report.
The task is daunting: Spain’s economy is the fourth-biggest in the eurozone and accounts for 12 percent of the region’s output — twice that of heavily indebted Ireland, Portugal and Greece combined.
JP Morgan chief Europe economist David Mackie said Spain wanted the European Central Bank to buy its sovereign debt and for European rescue mechanisms to intervene directly in its banks.
“Spain looks to have gotten to the point where it cannot bear the burden alone,” he said.
However, European officials say Madrid would have to negotiate a formal rescue, even if the money only goes to the banks.
Whatever the format, the price could be high, considering Spain’s size. A bailout of Ireland cost 85 billion euros, one for Portugal was 78 billion euros and Greece, so far, 292 billion euros.
Spain’s financing needs this year are estimated at 86 billion euros, of which half has already been raised.
In addition, Spanish regions have debt financing costs of 36 billion euros, to which must be added 15 billio to 16 billion euros in deficit financing, Spanish media have reported.
Banks, heavily exposed to the collapsed property sector, could need 60 billion euros, according to the International Institute of Finance.
However, a bailout would have to tide Spain over for several years.
A report for clients by HSBC calculated that over three years, the costs would be 450 billion euros, of which 100 billion euros would go toward the banks.
However, it said that such a scenario is unlikely because no one wants to see Spain being thrown an international rescue line because it would signal that the euro crisis had reached an entirely new level.
JP Morgan tips a bill of 350 billion euros, including 75 billion euros to cover the financial sector up to 2014.
Edward Hugh, an economist in Barcelona, was more pessimistic about the state of the banks.
“Some sort of attempt to rescue Spain is likely and it is likely to come in July,” he said, after the June 17 Greek election and once the 500 billion-euro European Stability Mechanism is operational. “Up to now, they have been hoping, I think, that they could be doing just something like recapitalization of the banks, which in my opinion could be anything up to 200 billion euros.”
The cost of a Spanish financial sector rescue will mount if external auditors decide that banks should increase provisions against home mortgages, the analyst added.
“What they don’t want to do because of the size of it is to take Spain out of the market altogether. The whole situation is pushing them towards this. We are really entering unknown territory,” Hugh said.
Shares of contract chipmaker Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) came under pressure yesterday after a report that Apple Inc is looking to shift some orders from the Taiwanese company to Intel Corp. TSMC shares fell NT$55, or 2.4 percent, to close at NT$2,235 on the local main board, Taiwan Stock Exchange data showed. Despite the losses, TSMC is expected to continue to benefit from sound fundamentals, as it maintains a lead over its peers in high-end process development, analysts said. “The selling was a knee-jerk reaction to an Intel-Apple report over the weekend,” Mega International Investment Services Corp (兆豐國際投顧) analyst Alex Huang
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is expected to remain Apple Inc’s primary chip manufacturing partner despite reports that Apple could shift some orders to Intel Corp, industry experts said yesterday. The comments came after The Wall Street Journal reported on Friday that Apple and Intel had reached a preliminary agreement following more than a year of negotiations for Intel to manufacture some chips for Apple devices. Taiwan Institute of Economic Research (台灣經濟研究院) economist Arisa Liu (劉佩真) said TSMC’s advanced packaging technologies, including integrated fan-out and chip-on-wafer-on-substrate, remain critical to the performance of Apple’s A-series and M-series chips. She said Intel and Samsung
TRANSITION: With the closure, the company would reorganize its Taiwanese unit to a sales and service-focused model, Bridgestone said Bridgestone Corp yesterday announced it would cease manufacturing operations at its tire plant in Hsinchu County’s Hukou Township (湖口), affecting more than 500 workers. Bridgestone Taiwan Co (台灣普利司通) said in a statement that the decision was based on the Tokyo-based tire maker’s adjustments to its global operational strategy and long-term market development considerations. The Taiwanese unit would be reorganized as part of the closure, effective yesterday, and all related production activities would be concluded, the statement said. Under the plan, Bridgestone would continue to deepen its presence in the Taiwanese market, while transitioning to a sales and service-focused business model, it added. The Hsinchu
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has approved a capital budget of US$31.28 billion for production expansion to meet long-term development needs during the artificial intelligence (AI) boom. The company’s board meeting yesterday approved the capital appropriation plan for purposes such as the installation of advanced technology capacity and fab construction, the world’s largest contract chipmaker said in a statement. At an earnings conference last month, TSMC forecast that its capital expenditure for this year would be at the higher end of the US$52 billion to US$56 billion range it forecast in January in response to robust demand for 5G, AI and
RSS