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Read how Spanish banks are disguising their losses despite denials from the Bank of Spain.
http://www.risk.net/risk-magazine/news/1598704/bank-spain-denies-spanish-banks-delaying-losses-acquiring-npas
The global recession began by the selling of derivatives in the USA (dodgy mortgage loans). Will these NPA’s be effectively sold on later packaged in the same way? 😯 -
@logan wrote:
Will these NPA’s be effectively sold on later packaged in the same way? 😯
Err… No. There is no chance any investor would buy repackaged property debt, they would be liable for it – that’s why its called toxic debt – no ability to define its liability/value.
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@peterhun wrote:
@logan wrote:
Will these NPA’s be effectively sold on later packaged in the same way? 😯
Err… No. There is no chance any investor would buy repackaged property debt, they would be liable for it – that’s why its called toxic debt – no ability to define its liability/value.
I think Logan might be on to something here.
And certainly the Bank of Spain is covering up this activity, which has to be the case, it happened in the early 90’s and is the only way the banks today can actually manage the situation, by converting to non performing asset status what they hold.
And actually, it is probably the soundest and best way to do this, under the circumstances because the consequences of not doing so, will bring about another mother of all collapses and Greece’s problems will be a mere ripple in comparison.
They have no choice, and one assumes that each year they will write down the value of the non performing asset, until such time it is a performing / disposable asset, and perhaps before then, many an institutional investor may take a view that it is worth buying in a bundled package, and they might also be right in those circumstances and at that moment in time.
Very good link Logan, I know this is going on, but it is nice to find something that explains the issue in simple terms to those like me who become ‘seriously bewildered’ at some financial speak. And I know it is what is taking place, again though from my simple view isn’t it the only sensible thing they can actually do right now?
Much as the only thing Gordon Brown could do was print money and pour it into the British economy, not what he should have done in a right minded world, not what he ever would have imagined having to do, but did it all the same, cos that’s what saved the day, love him or hate him.
And in using all our money to buy the bank stock, what was he supposed to do, let the banks fail? We all lose our money anyway? And with the increase in bank shares, are we all not eyeing the potential for the government to sell it to us as individuals now, and make a profit on the sale to boot and return those funds to the pot from which they came and reduce the deficit one presumes?
Why shouldn’t the Bank of Spain allow the creation of a vehicle to protect the banks? Or do we all want to allow Gordon to act like Mugabe but deny Spain a way to save another world collapse?
Am not the best at the big money, government decision stuff I have to say, and this is a rare venture for me onto a financial thread, bit wary that I have stepped on an upturned rake and going to take one full in the kisser any second, but hey nothing ventured nothing gained.
And I like, liking something Logan has posted!!
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The linked article makes sense, but only in a shallow way; I don’t think it can be linked to the dodgy mortgage scandal in the US. The US toxic packages were heavily disguised and presented in such a way that banks were passing them on to each other without realising the true nature of the contents. Greed had reached such a level in the investment banking world that caution was absent. If Lehman brothers presented an investment opportunity to smaller banks, they were snapped up without due diligence, or any diligence.
The Spanish banks have an overhang of overvalued assets, caused by the world recession, and they have no choice but to hang on to them, although urged by the Bank of Spain to dispose of a proportion of them to re-balance their books.
The banks would be foolish to recover all the mortgaged properties still technically owned by the almost insolvent property developers, it would unbalance the markets and lead to a real property crash, not the current adjustment of a mere 20% or so.
Their meagre offerings at the bottom end of the market, even with astonishing mortgages and discounts, will not be taken up while unemployment is at such high levels and confidence stands at zero.
Time is the only healer, as always, and Spain hasn’t yet had to bail out its banks by borrowing billions on the money market, or printing money.
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The derivatives packaged in the US and sold round the world were given triple A credit rating by Wall Street, consequently so many were fooled into investment. I agree it is unlikely to happen in this case with NPA’s. However I dislike any institution hiding/disguising losses in this way. It distorts the real picture. Air brushing out the bad bits and presenting a rosy glow actually fools no one.
