Multinationals May Be Moving Spanish Deposits, Roldan Says

Multinationals may be moving deposits out of Spain, said Jose Maria Roldan, head of banking regulation at the Bank of Spain.

The decline in deposits is partly due to greater use of commercial paper among retail clients and competition with Treasury bills, Roldan said in a presentation to analysts in London that was posted on the Bank of Spain’s website today. Deposits fell 4.1 percent in February from a year earlier, the regulator’s data showed yesterday.

“There has also been an observable increase in investment in deposits in the rest of the world, especially by companies, foreseeably multinationals, that would explain around 15 percent of the decrease,” he said.

Spain is trying to restore investor confidence in the nation’s banks amid concern the cost of cleaning up the collapse of a property boom will overburden public finances. The European Union said today Spain doesn’t need to seek help to recapitalize its banks, and there are no plans to tap rescue funds.

Roldan also raised the possibility of lenders separating bad assets into different vehicles once losses have been recognized and written down. He didn’t give details and a spokesman for the Bank of Spain declined to comment.

Ring Fencing

“After recognition of problematic assets and valuation adjustments,” the presentation said, a third step “would be ring fencing,” or separating bad assets, whose value has been written down, from the healthy banking business.

Such a move would “increase clarity with respect to external shareholders” and allow for “a better alignment of managers’ incentives to concentrate their efforts on the going-concern part of the balance sheet,” the presentation said.

The government, in power since December, has repeatedly rejected the idea after two people with knowledge of the matter said in November that Prime Minister Mariano Rajoy had asked for academic papers on how to create such a bank.

The Bank of Spain is “not keen on the idea of a national bad bank,” analysts at Barclays said in a note after Roldan’s presentation.

“This is more about disclosure and visibility,” Barclays said in an e-mailed note. “One option to be considered is banks providing separate disclosure on ‘going concern’ and run-off assets.”

Roldan also said that doubtful loans will probably continue to rise, even as defaults in the retail mortgage portfolio remain “low.” Provisioning in the industry means that banks are protected against an 87 percent decline in land prices and an 82 percent drop in values for housing under development, the presentation showed.

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