Santander May Have $23B Spain Capital Gap, Barclays Says

Banco Santander SA (SAN), Spain’s biggest bank, may have a capital shortfall for its domestic business of as much as 18 billion euros ($23.3 billion) based on what it has “actually available” to absorb losses, Barclays Plc said.

Santander dismissed the analysis.

The Madrid-based bank includes capital invested in subsidiaries when calculating its core Tier 1 capital at the parent as well as recognizing it at unit level, Rohith Chandra- Rajan, an analyst at Barclays in London, said in a report dated yesterday.

While the Bank of Spain allows this approach, the rules may change should the European Central Bank assume powers for industry regulation across the euro zone as part of steps toward creating a banking union, said Chandra-Rajan.

Core Tier 1 capital adequacy for Santander’s Spanish business is “more like” 2 percent based on the capital available to absorb domestic losses, compared with the 10 percent reported by the bank, he said.

The Barclays analysis is wrong because deducting subsidiaries’ capital from the parent’s doesn’t work due to differing local definitions and reporting criteria from country to country, an official at Santander’s press office said by e- mail.

“Besides using incorrect figures, this exercise assigns a value of zero to the units outside of Spain, which are owned by the Spanish parent and worth considerably more than zero,” the official said.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net