Spanish banks have been publically very successful at navigating the financial storm of this recession. However I do believe the true extent of their problems has yet to be revealed. Like icebergs most of it lies underneath. The country itself continues to borrow massively on world markets without a clue of the long term consequences. A €17 billion infrastructure project is about to get under way to try and halt/disguise the unemployment figures and the true state of the economy.
I see a Greek style disaster waiting to happen. -
The trouble economic commentators have with Spain is that they all suspect the fourth largest economy in Europe is in trouble, and I think they could be right, but there is no hard evidence. Unlike the Bank of England, which shouts the UK problems from the rooftops, the Bank of Spain is more conservative and secretive, leading to the endless speculation of financial disaster just around the corner.
Tourism and the construction industry may be in trouble, but the former can bounce back at any time, although construction seems halted until its focus is switched from private housing to national infrastructure.
Compared to the rest of Europe, Spain is vast and under-populated; it has lazily relied on tourism and construction in the past, but green energy production and a cheap labour market can return it to prosperity. It also has a large South American market and an affinity with the newly wealthy Chinese, unique in Europe.
Could it be that it relied on wealthy northern Europeans to bring temporary prosperity with their house purchases on the coast, and (Spain) is now realising its mistake and turning elsewhere? Maybe that’s why the Spanish aren’t too bothered about demolitions and the other injustices we complain about
Could they be glad to see the back of us?
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Just speaking personally but for some time now I’ve held the view that many of the large Spanish banks are not as healthy as they are letting on.
Santander may be the exception. They were the only one of the consortium (With Fortis and RBS) who bought out the Dutch bank ABN Amro that haven’t needed taxpayer support. The assets they were particularly after in that aquisition, particularly Banco Real in South America, have actually performed well. They also picked up some significant bargains in the UK and elsewhere at the height of the crisis and are now a truly global organisation. As such their exposure to an undoubtedly dire Spanish property sector is now relatively small in relation to their worldwide assets.
As for the others, I remain very sceptical about their solvency. In other world markets with property bubbles such as that in Spain we have seen significant bank failures. Given the scale of the problems in Spain I find in inconcievable that there are not skeletons waiting to jump out of the closet. Yes, the bank of Spain is doing all it can to assist them but in the end this will be too big for them to muddle through as the managed in the 90’s. This downturn is much steeper and the exposure to bad debts much greater.
Something just doesn’t smell right. I’m with Logan that we are likely to see a significant failure although I feel that may not come until 2011.
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@Rocker wrote:
the Bank of Spain is more conservative and secretive, leading to the endless speculation of financial disaster just around the corner.
I agree but Spain also has a high level of systemic corruption in public life, a culture of paternalism and back scratching. In a modern liberal democracy secretive and clandestine activity creates suspicion and lack of trust.
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@logan wrote:
Spanish banks have been publically very successful at navigating the financial storm of this recession. However I do believe the true extent of their problems has yet to be revealed. Like icebergs most of it lies underneath. The country itself continues to borrow massively on world markets without a clue of the long term consequences. A €17 billion infrastructure project is about to get under way to try and halt/disguise the unemployment figures and the true state of the economy.
I see a Greek style disaster waiting to happen.The Spanish banks will be caught out, its inevitable.
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I would say that half the banking system is technically insolvent, mainly the cajas. But thanks to help from the Bank of Spain with looser accounting rules, and liquidity from the ECB, they limp on like Zombies. This can carry on for some time.
I’m helping investors looking at distressed debt opportunities so I’m taking a closer look at this issue than most.
The market price (if there is even a market for some of their assets) is way below loan values, but thanks to accounting regulations lenders do not have to recognise the full loss.
As a result, discounts for distressed mortgage debt are not yet interesting for investors. There are few deals being done.
This will change. They can’t hold out forever, and I don’t believe a recovery will come to their rescue like last time.
