Frobbing headache

16 July 2010 By Fiona Maharg-Bravo

The bailout fund may be called on to inject a total of 30 bln euros into Spain’s banks as a result of imminent stress tests. But the FROB has so far raised just 12 bln euros and savings banks have already asked for 11 bln. It should issue debt while markets are forgiving.

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Elena Salgado, Spain's economy minister, said the government will ask the European Commission for an extension to use its statefinanced bailout fund, or FROB, ahead of the publication of the bank stress tests on July 23. Salgado said any possible capital shortfalls in the Spanish banking system would not be large.

The FROB has been funded with 6.75 billion euros from the government and 2.25 billion euros from Spain's deposit guarantee funds. It can theoretically borrow another 90 billion euros in the debt markets with a state guarantee, although only 27 billion euros has been authorised and only 3 billion euros has been raised.

Moody's had placed the FROB's tripleA rating on negative watch, in line with its action on Spain's sovereign debt. Fitch has the same doubleA plus rating for the FROB and the sovereign debt.

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