City Investors see Spanish Bailout as Inevitable

Dec 19, 2012, 05:00 ET from Capital Spreads

LONDON, December 19, 2012 /PRNewswire/ --

  • 94% of leading fund managers believe that Spain will be forced into requesting some form of financial assistance
  • A third of respondents believe that Rajoy will have to request a full sovereign bailout
  • Over half of respondents believe that François Hollande's fiscal reforms will not be a success

New research from leading spread betting and CFD provider, Capital Spreads, has found that City investors overwhelmingly believe that Spain will be forced to go cap in hand to the ECB for a formal bailout, despite protestations from Prime Minister Mariano Rajoy that he has done enough to save the Spanish banking sector.

According to Capital Spreads' Capital Perspectives Survey conducted in November 2012, which polled fund managers from 200 of the City's major investment houses, with collective assets under management in excess of $10 trillion, almost all (94%) fund managers polled believe that Spain will be forced into requesting a bailout. Almost a third (32%) of respondents believe that Spain will be forced to request a full sovereign bailout, causing ECB President Mario Draghi to trigger the Outright Monetary Transactions (OMT). This viewpoint flies in the face of bullish public protestations by Rajoy, who is determined to avoid requesting a bailout and has taken measures to tackle Spain's mountainous deficit in order to avoid doing so.

Investors also appear to believe that France is heading for a similar fate, as faith in Francois Hollande's fiscal reforms is in short supply. Over half (51%) of respondents believe that Francois Hollande's fiscal reforms will not succeed in reducing France's budget deficit, with 10% believing that the reforms will be a disaster.

Angus Campbell, Head of Market Analysis at Capital Spreads, said: "Those market participants who've been crying out for Spain to request a formal bailout from the EU will be delighted to see the results of this survey however their calls have been falling on deaf ears.  Rajoy's stubbornness in thinking austerity will be enough to save his banks has led to a recent spike in his government's borrowing costs as investors are becoming increasingly nervous that further delay will make the country's situation as drastic as Greece's.

As if that wasn't enough France is slowly but surely becoming the next likely looking domino to fall as their worrisome debt mountain simply isn't going to be addressed by Mr Hollande's fiscal measures.  It would seem that the 'Gallic gap' is only going to get larger at a time that the eurozone sovereign debt crisis remains far from resolved."

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SOURCE Capital Spreads