If/when a deal is done there will be some fantastic repos to be had. Properly interesting prices.
Mark
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Although I will not argue about the state of the spanish banks. In regards to the Cajas I would look at who controls/owns them before making any judgements. In several cases there are very large international institutions backing them.
Also in many cases with the Cajas they have become such institutions in their respective regions with so many stakeholders that they will not be allowed to fail. In the worst cases, (forced) mergers will be implemented.
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@mark wrote:
I’m also being contacted by an increasing number of big hedge funds based in London and NY trying to understand the property market situation in Spain. This market is getting a lot of attention.
And attention for all the right reasons one supposes.
Because where there has been such a fall, and such exposure, there are very ripe pickings to be had?
Because they look to the mid and long term and see what exactly?
Success and growth one presumes, and not too far off otherwise they would be off to Poland or some such place.
Perhaps the BOS know’s its onions at the end of the day.
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@mark wrote:
I would say that half the banking system is technically insolvent, mainly the cajas. But thanks to help from the Bank of Spain with looser accounting rules, and liquidity from the ECB, they limp on like Zombies. This can carry on for some time.
I’m helping investors looking at distressed debt opportunities so I’m taking a closer look at this issue than most.
The market price (if there is even a market for some of their assets) is way below loan values, but thanks to accounting regulations lenders do not have to recognise the full loss.
As a result, discounts for distressed mortgage debt are not yet interesting for investors. There are few deals being done.
This will change. They can’t hold out forever, and I don’t believe a recovery will come to their rescue like last time.
If/when a deal is done there will be some fantastic repos to be had. Properly interesting prices.
Mark
Absolutely on the money as usual Mark.
When you approach Spanish banks as I have done they will offer you two classes of property. Those which are in an NPA and those where repossession from individuals has been completed. It is the property in the latter category they are anxious to sell.
These properties have been reduced from their original selling price because the previous owner has taken the hit. The bank simply want to clear their mortgage liability. So you can effectively buy it for the money lent. That does not mean the property is worth that amount. On the contrary the selling price simply represents the mortgage valuation at the time of original purchase which could be up to around five years ago and around 60-80% of the selling price then..
The mass of property contained in NPA’s represents the property repoed from the developer. In most cases they have a builders mortgage anyway. In most cases the developers owe far more for golf course, infrastucture and land costs.
These properties in NPA’s are not reduced by very much from the original price. I personally have made offers on a number of such properties which is always declined. I did that because they are usually the best examples of property available which the developer could not sell before the crash.
The banks are not really interested in selling property contained in NPA’s. They want rid of the second generation repossessions first which are sitting on their visible asset base on balance sheets. At the moment they believe they can do that by offering crazy mortgage terms to young Spanish families who still have a job. I have suggested before that developments designed for leisure we end up residential and occupied by Spanish families. Nothing wrong with that.
Until the banks open the flood gates, put their hands up and admit mia culpa nothing will change. The problem is that’s the last thing the Spanish government and the ECB want right now. So they will likely continuing propping them up and covering their losses
They are hoping they can hold out until the upturn comes and will then be sitting pretty, able to sell off masses of property at silly money and recover their investments.
Let them dream on. 🙁 -
I’ve watched a strange British estate agent opening what appears to be a large operation in an area where most other agents have closed down over the past two years. Most of their large portfolio consists of distressed sales from one Spanish bank very active in the local area.
The deals are incredible, on the surface, with 100% mortgages the norm, from the same bank. But these are not poor value Spanish apartments in undesirable locations, these are ‘proper’ houses from British owners in desirable areas, still on offer with ridiculous mortgages and often with practically no deposits. Needless to say, buyers are queuing at their door.
They’re operating a system from the dark ages, with both sellers and buyers paying commission, the buyers being persuaded to pay cash for their discounted deals, to get even bigger discounts, allegedly.
When such a cash sum is paid, the mortgage package is guaranteed.
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