How to Profit From Spanish Plan to Fix Banking Sector - BBVA (NYSE:BBVA), ProShares UltraShort FTSE Europe ETF (ARCA:EPV)

Spain's top three banks announced that they would comply with new government regulations by setting aside billions of euros for extra provisions against bad real estate loans. Last week the Spanish government announced new regulations aimed at ensuring that banks are equipped to deal with widespread losses in Spain's real estate market. The new rules state that Spanish banks must set aside a total of 50 billion euros against possible losses from loans, which are mainly in the country's depressed real estate sector. Banco Santander

STD

, Spain's biggest bank, said that it would set aside 2.3 billion euros in order to comply with the new government requirements. Banco Santander said that it would raise the funds through asset sales and profits from continuing operations. Banco Bilbao Vizcaya Argentaria

BBVA

and CaixaBank also announced plans to increase provisions in order to be in compliance with the Spanish government's new rules. Spain's government hopes that the new regulations will help to clean up the country's financial sector, as well as the real estate estate market. If the plan is successful in restoring the market's confidence in Spain's financial sector, it should become easier for Spanish financial institutions to obtain financing and could give the Spanish economy a much needed boost. Spain could also see its borrowing costs fall if the market feels that the new regulations will make it less likely that the government will have to step in to support ailing financial institutions. Concerns over European Union member governments' obligations to support their banking sectors have often been cited by ratings agencies like Moody's Investors Service and Standard & Poor's in their warnings and downgrades of eurozone countries' credit ratings.

ACTION ITEMS:

Bullish:
Traders who believe that the steps being taking by Spain and its banks will improve the health of the Spanish financial sector might want to consider the following trades:

Spanish banking stocks like Banco Santander (STD) and Banco Bilbao Vizcaya Argentaria (BBVA) will be obvious beneficiaries of a less troubled Spanish banking system.

If the Spanish financial sector becomes stronger, businesses could have improved financing options. The iShares MSCI Spain Index EWP ETF could move higher if the new regulations strengthen the financial sector.

Bearish:
Traders who believe that the move to shore up the Spanish banking system is too little, too late may consider alternative positions:

The ProShares UltraShort Euro EUO and the ProShares UltraShort MSCI Europe EPV ETFs could both climb higher if a Greek default, European Union recession or other bad news offsets any efforts of the Spanish government to stengthen Spain's financial sector.

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