Spain's clean-up plan for its troubled banks lacks some of the key ingredients that helped other governments restore faith in their financial sectors, restructuring experts said, pointing to a potential need for heavier state intervention.
Madrid told lenders on Friday to put aside even more funds against potential losses from dubious property loans, but limited its role in the rescue to providing high-interest financing for the weakest banks.
More explicit back-up from the government, in the form of an insurance scheme to cover extra losses on toxic assets - akin to one of the steps taken by Britain after the financial crisis - might have been needed at this stage to keep the growing crisis at bay.
"It's bad news. The plan is well-thought through but it will disappoint the markets as the state is not backing it through public financial guarantees on the future losses," said one banker close to Bank of Spain and involved in the restructuring talks.
The banker was not authorized to speak to the press, like many of the financial experts still hoping for a role in sorting out Spain's finances.
Spanish banks stocks fell on the government's announcement on Friday, while Spanish country risk rose.
Madrid had initially come to terms with the idea of providing guarantees if banks' losses were to exceed provisions, the banker involved the talks said, adding that the euro zone's 700 billion euro ($900 billion) bailout fund - the European Financial Stability Facility - or else the International Monetary Fund could have provided Spain with a backstop guarantee for the plan.
"This would have been a strong message to the markets that EU politicians are determined to address the situation. But in the end, the government didn't have the guts to go as far as they should have," the banker said.
Spain has been determined to avoid calling on external assistance like Greece and Portugal. At the same time, it is under intense pressure to reduce its budget deficit even more sharply, a measure which will mean more unpopular spending cuts at home.
The government has also been at pains to assure taxpayers they would not have to foot a huge bill to bail-out the banks - a situation which is still a political quagmire in Britain, where taxpayers are sitting on a loss of roughly 30 billion pounds ($50 billion) from 2008 bank rescues.
But Spain's admission on Friday that the public cash available to help this banking reform would be less than 15 billion euros ($25 billion) underwhelmed investors, with many feeling that more money will still be needed.
Though state aid in this latest plan is limited, Madrid has shown it is willing to intervene in some cases, and it took drastic action a few days earlier to effectively take over Bankia, one of Spain's biggest bank.
Some saw this as an inconsistent approach, which may have fuelled hopes that the government would show greater backing for the sector when it unveiled its grand plan - leading to a bigger disappointment.
"It looks like a series of erratic, rushed decisions rather than a real plan. Bankia's nationalization came out of the blue, all of a sudden. I think that this is partly due to the fact that they listened to many people instead of hiring one or two advisers," said a banker who took part in Greece's sovereign debt restructuring.
OTHER HOLES TO FILL
No other comparable bank rescue plans have come off perfectly, and some restructuring experts said Spain should be cut some slack.
In Ireland, banks were forced to put their toxic loans into a new vehicle, called NAMA, at market prices. But initial hopes that assets would be marked down by 20 percent proved optimistic, and the losses averaged 57 percent, requiring huge state bailouts for the banks.
"Look at Ireland, real estate numbers are only being trusted again now," said a financial institutions specialist at a European investment bank.
He said the step-by-step approach by Spain - whose fourth attempt this is to fix its banks real estate problems - was probably a wise one, even if it meant Friday's plan was not necessarily definitive.
But this banker and others pointed to one big hole in Spain's latest reforms, which still needed addressing urgently.
Though Spanish banks will move towards their own version of a "bad bank" by moving their property holdings into asset management firms for a fire sale by the year end, there are also worries other types of loans will start to go bad.
"Spain will still be faced with a large program of restructuring and refinancing corporate, small-to-medium business and retail debt - some of which will be unviable," said Jose de Ochoa, in the financial services team of restructuring specialist Alvarez & Marsal in Madrid.
"The new capital and provisioning requirements will intensify the domestic credit crunch," he added, saying an acceleration in the sell-off of real estate assets and its effect on prices would hit people in the pocket.
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